Taco John's cuts royalty rates for new units

Chain joins other brands in offering incentives for franchisees

Taco John’s is joining other restaurant chains, including Papa John's and Pizza Inn, in building up its franchise system through development incentives.

The Cheyenne, Wyo.-based “West-Mex” brand with more than 415 restaurants in 25 states said Wednesday it would waive royalties for qualifying new franchised locations — those with agreements signed before March 31, 2011, and that open before the end of next year — during the first 12 months of operation. The royalty rate would be 2 percent of sales during the next year before rising to the standard 4-percent rate, Taco John’s said.

“It will make a big difference for those who are torn between investing in a new Taco John’s restaurant and holding back for fear the economy will continue to struggle,” said Brett Miller, Taco John’s vice president of development. “Our goal is to find qualified new franchisees and help them get off the ground with a little extra breathing room.”

Taco John’s also will refund the $5,000 franchise fee if new operators meet development requirements.

Several other brands have offered incentives for current or prospective franchisees to open more units, including Papa John’s, Pizza Inn and Pita Pit.

Papa John’s, which began franchise development incentives last year with waived franchise fees and royalties, plus a bonus for opening units ahead of schedule, continued its program this year and also offered to purchase two pizza ovens for new franchisees.

Pizza Inn recently announced a reduction in royalties similar to those of Taco John’s. New Pizza Inn franchisees who qualify pay no royalties in the first year, 2 percent in the second, and the standard 4 percent from then on.

Pita Pit is seeking to entice new franchisees with a cut in its franchise fee, from $25,000 to $20,000 for new franchisees and $15,000 for operators already in its system. It has cut its royalty rates from the standard 6 percent to 4 percent in the first year and 5 percent in the second. Huddle House also lowered its franchisee fee, from $25,000 to $5,000, and deferred royalty payments for the first five months.

Miller of Taco John’s pointed out that new restaurants positively impact the economies of local communities, particularly rural towns where many of Taco John’s units are located.

“New restaurants put people to work,” he said. “They often improve neighborhoods by replacing old buildings are remodeling existing ones. Each Taco John’s restaurant that opens brings construction, accounting, delivery and support services jobs, and that’s not even counting the jobs that are created when hiring all the employees who run the restaurant.”

Contact Mark Brandau at [email protected] [3].