BLAZE PIZZA LLC – Privately Held “Up & Comer”

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FAST CASUAL PIZZA SEGMENT

Blaze Pizza LLC

Blaze Pizza, based in Pasadena, California, was founded in 2011 by Elise and Rick Wetzel of Wetzel’s Pretzels. As others within this segment have done, Blaze provides a made to order approach to the pizza segment. Blaze attracted a prominent sponsorship group early, including LeBron James, Maria Shriver, American film producer John Davis and Tom Werner, co-owner of the Boston Red Sox. Most recently, as LeBron’s contract with McDonald’s expired, he became a spokesperson for Blaze Pizza. Jim Mizes was recruited in July of 2013, as President and COO, after being in leadership positions at several successful foodservice chains. He leads a team of seasoned executives who drive the business. Executive Chef, Brad Kent, a CIA graduate with outstanding credentials was recruited early, created the recipes and cooking procedures, and his Blaze pizzas were lauded by the Zagat Guide, among others, in 2013.

In terms of differentiating their concept, Blaze offers fresh made dough that is proofed for 24 hours, while some competitors use frozen dough. For Millennials and those with dietary preferences, Blaze also offers fresh made in house gluten free dough as an option,  as well as vegan cheese, and emphasizes the uniquely “clean” ingredients. . After choosing their type of dough, customers move down the assembly line as the staff add ingredients, and the completed pizza is cooked in the stone-hearth oven in only three minutes. Blaze’s oven is “oversized”, and combined with their “back line”, should have the necessary capacity to build delivery and on-line ordering as customers increasingly choose these options. Salads, S’more pies and blood orange lemonade are among other products offered.  Blaze offers 8 signature pizzas, designed by Chef Brad Kent, or guests can “build their own” pizza all for one price. Therefore customers can choose any or all toppings, purchasing a pizza that could sell elsewhere for $12 to $15, for under $8.00.

Expansion has been rapid for this predominantly franchised chain, and volumes have been among the highest in this segment. 44 franchise groups have been signed up within the U.S., virtually selling out the country. During calendar 2016, 68 stores were opened, bringing the total system to 173 locations, including 5 company operated units. The footprint is about 2500 square feet, the total startup investment is about $670,000/location, cost of goods runs around 28% and fully loaded labor approximates 28%-30%. Newest restaurants are projected to open at approximately $1.2 million, usually building to about a $1.4 million rate in the second year.  The 70 restaurants in the system that were 18 months or older generated an average unit volume of $1.44 million. The ongoing royalty is 5% and the creative fund is 2%. The initial franchise fee is $30,000. The operating model for franchisees projects to a 35-40% cash on cash (EBITDA at store level) return by the third year, after royalties. The average check is $12.30 and the average price/pizza with attachment is $8.30. Lunch (49%) and dinner (51%) are evenly balanced. 75% of the customers dine in the restaurant, 25% off premises and 3% is ordered online. As mentioned earlier, Blaze is introducing an app with mobile pay and loyalty that should build sales and online orders.

During 2017, the Company projects that about 80 new stores will open, which would bring the 12/31/17 total to 253. Last year  “Flagship” locations were opened at DisneyWorld in Florida and Universal CItyWalk in Los Angeles as well as Houston International Airport. The Company expects that 120 locations will open annually in 2018 and beyond. In addition, the Company has begun development of non-traditional locations, an area with obviously very large incremental potential, having signed agreements with HMS for airports and Sodexho for schools/universities.

Clearly, with the franchising experience of the Wetzels, the culinary skills of Brad Kent, and the seasoned executive team, Blaze is equipped to capably lead their franchised expansion. Once a franchised chain reaches the critical mass necessary to support its franchise system, well positioned franchise companies most often prove to be excellent long term investment due to the free cash flow characteristics. From what we can see, Blaze is likely to be one of the premier participants in this space.

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