Rising, Once Again

Four years after buying back their regional pizza chain from McDonald's Corp., the Grote family is back on a path to make Donatos a major player in pies

(Monday, January 07, 2008) - Donatos Pizza is 45 years old but is acting like a startup company.
Four years past its breakup with McDonald's Corp., the chain that began with a single South Side shop in 1963 is full of new plans and goals.
The company recently brokered its largest franchise agreement, for 64 stores in North Carolina and South Carolina. This year, it will begin an aggressive campaign to remodel existing stores with a new look. And the Columbus-based company expects to build 15 to 20 restaurants in 2008.
It's a big change for a company that wasn't profitable when it parted ways with the burger colossus in December 2003.
"I think, right now, we're standing on the edge of a new beginning," said Jane Grote Abell, who took over the Donatos presidency last year. Her father, company founder Jim Grote, remains chairman and chief executive. Donatos, privately held with annual sales of $174 million in 2006, employs about 5,800 people.
When McDonald's bought Donatos in 1999, the pizza company had about 150 restaurants. Grote aspired to build it into a national chain with annual sales of $1 billion or more. He thought McDonald's would have the clout and cash to achieve those goals, and he sold Donatos for a sum that has not been disclosed.
But the pairing never went as planned. Donatos added dozens of restaurants under McDonald's tutelage, then scaled back when units in one of the new markets, Atlanta, didn't meet expectations.
Grote also was concerned about an overreliance on focus groups, which Donatos began to use extensively under McDonald's ownership.
The problem, he said, was that focus groups provide revelations about only what customers already have seen. He wanted to expand the business based on things customers might not even know they want.
Donatos' growth was creating losses at the same time that McDonald's burger business was slipping. McDonald's eventually decided to rid itself of the pizza company and concentrate on its core business, saying it would focus on "doing fewer things better."
Grote bought back Donatos, although he declines to say for how much. "(W)e got it without a big bank debt," he has said in the past. Forbes magazine reported that the sale price was about $50 million and said that was half of what McDonald's had paid for Donatos.
Grote doesn't harbor any ill will. "I can't say enough good things about McDonald's." He calls the experience phenomenal and compares it to getting a master's degree in restaurant operations.
Still, McDonald's "was a corporate environment."
"There's a lot of bigness that we weren't used to," he said.
He wanted to get back to basics after the buyback, including rethinking the larger restaurants that the company was building during the McDonald's era.
Donatos now is converting its stores to a new look, based on a prototype restaurant that features an open kitchen and smaller dining area. The open kitchen allows employees to greet customers right away.
That relationship with customers is a key part of Donatos' culture, which the Grotes felt became obscured under McDonald's ownership. Abell says the company "lost our identity" with consumers and employees.
"We learned a lot from the McDonald's days," Abell said.
Donatos came to understand its "core differentiating points," Abell said, such as focusing on product quality and knowing what consumers want in terms of service and hospitality. Grote always emphasized consistent product quality, and the company operates its own bakery to supply products and maintain those standards.
The company also learned practical lessons about training employees -- by tapping into expertise and the famed Hamburger University -- and improving efficiency at the drive-up window.
And the company, now with 175 restaurants in six states, has become more cautious in assessing its future. In the past, it wasn't uncommon for Donatos executives to say they envisioned 1,200 stores nationally.
Now, "The thing we don't want to do is lay out a number that's too small or too great," said Tom Krouse, chief concept and strategy officer.
What he will say is that the "focus is to be a very strong regional player within the next five years." Donatos wants to enter 10 or more new markets east of the Mississippi by 2013.
That's not a pizza-pie-in-the-sky vision, said Dennis Lombardi, executive vice president of WD Partners, a Dublin retail consulting firm.
"I think they have good growth potential, constrained by the fact that they're in a very mature and competitive segment of the industry called pizza."
Going into new markets requires carefully selecting new sites and ensuring that the product is "not so far off from what the locals think of as good pizza," Lombardi said.
Donatos is investing in research and development, which could aid in that effort.
The company is finalizing a list of the top 10 markets to tap, including Florida, Nashville, Tenn., and Alabama, which already has three Donatos. When looking for new markets, Donatos considers income and demographics, as well as other factors, Krouse said.
Donatos also has changed its strategy to grow through franchising. About three-quarters of its restaurants are owned by the company, but Donatos hopes to reverse that within 10 years and have the majority of its stores owned by franchisees.
The company is focused on finding the right people for the job. The franchisee group opening the North Carolina and South Carolina stores, Piedmont Pizzeria, includes former Wendy's International executive Joe Drury, who is now chairman and chief executive of Bojangles' Restaurants Inc. Another new franchisee is Roger Howard, who has worked for Donatos for more than three decades.
"Their move to franchising is the right approach," said Ron Paul, president of Technomic, a Chicago restaurant and food research firm.
The company needs local management that understands local markets, he said.
Take-and-bake pizzas are another growth area, and Donatos plans to expand its partnership with Kroger "very aggressively," Krouse said.
Grote, in addition to his leadership roles, works closely with product and menu development.
Times have changed in the restaurant industry, Grote said. It used to be that if you sold a good product, "people would beat down your door for it."
"Now, a good product is absolutely taken for granted. It's required."
The focus has shifted to customer experience, he said. That's part of the reason he handed over the reins to his daughter.
"That's where it's headed and it needs to be seen through the eyes of this generation."
And this generation hasn't lost the drive that Grote brought to the business. Just ask Abell if one of the goals is for Donatos to be a national chain.
Without hesitating, she answers: "Global."

View all Donatos Pizzeria Press Releases

This article has been read 132 times.

Printer Friendly