Why the pizza segment has legs
It’s no secret to what’s driving fast-casual pizza’s popularity among franchise investors. “From a segment perspective,” declares Yaron Goldman, a MOD Pizza franchisee in North Carolina, “it’s the unit economics. You have a 2,200-square-foot box that can do AUVs north of $1 million. The investment is low.”
Low, in Goldman’s case, compared to his other franchised concept, McAlister’s Deli, where rents cost roughly 30 to 40 percent more because of its size.
Goldman also likes the idea that pizzas can be custom-made. “It’s not the traditional place where everyone wants something different on the pizza. Here, mom and the kids can get what they want on their own pizzas for a fair price. The segment has legs,” he says.
MOD Pizza does, in any case. At an investor conference in Orlando in January, co-founder and CEO Scott Svenson told investors the Seattle-based chain would add 100 units this year to a base of 100 locations currently. Forty would be spread among the system’s seven franchise partners.
Company units, by the way, have been funded with a year-old $40 million investment from PWP Growth Equity, a private equity firm. Strategic investors are also getting involved. Panda Express founders Andrew and Peggy Cherng made a minority investment in Pieology Pizzeria early this year. Buffalo Wild Wings invested in PizzaRev three years ago.
Goldman, for his part, has agreed to open 25 units in the Carolinas over the next five years. Since 2014 he has opened three in Greater Charlotte. He has so far financed the new builds with cash flow from his McAlister’s.
“There’s a certain part of this segment going after B and C real estate,” he says, “while other concepts want more prominent sites and seek higher-end demographics. That’s where we play.” So-called higher-end chains like MOD must achieve their value propositions via operational efficiencies, not lower-quality products.
Goldman concedes convincing landlords to lease to MOD was initially a challenge because the concept was unknown in North Carolina. But when landlords learned via brokers about the franchisor and its growth strategy they became amenable. “We haven’t landed every site, but I bet we’ve got 90 percent of them,” he boasts.
Meet Firenze Pizza area developer Gary Fitchett. He cut his franchise teeth during a corporate career at Domino’s Pizza and, later, as an area developer for Quiznos. Today, Fitchett and his partner, brother John, are master franchisees for fast-casual newcomer Firenza. Late last year the pair signed a 25-unit master franchise agreement giving them the rights to develop outposts in Richmond, Charlottesville and Williamsburg, Virginia, as well as eastern North Carolina.
The Fairfax, Virginia-based franchisor was founded by former Domino’s franchisees Dave Wood and Dave Baer. So far, they’ve opened two company units in Fairfax. “We have no hesitation about how well the corporate stores are doing,” says Gary, declining to reveal sales figures for the company stores. His sales goal is to reach $1 million on an investment of $245,000 to $500,000.
The brothers have known the founders for years. Gary says John went to college with Baer, who delivered Domino’s pizzas. Gary is also familiar with real estate in the area, having helped franchise dozens of Quiznos over an eight-year period. They sold their area development rights back to Quiznos in 2010. John, incidentally, is president of Denver-based Zinga Yogurt and a former Quiznos executive.
Before signing on to Firenze, Baer and Wood hired the brothers as consultants, dispatching them to California on a fast-casual pizza expedition. “I have an educated eye looking at franchises,” says Gary, who oversaw hundreds of franchised Domino’s during 14 years in field operations.
The units are not without challenges. Convincing landlords to lease space to a new brand is one, Fitchett admits. The other is the gas and infrared oven. “The person on that needs to know what they’re doing,” he notes.
Michael Mina is eager to test the suburbs with a fourth franchised Salata, a fast-casual salad concept that debuted in Houston in 2005. His franchisor recently gave him the OK to start looking for space.
Mina, naturally, desires what most every fast-casual operator wants from a suburban spot: Nearby schools, homes and similar foodservice outlets. “I think it’s good to be in the same area as a Chipotle, Zoës Kitchen or Pei Wei, where people come in constantly and go in a kind of rotation of what they’re eating,” he explains. “The Salatas in these areas seem to be doing well.”
To date, the 42-year-old franchisee has opened two units in downtown Dallas and one in Preston Center (his first), a major shopping-and-office complex in north Dallas. He raised the capital for the first and second unit from family members. The third unit was financed with cash flow and a bank loan.
The 54-unit chain, which operates and franchises outposts in Texas, Illinois and Southern California, is all about salads. Customers walk down a line instructing workers, who fill bowls with freshly cut produce and fresh-cooked proteins. AUVs run about $810,000, though Mina claims busy Salatas can ring up $900,000-plus on roughly a $400,000 investment.
Mina’s first Salata, opened in 2007, was carved out of a 3,600-square-foot Sonic restaurant that, apparently, wasn’t meeting sales goals. He leased 1,900 square feet in the unusual deal. “Looking back at it now, I was just very excited about the concept,” recalls the former marketer. “But I was really rolling the dice. I’d never built out a concept.”
The franchisor hadn’t, either. Mina’s Preston Center branch was only the third Salata in the system.
David Farkas has covered the restaurant business for 25 years as a reporter and food writer, and writes about development deals in The Pipeline in each issue. Send your franchise’s development agreements to him at email@example.com.