Pizza Inn Works On Recipe For Comeback

Sunday, August 30, 2009

In overhauling its image, Pizza Inn is working the nostalgia card to revitalize the 51-year-old chain, bringing back checkered tabletops and breathing life into its discarded mascot Jo Jo, a dough-flipping, mustachioed cartoon chef.

Not all memories at the chain are happy ones. But the business may have survived one of the restaurant industry's most turbulent times.

In the past 20 years, Pizza Inn periodically bathed in red ink; lost a swath of stores; sued its founder in a trademark dispute; skated perilously close to liquidation during the 1989 bankruptcy of its second owner, Pantera Corp.; lost in court against ex-CEO Ronnie Parker over a mammoth severance claim; accepted defeat in a legal fracas with Pepsi; and claimed victory in a suit against its former attorneys.

Pizza Inn's headquarters is in The Colony in Denton County. It was launched in 1958, the same year as Pizza Hut. But it's had a very different ride in the competitive Italian pie sector.

Pizza Hut, now part of the YUM! Brands stable that includes KFC and Taco Bell, has 6,200 U.S. restaurants and 4,000 abroad. Meanwhile at Pizza Inn, its management distracted by crises or, self-admittedly, not always working in the best interest of its franchise holders, lost more than half its stores in recent decades, down to 310 from a peak of 747 stores in 1979.

"Franchisees didn't maintain their facilities, and we didn't focus on how to grow their business," said Charles Morrison, 41, who joined Pizza Inn as chief financial officer in August 2007, then was tapped as chief executive four months later when his predecessor abruptly resigned.

Instead of keeping franchised restaurants up to standards, a key corporate activity was "policing" them to ensure that they used proprietary products sold by the chain, said Morrison, adding, "We made it very difficult for them to succeed." Rebuilding trust And distrust ran deep-dish thick.

Jim Baenisch, a 45-year Metroplex franchisee, said that in the 1990s, the corporation went so far as to hire a private detective to determine whether he was concealing sales, and therefore paying it smaller royalties.

"They had the guy sit in one of my restaurants and watch," said Baenisch, 71, who had as many as 25 stores at one time in five states. He now operates just one Pizza Inn, in Richland Hills.

"The dumb thing was, they told me at the time they were doing it," he said. "Then they had me come into the office to meet the guy, who tried to get me to confess. It really irritated me. If I could have, I would have walked away from Pizza Inn." At the time, the company also forced franchisees to sell a larger pizza than other chains while charging the same price, even as the company sold them ingredients at a higher wholesale price.

Asked whether franchisees were gouged, Morrison said yes.

It was a recipe for disaster. In the Metroplex, the number of stores dropped from about 130 to 42.

But things have changed, says Morrison, a Keller resident who formerly headed the Steak and Ale chain as president and has been an executive at Kinko's, Boston Market and Pizza Hut.

"Over the last four years, we have provided more than $4 million in savings to franchisees by reducing prices on key items such as cheese, flour and pizza sauce," he said.

Some efficiencies were achieved by outsourcing the delivery of goods and by reducing overhead at the corporate office.

An example cited by Morrison was an 11.6 percent price reduction for pizza boxes in June, achieved by selling them at Pizza Inn's cost. Then it passed along another 6.5 percent cut when paper prices dropped in July, he said.

Shortly after joining the company, Morrison called in about 10 large franchise operators and picked their brains on how to bring the chain back to its glory days.

They criticized a restaurant design, which was not a free-standing building like most of them had. The franchisees also chewed over proposed changes and ideas to bring back the old image.

"We kept them in a room for 2  1/2 days," Morrison said of the drawn-out session at the company's offices. "We asked, 'What can we do for you to expand?' " A new Pizza Inn Frank discussions and customer research helped the new management team, an advertising agency and an architectural firm shape a new prototype. One is operating in Denton, and a new, company-owned restaurant will soon open in far north Fort Worth off Interstate 35W, near Alliance Airport in a new development anchored by a sprawling Sam Moon store.

Like other Pizza Inns, these new restaurants have a single line to place orders. But they also offer freshly prepared pizzas to go, which can be baked at home. They are priced at $5.95 for a medium with a single topping. All stores also offer hot pizza for takeaway and delivery.

Gone is the modernist, semiabstract mascot, nicknamed, "No No," by some employees for his lack of hands, feet and facial features. It's been replaced by an updated version of the original, red-capped Jo Jo, whose visage is affixed to the door, on at least one wall and even the men's toilet door of the new stores.

The rebranding effort draws on a customer survey that found that the chain scored high on such generic attributes as being "approachable, trustworthy and accommodating." But chains like Applebee's and Subway had more emotionally engaging, and commercially appealing, characteristics � being seen as "bold, passionate, contemporary and distinctive." Moreover, its customers don't believe that Pizza Inn makes its pizzas from scratch (it does), not that diners expect such hands-on preparation from a quick-service restaurant, according to an executive summary of the survey provided to the Star-Telegram.

Wrongly or rightly, the stores were rated low for quality, leaving the chain a "huge opportunity" to burnish its image, it said.

Brand recognition remains a nagging problem: 2 percent for Pizza Inn, compared with 86 percent for McDonald's, 54 percent for Applebee's and 30 percent for Sonic, according to the survey.

And even if male customers want to try Pizza Inn, it's the wife or girlfriend "who often gets the final say," the survey stated. With this in mind, the survey recommended that the chain improve the interior for her consideration by upgrading the salad bar, adding wine and beer where it is not offered, adding "healthier" and more vegetarian pizza options, and issuing coupons.

The good news was that Pizza Inn is considered a solid choice for kids, as a lunch option and for a weekday dinner.

Morrison said signs of a turnaround emerged in 2008, following two years of losses. Excluding a $2.8 million severance settlement with Parker and a settlement with Pepsi over a broken contract, Pizza Inn would have had a net profit of $2.5 million last year, he said.

Investors, however, apparently aren't quite convinced. The stock (ticker: PZZI) hasn't fared as well. Its share price closed at $1.70 on Friday, and the stock is down about 30 percent since August 2008.

Chain's future Baenisch is bullish on the chain's future, becoming the first franchisee to remodel a store along the new guidelines. He spent $75,000 on his Richland Hills restaurant.

Afterward, he said, "my dine-in business had improved 25 to 30 percent." His pizza deliveries dropped, which resulted in overall flat sales. But considering that the entire pizza industry is down about 7 percent, Baenisch said he's pleased.

In May, Pizza Inn launched an incentive program to bring in prospective franchisees: It eliminated royalties paid to the chain during the first year. The payment rises to 2 percent the second year, then hits the regular 4 percent.

For Russell Verner and Gene Conger, who own 14 Sonic drive-ins, including several in Arlington and Mansfield, the royalty deal was not the deciding factor but "another one of those positives" that led them to decide to build two Pizza Inns in Abilene. Nostalgia was another factor.

"I grew up with a Pizza Inn in Mineral Wells," said Verner, who lives in Eastland. "That's where we always ate.

"I knew they went through a rough stretch, but they've done a lot of research and have decided where to go. In the early 1980s, Sonic similarly went backwards, then redesigned their concept and had great growth." I knew they went through a rough stretch, but they've done a lot of research and have decided where to go." Russell Verner, who along with Gene Conger built two Pizza Inns in Abilene

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Pizza Inn Inc.
3551 Plano Pkwy.
The Colony, TX

Phone: (469)384-5000
Toll Free: (800) 284-3466
Fax: (469)384-5059

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