IHOP
IHOP offers full-service restaurants featuring pancakes and a diverse menu of breakfast, lunch, and dinner items. Known for its iconic 'IHOP' pancakes, it operates in the casual dining restaurant industry.
About IHOP
International House of Pancakes, LLC is an American multinational pancake house restaurant chain that specializes in American breakfast foods. It is owned by Dine Brands—a company formed after IHOP's purchase of Applebee's, with 99% of the restaurants run by independent franchisees.
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IHOP franchise FAQ
How much does it cost to open one — the total initial investment?
The total initial investment necessary to begin operation of an IHOP franchise ranges from $1,741,798 to $4,496,865 for different types of prototypes as specified in [p.35]. This range includes costs such as the Development Agreement, equipment and fixtures, payroll, utilities, attorneys' fees, and other initial operating expenses over a three-month period without any income.
What is the initial franchise fee?
The initial franchise fee for each restaurant opened in the Development Area is $40,000.00 [p.301].
What are the ongoing royalty and advertising fees?
Ongoing royalty and advertising fees are based on a percentage of the franchisee's gross sales, as defined in the franchise agreement. These fees are recognized when the franchisee's reported sales occur, potentially resulting in accounts receivable on the balance sheet depending on the timing within a fiscal period [p.206, p.239]. Additionally, each week during the term of the franchise, an advertising expenditure fee not exceeding 3.5% of the gross sales must be paid, which covers both national and local advertising fees as determined annually by the franchisor [p.124].
How long is the initial franchise agreement, and can I renew it?
The initial term of the franchise agreement is not specified in the excerpts. However, you may have the option to renew your right to operate the restaurant through a Special Renewal Term, General Renewal Term, or other options detailed in your existing franchise agreement [p.20]. If these terms are exhausted, under certain conditions, you might be offered a new franchise agreement for an initial term of 10 years with no further renewal rights, or potentially up to 30 years including renewal options [p.20].
Can I sell or transfer my franchise, and what does that require?
According to the FDD, you can sell, assign, transfer, or convey your interest in the franchise. However, if you do so, the holder of this note may declare it immediately due and payable without notice [p.339]. Additionally, under certain circumstances involving a Multi-Store Development Agreement, you must sell, transfer, or assign your interest in all Restaurants to the same franchisee if you choose to sell one of them [p.11]. This also applies if there is a Material Breach under the Franchise Agreement for one of the Restaurants, which would then be considered a Material Breach for all Restaurants [p.11].
On what grounds can the franchisor terminate the agreement?
The franchisor can terminate the franchise agreement if the franchisee defaults under any term of the franchise agreement [p.364]. Additionally, the franchisor may change its business model and require additional investments from the franchisee, which could lead to termination if not complied with [p.4]. This isn't specified in the excerpts for other explicit grounds by which the franchisor can terminate the agreement.
What financial requirements — net worth and liquid capital — do I need to qualify?
This isn't specified in the excerpts.
Do I get an exclusive or protected territory?
No, you do not receive an exclusive territory. You may face competition from other franchisees, outlets owned by the company, or other channels of distribution or competitive brands controlled by the company [p.54]. However, under the Single Store Development Program, you are granted a Franchised Area around your specific Restaurant location where IHOP will not own, operate, franchise or license another Traditional Venue IHOP Restaurant, though this area's size and shape can vary significantly based on various factors [p.55].
What training and ongoing support does the franchisor provide?
The franchisor provides initial opening training support which can include up to three weeks of training support and operational assistance, with a potential fee of up to $55,000 based on the number of trainers needed. This support is generally allocated between one week before opening and two weeks after. For point-of-sale (POS) setup, training, and support for new restaurant openings, fees can range from $9,000 for the first three locations with onsite implementation to $3,500 for remote support starting from the fourth location. Ongoing support is highly interrelated with the franchise license and considered part of a single performance obligation. [p.131, p.20]
How many franchised outlets are there, and how many have closed or been terminated?
This isn't specified in the excerpts.
Does the franchisor share any financial performance or earnings information?
The franchisor may provide actual records of an existing outlet if you are purchasing one. However, they do not make any financial performance representations about a franchisee's future financial performance or the past financial performance of company-owned or franchised outlets, except for providing unaudited gross sales data upon reasonable request [p.67]. This isn't specified in the excerpts for ongoing earnings information beyond this context.
What am I restricted to selling, and where must I buy supplies?
You are required to offer all items and products designated as required by IHOP for sale at the restaurant [p.59]. You may have to buy or lease certain items from the franchisor or a limited group of suppliers designated by them, which might be more expensive than other options [p.4].