Zpizza Eyes Larger Slice Of Segment With Franchising Deals

Wednesday, February 08, 2006

Growth is on the menu for ZPizza, a 19-unit chain getting ready to slice further into the pizza segment with a little help from franchise sales agent Fransmart co-founder Chris Bright. To accommodate the growth, Fransmart, based in Alexandria, Va., recently hired industry veteran Rick DeMarco as its chief operating officer, the first of several proposed executive hires to support franchisees. Fransmart cofounder and ZPizza managing director Dan Rowe also indicated that the franchising agent is readying a West Coast office to open near ZPizza's Newport Beach headquarters by September, he said. Rowe, a computer software specialist, and Bright, an accountant trained in business valuation, have rolled out about 30 franchised sites for the eight brands under their belts, Rowe said, including nine ZPizza locations, with two more in development. Before joining ZPizza in 1999, the two built out franchise territories for Chesapeake Bagel Bakery, now a division of New World Restaurant Group, and Qdoba Mexican Grill, acquired by Jack in the Box earlier this year. Both partners own stakes in ZPizza. Meanwhile, ZPizza, the chain founded by entrepeneur Sid Fanarof in 1987 in Laguna Beach, Calif., is rolling ahead with its strategy to convert from a company-store operation to a predominately-franchised system. Bright said ZPizza president Fanarof remained the concept visionary, with his caricature becoming the company "spokesman." After Bright and Rowe spent their first three years at ZPizza streamlining systems, building four company stores and polishing a duplicable prototype, they jumped into franchising last year. Fanarof's original partner French native Susie Megrov, determined the concept's name, pronouncing the American word, "the" like the letter Z, Bright explained. Megrov's insistence on fresh herbs and vegetables and Fanarof's preference for lower-fat ingredients as part-skim mozzarella cheese "have been in the forefront of ZPizza's message," Bright said. He noted, however, that Fanarof and Megrov learned early on to stick to basic ingredients in their pies. Bright cited the example of a Nicoise pizza, which won critical acclaim but was ignored by customers. ZPizza restaurants average $500,000 in sales annually, and take-away trade has grown from 25 percent to 40 percent of gross receipts, Bright said. That volume placed the brand significantly below segment leaders Pizza Hut, Domino's Pizza and Papa John's Pizza, where store averages topped $600,000 last year. Still, ZPizza outperformed the average independent pizza operator, which Pizza Marketing Quarterly pegged at an annual median of $389,000 per store. The prototypical store, averaging 1,100 square feet, ranges in cost from $100,000 to $150,000 to build and franchise, Bright said, depending on such factors as the landlord's tenant allowance. ZPizza stores typically produce a 40-percent cash-on-cash return, he said, and stores that had been open at lease one year posted a 5-percent same-store sales gain in 2002. The brand made its first move out of California last November, when a franchisee entered the Reno, Nev., market. That franchisee planned to open a second unit by year-end, Bright said. Typically, FranSmart prefers a four-to-five-unit development agreement, he asserted, with a four-year development term. In seeking franchisees, ZPizza executives are looking for two profiles; the entrepreneur who has been successful in another industry or the manager of a full-service restaurant chain. In either case the prospect needs to invest $40,000 to $50,000 in the franchise, which, Bright said, "gives enough cash to use Small Business Administration [loans] or lease financing." Bright described ZPizza as "a kitchen-centric operation. The biggest challenge is training the cooks, especially in remote markets." ZPizza hires secret shoppers to pay three visits during the first 60 days of operation, and then one visit per month afterward, to judge the food and service. Counter staff members receive cash rewards based on the shopper scores, Bright said. To staff the training division, the company pulls top-performing staff from existing stores for 10-day periods. They receive "a substantial premium to open new stores," Bright said. "Our biggest challenge is [finding] people, maintaining the staff we have and ensuring we adequately support them." That is where DeMarco fits in, Rowe said. The former operations executive for California Pizza Kitchen, House of Blues, Stir Crazy and Border Grill, brings a diverse range of skills to the table and already has helped the company fine-tune its strategic plan, Bright said. Rowe and Bright said real-estate developers have taken interest in their portfolio of brands because "more and more we're seeing landlords embrace a food court versus a dry cleaner, nail salon and restaurant," according to Bright. To spark the lunch traffic ZPizza aggressively has courted corporate catering, even using third-party delivery systems to drive that daypart. "We ask our managers to devote one hour three times per week to marketing," Bright said, noting, "as Dan [Rowe] says, ‘Marketing is like bathing; you have to do it every day." One successful campaign presented empty pizza boxes to corporate catering managers in the area surrounding each restaurant stamped with the message," Sid says, ‘I hate empty pizza boxes.' So he'll fill this one for free." The campaign got the manager into the store and got that person to taste the ZPizza product, Bright said, claiming, "It is the best tool to gain customers in a new market."

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