Purpose, profit ‘inextricably linked’ at MOD Pizza

A full 38 percent of the MOD Pizza workforce comes from underemployed groups, say Scott and Ally Svenson, co-founders of the Seattle-based chain. “We have to build stores that make a great return on capital, that employ more people. These two things are connected,” CEO Scott Svenson said.

One of their proudest moments, say MOD Pizza co-founders Ally and Scott Svenson, was the cover of Franchise Times in January 2017, featuring three of their MOD Squadders striking a tough pose.

All three had felony convictions in their past, but their GM at the time hired them anyway and they became "carriers of the culture," as Ally Svenson put it, cajoling and coaching fellow MOD Squadders to do their best as MOD Pizza grew from 12 stores on its fifth birthday to 470 stores today, its eleventh.

At first, hiring people who needed second chances, as the Svensons call the group, was a series of one-offs. Today, MOD has expanded its focus in hiring from two additional underemployed groups: people with intellectual and developmental disabilities and "opportunity youth," or teenagers and young adults who might go off the rails without a decent job and a mentor at work.

A full 38 percent of their workforce today comes from one of the groups, garnering the company a spot on Fortune magazine’s Change the World list in 2019. "If anything it has grown because so many people have experienced it," Ally Svenson said in an interview at the Restaurant Finance & Development Conference in November, where she and Scott Svenson, her husband, were keynote speakers. "We talk about it as a ripple effect, and it’s a byproduct of the need."

Added Scott: "What’s most important to us is the soul of what we’re doing. The most important thing is our ability to make an impact in the lives of our MOD Squad."

But the focus is far more than a feel-good stance, the Svensons believe. MOD Pizza has raised $340 million in equity since starting the company, which is 75 percent corporate-owned and 25 percent franchised. The most recent tranche was $160 million in May led by Clayton, Dubilier & Rice, a private investment firm. Is that enough to get MOD to the next stage?

"Never enough," Scott joked, noting although it’s great to have a "brand people love," growing it fast "eats up a lot of capital." He said his mandate from investors was "more of the same" in terms of growth.

MOD will spend the next five years building its 70 markets out to maturity. "At some point we might go public," he mused, but they’ve raised enough capital to do what’s needed for the next phase.

Nicole Miller Regan, managing director at Piper Jaffray, asked a telling question when interviewing the Svensons on stage: "Can you create material equity value? How do you manage the healthy returns needed to keep this ecosystem going?"

Scott replied: "Early on we dubbed this enlightened capitalism, which is unapologetically we make a profit … we have to build stores that make a great return on capital, that employ more people. These two things are connected.

"There’s this constant yin and yang of balancing the two. Just because we get an incredible amount of gratification and joy from the impact we make on people’s lives, doesn’t mean we’re not competitive. We want to build a best-in-class business. Those things are not separate; they’re inextricably linked."

Scott continued: "Listen, one of the benefits of having a successful concept is you can grow. One of the challenges of this is it consumes a lot of capital. Therefore you have to be responsible to take care of your investors, so you’re looking after their investment. Part of the mission for us is proving to people you can do both."

Scott noted when they launched MOD in 2008, it was eight weeks after Lehman Bros. failed, "when unemployment was the highest in a generation, and today it is the lowest."

"The things we do internally around who we employ, the things we need to do to support those employees, the stance we have on trying the best we can to provide a living wage, that has imposed a tax on the business: 200 to 400 basis points," he said.

But that "tax" also helps MOD today "build moats around our business. We have set out to try to build sustainable competitive advantage through culture and purpose, and that is not a short-term strategy.

"We’re almost 11 years into it and in some ways we believe we’re just getting going," he said.

As for one of those men on the cover, Kory Harp, he was recently appointed to develop MOD’s training program for people who need second chances.

He remains committed to fiercely defending MOD.  "My whole life is different," he said at the time. "It’s because MOD gave me one chance and now I will do everything it takes to make the values here last."

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