The Story of Straw Hat Pizza: Franchise Review and Fees

Straw Hat Pizza

Hi! I’m Scott Mason, the Head of Operations for the Straw Hat Pizza chain.  I didn’t start the business but I grew up going to Straw Hat Pizza and I have always loved our pizza.  My grandfather used to take me there as a kid back in the 1970s. I’ve been with Straw Hat Pizza for nearly 11 years and in my current role for a little over two years.  For those not familiar with Straw Hat Pizza, it is a regional chain with our headquarters in San Ramon, CA. We have locations in California and Nevada. We offer our “Genuine California Pizza” and are what most people think of when they picture a traditional pizzeria.  Most of our locations are around 3000 sq ft or a little larger and offer various types of entertainment in addition to the great food. 

The Straw Hat Pizza Brand has always provided the communities we serve a great place to take the family to get great food in a comfortable environment.  The main differentiator between us and our competition is the entertainment factor. Since the chain was founded, many of the locations have provided live entertainment.  In the 1960’s it was banjo bands. Today it is UFC fights, sporting events, and karaoke. These seem very different, but at the core it provides families the entertainment they are seeking.  

Another unique feature about the chain is we have all franchised locations.  Personally this makes my role very simple as I am focused on franchise success.  If you franchise locations and want to have a healthy brand this is imperative. We make decisions that will positively impact the bottom line of our franchises.  If their business is healthy, so is the brand. We also do all we can to keep up with or ahead of the trends in the marketplace. Smaller chains or independents have one advantage over the larger chains in they can react quickly to changes in the market.  It is much simpler for us to bring in a new item and market it. 

Table of Contents:

Company Overview

  • Founded: 1959
  • Franchising Since: 1961
  • Number of Existing Locations: 23
  • Total Initial Investment: $346,500 to $825,000
  • Initial Franchise Fee: $30,000
  • Ongoing Royalty Fee: 4%
  • Ad Royalty Fee: 1% to Marketing Fund and 2% spent locally
  • Net Worth Minimum: $500,000 with $250,000 liquid
  • Agreement Length: 10 years

What’s your backstory?

Straw Hat Pizza was founded in 1959 by Charlie Olsen and Bill Henderlong.  They had been working at a competitor learning the business. They decided they could do it better by providing a better pizza and more focus on families. 

They opened the first Straw Hat Pizza in San Leandro, CA, a city near San Francisco about 10 miles south of Oakland.. The name was picked because the competing brand had their employees wear straw hats so it was a way to convey to the customers what style of pizza they could expect.  The brand was originally named “Straw Hat Pizza Supreme”.

The original Straw Hat Pizza Location.

To attract customers and grow the business, they brought in live music.  They also brought in a coin operated horse ride which they let the kids ride for free.  They named it Charlie Horse, after the founder that came up with the idea. For those in the restaurant business, many times kids have a lot of say about where the family eats.  The Charlie Horse gave the true decision makers a reason to come back.

Straw Hat Pizza did incredibly well and was able to expand.  By 1968 it had grown to 20 locations. However, in 1969, the founders decided to sell the chain to the Saga Corporation.  Fueled by the Saga Corporation, Straw Hat Pizza grew to 230 stores by 1980. This made Straw Hat Pizza the largest chain on the West Coast at the time.  

In 1986 Marriott purchased the Saga Corporation, but it was primarily for the School Food Service business.  They chose to sell all the Corporate Straw Hat Pizza locations to Pizza Hut to convert to their brand. Of course they assumed all the franchise owners would switch over as well, but they all loved the brand and products so they fought in court to keep the trademarks and recipes. 

The remaining 81 locations formed the “Straw Hat Cooperative Corporation”. Straw Hat Pizza operated under the cooperative model until 2011. This gave individual store owners a large say in the running and direction of the company. Unfortunately, this ownership model didn’t show the success they hoped for and the number of locations dwindled. 

In 2009, the Coop created a franchise company Straw Hat Restaurants, Inc. to move to a franchise model. In 2011 the cooperative was dissolved and the remaining members became franchise owners.  

All restaurant brands have their own culture and Straw Hat Pizza today is still heavily influenced by the time as a cooperative.  We have lower royalties and marketing fees than our competitors and are run by a Board of Directors that are all current or former Straw Hat Pizza owners. 

They make decisions in the best interest of the franchise owners. In 2017 and 2018 we had 4.7% and 8.5% same store sales growth (respectively.) The brand is stronger than ever and we are excited for what the future holds.

Straw Hat Pizza Location.

Tell us about your menu and customer offerings.

Of course, running a pizza chain is all about offering a great pizza!  For the most part, our product is unchanged even after 60 years. Our “Genuine California Pizza” is what most think of as California Style or West Coast Style Pizza. 

The dough is made fresh in the store daily. It is rolled rather than tossed which results in a thinner crust, but one with layers and texture. The sauce is not as sweet as other styles of pizza, but instead has a great tangy flavor.  We use fresh tomatoes in making our sauce – they never comes out of a can.

The cheese we use is a blend, not just mozzarella. This enhances the flavor of the pizza. We have a number of combination pizzas which we refer to as “Master Pizzas”  (Masterpieces) the most popular is our “The Works” pizza.

In addition to our traditional pizza, we have been offering Gluten Free pizza for over 10 years. Last year we introduced a Vegan menu and this year we added Cauliflower crust which is selling incredibly well. 

The Works Pizza.

Surprisingly our second biggest category is appetizers.  We sell a variety of great appetizers including our Groovy Twists, Wings, Potato Wedges, and Green Bean Crispers to name just a few.  Our stores all showcase a fresh self serve Salad Bar and we also have our proprietary Hot Hat™ sandwiches.

We do our best to source as locally as possible.  All franchise owners are encouraged to work with local produce companies.  We choose only quality ingredients for our products.

One example is our pizza sauce is fresh packed and made with vine ripened tomatoes from a manufacturing plant based in the central valley of California. 

We use our buying power to work with manufacturers to get great pricing for our franchise owners. Straw Hat Pizza is definitely a family restaurant and we want our customers to feel good about the food they receive from us.

You can taste the difference with locally sourced ingredients.

What makes this opportunity unique?

The truly unique thing about Straw Hat Pizza is our franchise focused culture.  I look at other chains and what they charge in fees – royalty, marketing, etc. – and wonder what is left over for the operator at the end of the day. 

As a franchisor, we want to grow our revenue by more stores and improved sales, not by collecting more than absolutely needed from our franchise owners.  This is all part of our culture and having a Board of Directors that also own locations. Show me any other chain where you only pay 4% in royalties!

Another difference from other chains is our philosophy around marketing.  We collect a very small amount for the central marketing fund. The main reason being that each store owner gets to decide where it is best to spend their marketing dollars in their trade area. 

The downside, if any, is we don’t currently advertise on TV or Radio. But, we feel if the operators put that extra money into marketing their store in the long run they will do better. 

Inside a Straw Hat Pizza Restaurant.

Of course being around 60 years we have excellent systems, training and support.  But, really, when you look at the pizza space as a whole, where we stand out is by providing a great experience in the stores with a focus on entertainment as well as the great product.

What does the future of the business look like?

We are excited to say we have just come off two years of solid same store sales growth.  We had 4.7% growth in 2017 followed by an even better 2018 with 8.5% growth.

Some of this has been driven by taking advantage of the third party ordering and delivery trend.  In the last five years delivery has doubled as a percentage of our overall sales.

We feel all our owners should sign up for every service that has their own portal they promote.  If they get even small amounts of incremental sales each month from them it helps.

The stores that have lead the pack in sales growth are the ones that have added more televisions and  hold pay-per-view events like the UFC fights. Some also have live music.

With the majority of our business being dine in, this has an impact.  Those families that try us during an event come back at other times. If we have done our job well they also tell their friends.

Packed house for a sporting event.

Since we have stores primarily in California, the biggest challenge we have in growing stores is Real Estate.  With all the Blazes, Pieologies and Mod Pizzas in the market, they have taken up a lot of potential sites.

We are happy for their success as they operate in a different segment, but it definitely makes finding a shopping center without a pizzeria more challenging.  Also, the run up in real estate prices doesn’t always make it viable for restaurants.

With minimum wage going up in California we expect there to be some opportunities to find sites where competitors have closed. Second generation restaurant sites save $100,000s of dollars in the cost to build out a restaurant. For the moment we are waiting for this so we can find good deals for expansion in the market. 

We currently have a number of our existing owners that are excited about adding additional locations as soon as they can find an appropriate site.  

What does a typical day look like for a franchisee?

Almost all of our owners are hands on operators in their business.  During lunch or dinner they are in their business helping their employees take care of guests and make sure everything is running smoothly. 

In the down times they work to promote their business via social media and other means. As all good restaurant operators know, being profitable is all about controlling labor.  This has been the shift in the restaurant industry in the last few years since labor is now as high or higher than food cost.  

One thing nice about the pizza segment is it tends to be easier to find employees and turnover is lower than other types of restaurants.  Even with historically low unemployment, the vast majority of our owners haven’t had challenges finding good employees.  

Happy staff = Happy customers.

But, really, the great part about pizza is it’s so much fun!  Our stores host a lot of parties and providing a place where families can enjoy themselves is very rewarding.  

Three cheers for quality pizza!

How much can you realistically expect to make?

Before I get into numbers, I would like to remind your readers they should never move forward on a business opportunity without putting together their own business plan.  This is the biggest mistake I see new operators make. Your due diligence should provide the details to see if it is a great opportunity for you. Profit should be a plan not a surprise. 

In terms of top line sales, in 2018 the average store in our system did $543,539 in sales.  The highest was $1,113,837 and the lowest was $285,579. This is for a traditional Straw Hat Pizza which is the majority of our locations.  We also have a grill concept in one location that did over $2,500,000 but it is unique since it is located in a casino.  

We do not collect enough data from our franchise owners to legally disclose food cost and labor, but should someone be interested in learning more about them I can set them up to talk with an owner near them that can share their specific numbers and results. 

What training programs are in place to help franchisees succeed?

Training for a new franchisee falls into three parts.

First, we provide ongoing support and help as soon as they sign with us.  This includes working with them on finding a site, helping them with site plans, and doing all of the other things to help get them through construction and ready to open.  When they get through with construction we work with them to hire and train their team, then stay on site with them during their first week of operation.  

In the lead up to opening, they attend our hands on training at one of our two training stores (N. CA or S. CA).  The training lasts for three weeks and is taught by an experienced owner and our field team. It covers all the details they need to learn the business and be ready to open their store.  This includes all the details about making our products, computer systems, and management processes.  

Finally, after they are open and operating, we provide ongoing operations and marketing support.  They can expect to see their franchise rep frequently at first and tapering off as they become experienced.  Help is always just a phone call away, 24/7.  

What are the characteristics of successful franchisees?

Really, the two biggest keys to success for franchisees are a focus on great customer service and balancing that with the financials.  Every day you will interact with customers and you have to care about making sure they get a great product and experience.

Our franchise owners that stand out are the ones that know their customers by name and make them feel welcome in their Straw Hat Pizza.  

Since Straw Hat Pizza does additionally provide entertainment and events at our locations, having something an owner feels excited to do helps.  Showing UFC fights isn’t for everyone. But there are tons of other great event ideas to bring in customers and grow your business.  

Our internal statistics show it doesn’t make a difference whether a potential franchise owner has restaurant experience or not.  More important are things like location, area demographics, and specific features of the location such as having a party room.

Where can we go to learn more?

About Support Staff

Brett Lindenberg is the founder of Food Truck Empire and Food Empire Pro. Brett's mission is help to entrepreneurs start and grow profitable food businesses. Since 2014, Brett has interviewed over 100 entrepreneurs on the Food Empire Pro podcast and written hundreds of blog posts on all aspects of food business. Brett has been quoted in media outlets like Entrepreneur Magazine, CNBC, and The Washington Post.