Pizza Inn Cuts Royalties That Franchisees Pay

Associated Press, 01.14.09, 04:24 PM EST

Pizza Inn Inc. is offering to charge new and existing franchisees lower royalty rates to entice more to open the company’s buffet-style restaurants amid a credit crunch.

The Dallas-based chain said Wednesday it will charge franchisees a zero percent royalty for their first year of operation and 2 percent the second year. The royalty rate for the rest of the franchise agreement will be at Pizza Inn (nasdaq: PZZI news people )’s standard 4 percent.

The company said the program is designed to “ease startup costs” during the first two years of a restaurant’s operation.

Pizza Inn also said the rate cut is meant to encourage franchisees hesitant to delve into a new agreement given the tight market for credit to buy or open a new location.

The resulting crunch has led restaurant companies to try a variety of strategies to both help existing franchisees caught without access to credit and encourage others to enter the business.

Papa John’s International Inc. (nasdaq: PZZA news people ), for example, has offered to provide loans and has offered some royalty rate relief to its franchisees so they can buy more troubled franchise competitors.

Besides buffet-style restaurants, the company also operates locations focused only on delivery and carryout locations and express locations, which are usually located in airports, convenience stores and college campuses.

The buffet-style restaurants are typically the most expensive to operate since they are larger and require the most inventory. Franchisees pay a bigger franchisee fee to operate those locations.

Pizza Inn said to qualify for the lower royalty rates, signed contracts and fees must be received by June 30.

Pizza Inn shares closed Wednesday at $1.15, down 20 cents, or 14.8 percent.