Should You Invest in a Huddle House Franchise? Costs & Profits

Another big contender among Southern cuisine franchises, along with Texas Roadhouse, Bojangles and even Zaxby’s, Huddle House is a popular name among franchisees.

Yet, investing in a Huddle House franchise raises some serious questions. Especially when it comes to the profitability of the restaurants themselves.

Indeed, if you were to buy a Huddle House franchise you would pay close to $989,000 on average yet annual turnover is only $712,000.

So should you invest in a Huddle House franchise? Is this a profitable business? We’ll tell you everything you should know in this article by looking at the latest Franchise Disclosure Document. Let’s find out!

Huddle House: key figures

Franchise fee	$35,000
Royalty fee	4.8%
Marketing fee	4.0%
Investment (mid-point)	$989,000
Average sales	$712,000
Sales to investment ratio	0.7x
Payback period*	9 years
Minimum net worth	$600,000
Minimum liquid capital	$300,000

Huddle House: a brief introduction

Huddle House is an American casual dining chain synonymous with Southern hospitality. It was founded in 1964 by John Sparks in Decatur, Georgia, and its concept is a 24-hour eatery.

The brand offers a variety of breakfast, lunch, and dinner offerings, such as waffles, bacon, southern chicken, mashed potatoes, prime ribs, and specialty burgers.

It began franchising in 1966 and today has more than 300 locations in the US and is owned by Ascent Hospitality Management, headquartered in Atlanta, Georgia.

Huddle House franchise: pros and cons

Pros

• Solid support: Huddle House gives franchisees helpful and fundamental support and resources to develop and manage their restaurants successfully. Franchisees benefit from the brand’s proven concept, professional leadership advice, and network of successful franchise owners who have excelled in other locations, ongoing analysis, and operations reviews.
• Real estate and construction: The brand provides franchisees with valuable real estate expert support in establishing their restaurants. Franchisees get site selection help to identify the most convenient location in terms of traffic and future growth. It also helps them with lease negotiations and construction designs, so that they can incur the lowest costs.
• Management and team training: Huddle House provides quality management and team training to help franchisees establish and build successful restaurants. It equips its franchisees with the necessary culinary skills, business procedures, customer service, inventory handling, staff management, and best restaurant operations.
• Quality supply chain: The brand embraces an online, in-house supply chain. Franchisees can get all the supplies from a controlled distribution channel that maintains quality and efficiency. Also, franchisees can save on restaurant items such as food, uniforms, dishes, etc.
• Exclusive territory protection: Huddle House allows its franchisees an exclusive development market to establish and run their restaurants. The brand does not establish competitive brands or grant other franchises in the protected territory during the franchise terms.
• Flexible building options: The brand provides franchisees with different franchise options so that they can fit in any market and enjoy the best available real estate opportunities. Franchisees have flexibility such as freestanding, endcaps, interstate travel center locations, or blended locations that are also strategically located in hotels, convenience stores, and casinos.

Cons

• Not a passive investment: Huddle House does not provide its franchisees with absentee ownership opportunities. The franchisor requires the franchisees to be fully active in the day-to-day operations of the restaurant.
• No financing: The brand does not directly or indirectly finance its franchisees for franchise costs such as start-up, inventory, and equipment.
• Not a mobile unit: The franchise cannot be operated from a mobile unit or home. The franchisor requires its franchisees to have an office facility near the restaurants.

How much does a Huddle House franchise cost?

You may need to invest around $988,743 to open a Huddle House restaurant.

The investment amount is an average for both traditional and non-traditional restaurants. Indeed, the amount you would have to invest (from your own funds, investors or a loan) will vary based on factors like your location, restaurant size, etc. According to the latest Franchise Disclosure Document, the investment required is:

• Traditional restaurant: $576,310 to $1,421,175
• Non-traditional restaurant: $556,310 to $1,401,175

What are you paying for?

The investment amount covers all types of startup cost you would need to open a restaurant. Some of these expenses are payable to the franchisor and the others are to third parties.

In addition to the initial franchise fee of $35,000, you would also pay for:

• Formation costs: training fee, improvements, equipment & seating, signs & décor, site engineering, MEP drawings, POS system, back office software, security deposit, and other miscellaneous opening costs.
• Initial marketing: grand opening promotion costs
• Operating costs: first 3 months rent, opening inventory, uniforms, and first 3 months working capital

Type of cost	Low	High
Initial Franchise Fee	$35,000	$35,000
Formation Costs	$443,310	$1,250,175
Initial Marketing	$3,000	$5,000
Operating Costs	$95,000	$131,000
Total	$576,310	$1,421,175

What’s the turnover of a Huddle House restaurant?

On average, a Huddle House franchise makes $712,428 in sales per year. This is the annual median sales of 234 franchised restaurants operating in the 2021 fiscal year.

Most of the restaurants generate an annual revenue between $400,000 to $1.1 million (80% of restaurants generate an annual turnover over $400,000 and 40% over $700,000).

How profitable is a Huddle House restaurant?

We estimate that an average Huddle House franchise makes $190,379 in profits per year. This represents a 27% profit margin (adjusted EBITDA margin to be exact).

The 27% adjusted EBITDA margin is in line compared to similar franchises as per our intelligence (~25-27% industry average). 

Note that Huddle House doesn’t disclose any financial information regarding  costs. Indeed, we had to use the industry average for COGS (25% sales) and labor costs (29%) to estimate Huddle House’s profit margin.

Profit-and-loss	Amount	% sales
Sales	$712,428	100%
COGS	$(178,107)	25.0%*
Labor	$(206,604)	29.0%*
Rent	$(75,000)	10.5%
Royalty + marketing fees	$(62,337)	8.8%
Adjusted EBITDA	$190,379	~27%

Is a Huddle House franchise a good investment?

If you want to understand whether you should really invest the required initial investment of $988,743 to open a new Huddle House franchised restaurant, you must compare it to the future profits.

For profits here we’re using net profits (after all expenses have been paid for). Assuming a 15% net profit margin, we calculated it would take on average 9.3 years for you to reimburse your investment. Keep in mind your investment can be either from own funds, investors or a loan from a bank (e.g. a SBA loan).

Unfortunately, 9 years isn’t the best payback period for a franchise. Indeed, we found the average is around 5 to 6 years, and anything below 4 years is excellent.

Does this mean you shouldn’t buy a Huddle House franchise? Not necessarily, for 2 reasons.

First, these numbers are based on the average performance of all Huddle House restaurants as per the Franchise Disclosure Document: in other words your restaurant can perform better. Second, financials shouldn’t be the only criteria in your decision. Instead, you should look at other factors like the franchisor’s training and support, the competition, etc.

How does it compare vs. other franchises?