Tag Archives: Fast Casual Pizza

MOD PIZZA – UPDATED WRITEUP OF THIS DYNAMIC “UP & COMER”

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MOD Pizza – UPDATED WRITEUP OF THIS DYNAMIC “UP & COMER”

Fast Casual Pizza Segment

MOD Pizza

MOD Pizza, based in Bellevue, Washington was founded in 2008 by Scott and Ally Svenson, who had built two successful food service companies while living in England. The first, Seattle Coffee Company, was sold to Starbucks in 1998, and Scott stayed on as President of Starbucks Europe. The Svensons were also involved with the founding of Carluccio’s Ltd, a chain of Italian restaurants, which went public in the UK in 2005 and grew to 35 locations by 2008.

After returning home to Seattle with their four children, the Svensons foresaw the emergence of “fast casual” pizza, a segment which didn’t previously exist. To our knowledge, MOD was the “first mover” in this regard. The Svensons started MOD pizza with the intention of making a positive social impact in the communities it serves, and a “people first” culture. The MOD experience provides customers the opportunity to create and customize their own pie for one price as they move through the ordering line choosing their ingredients. The pies are rapidly cooked in a 700-degree oven and served super-fast in about 8 minutes (including both preparation and cook time).

Rapid Store Growth accompanied by Substantial Capital Infusions

The first location opened in downtown Seattle in 2008. The second location opened in early 2010 and there were five locations, in a variety of settings by late 2011. With about $7 million of expansion capital provided by the Svensons and other early stage investors over the 2012 and 2013 fiscal years, expansion took the chain to 14 locations by year-end 2013. MOD raised an additional $14 million in March of 2014, and by year-end 2014 there were 31 stores in AZ, CA, CO, OR, TX, and WA, all but one (franchised in CO) were company operated. During calendar 2015, MOD closed an additional funding round of $45 million and grew to a total of 92 locations, 80 company operated and 12 franchised (having signed a small group of experienced multi-unit operators). During calendar 2016, $77 million of additional capital was raised and 100 net new locations were opened, bringing the total to 192. During calendar 2017, $33 million of additional equity was raised, led by previous investors, bringing the total equity raised to about $179 million, and a $40 million credit facility was also established.  Net new openings in 2017 totaled 110 systemwide, building on its prior year base by an impressive 57%. During calendar 2018, 102 net new units were opened (on a base of 302), 77 by the company, 21 by franchisees, and 4 by their UK JV partner. Just announced in May of 2019, MOD raised an additional $160M in equity funding led by Clayton, Dubilier & Rice, a private equity firm, bringing the total equity raised to $339 million.

Within the 404 total units at the end of 2018, the Company operated 302 locations with franchised partners operating 93 and their UK JV partner operating 9. MOD is now represented in 28 states and the U.K., after entering one new state (AL) during 2018. System-wide sales were $398 million in 2018 (a YTY increase of 45%), netting MOD $312 million (a YTY increase of 42%) from company store revenues plus initial franchise fees and ongoing royalties. Domestic system-wide same-store sales were a positive 3.1% in 2018, bringing its two-year same store sales growth to 8.2%. The Company expects to continue its strong store growth in 2019 and beyond, with targeted unit growth of approximately 100 stores per year over the next five years which would approach 1,000 units in total, with the majority of the openings expected to be company operated.

Highly Qualified Management Team

The Company has been dedicated to building a strong corporate operating team, prepared to make the necessary investment in people. In terms of executive talent, Paul Twohig serves as President of MOD and was the former President of Dunkin Donuts US and Canada. John Maguire is the COO and was previously President and Chief Executive Officer of FIC Restaurants Inc. (Friendly’s restaurants) and Johnny Rockets Group, and prior to that COO of Panera Bread. Mark Shambura is the CMO and previously led the marketing team at Chipotle Mexican Grill, and Bob Barton, CFO, was formerly the CFO & VP of Operations of the publicly traded drugstore.com.

The Culture

Scott (CEO) and Ally (Chief Purpose Officer) have built and inspire an operating team focused on making a positive social impact and a people first culture. “Spreading MODness”, the idea of using the business as a platform for positive social change, was demonstrated in 2018 by, among other things, a contribution of over $1.8 million to support local communities and Squad members in need. These contributions, achieved with the help of MOD franchisees, included the delivery of nearly 450,000 meals as part of a continued effort to address childhood hunger in partnership with Generosity Feeds. MOD’s strong connection and social impact with Squad members, consumers, and the community at large continue to be reflected by various awards during 2018. It is noteworthy, and consistent with the corporate culture, that the first loyalty program and mobile app, introduced in 2019, has a points to dollar structure that also gives customers the option to donate their points to charity.

Summary

MOD, the fastest growing restaurant chain in the United States for the past four years according to Technomic, Top 500 Restaurant Report 2015-2018, with a dynamic leadership team, supported by deep pocketed financial backers, has built an admirable company to this point, and provides every indication of continued success.

Roger Lipton

 

 

MOD Pizza – Updated writeup – click above at “Privately Held Up & Comer”

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PENDING THE RELEVANT COMPANY’S REGISTRATION WITH US, THIS PARTICULAR CONTENT IS LIMITED TO SUBSCRIBERS. For $100/year, SUBSCRIBE HERE. Other content is available by way of Home Page.

INCLUDED IN YOUR ANNUAL SUBSCRIPTION:

  • Access to Corporate Descriptions of all publicly held restaurant companies and selected non-restaurant franchisors.
  • Broad economic insight. As described in “Restaurants/Retail – Why Bother?” the restaurant and retail industries provide a leading indicator of far broader economic trends. You no longer have to be the last to know.
  • Two to three analytical pieces per week (“Roger’s Rap”) personally written by Roger Lipton describing corporate developments within his industry specialization, including their relevance to the broader economy.
  • Periodic “macro” discussions personally written by Roger Lipton, analyzing fiscal and monetary matters that will likely affect your investments and your business.
  • A free copy of the legendary best selling book, How you can Profit from the coming devaluation, as shown at right, written in 1970 by Harry Browne, which predicted the 2000% rise in the price of gold. This profound piece is more relevant today than ever, so Roger re-published it in 2012. This book will help you preserve the fortune you are in the process of accumulating.

BLAZE PIZZA LLC – UPDATED WRITEUP – click above at “Privately Held “Up & Comer”

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4/6/18

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 in 2016, 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. Promoted to CEO in May, 2017, he leads a team of seasoned executives. 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. Since Blaze is 99% franchised, expansion capital beyond the initial raise has not been necessary to fund the growth. The Company has been profitable and cash flow positive since 2015.

 

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 that have no artificial colors, flavors, additives or preservatives.  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 about $8.00.

Expansion has been rapid for this predominantly franchised chain, and volumes have been among the highest in this segment. Over 50 franchise groups have been signed up within the U.S. and Canada. Blaze is now also focused on selling franchises in smaller cities through the country, while also starting its international expansion.  Blaze finished 2017 with 237 total restaurants, including 5 company operated units, in the US and Canada. The footprint is about 2500 square feet, the total startup investment is about $700,000/location, cost of goods runs around 28% and fully loaded labor approximates 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 117 restaurants in the system that were 18 months or older generated an average unit volume of $1.424 million. The 5 corporate owned restaurants over 18 months old averaged $2.063 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 $14.00 and the average price/pizza with attachment is $9.00. Lunch (46%) and dinner (54%) provide a fairly balanced daypart appeal. 75% of the customers dine in the restaurant, 25% off premises and 7% is ordered online. Blaze is leveraging technology and connecting to Millennials, as seen by their followers on Facebook, over 1 million email subscribers, app downloads and more.  The company sees additional sales opportunities with 3rd party delivery, drive-thrus, new products and line extensions and leveraging technology.

During 2017, 64 stores opened, and the Company projects that about 85 new stores will open this year, which would bring the 12/31/18 total to 325. In 2016 “Flagship” locations were opened at DisneyWorld in Florida and Universal CItyWalk in Los Angeles as well as Houston International Airport. Similar high profile locations will have opened during 2018 in Kuwait, Bahrain, Saudi Arabia and over 10 in Canada. The Company expects that over 100 locations will open annually in 2019 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 see, Blaze is one of the highest quality companies serving fast, artisanal pizza, and the unchallenged leader in terms of a franchised model within this segment.

 

 

MOD PIZZA – UPDATE AFTER APPEARANCE ON JIM CRAMER’S “MAD MONEY”

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 MOD Pizza – One of Roger’s privately held “Up & Comers”

Tuesday night, March 15th, Jim Cramer interviewed Scott Svenson, co-founder of MOD Pizza on his widely watched “Mad Money” show. I’m happy to say that we were four months ahead of Jim with our “Up and Comer” focus on MOD Pizza back in November. Rather than restate the facts from our last story, I prefer to provide the following short update, and refer you to our original piece below.

MOD has recently raised an additional $32 million of equity in a round led by previous investor, Perella Weinberg Partners. They had previous led a $45 million raise in March 2015, so are obviously pleased with the progress. A total of $106 million has now been raised by MOD to support their ongoing growth.

There are currently 110 locations operating in 16 states. During 2016 the first locations will open in Kansas, Kentucky, Missouri, Ohio, Wisconsin, and the U.K., which is the first international store. The total store base, which now includes 5 experienced multi-unit franchise operators will have doubled from the end of 2015 until yearend 2016.

The “people first” culture, which Scott and Ally Svenson has already been recognized by prominent news organizations. Fortune Magazine ranked MOD seventh on its annual “20 best Workplaces in Retail” list, and the Puget Sound Business Journal has ranked MOD as one of “Washington’s Best Work Places”. The rapid growth has of course attracted lots of additional media coverage and “fastest growing” rankings.

Lastly, my comment at the end of the article below that “Harvard Business School should do a case study on this one” turned out to be after the fact. HBS had just completed such a study just a couple of months earlier. Clearly, MOD Pizza, with Scott Svenson leading a uniquely “enlightened” management team, will be prominent in business news for many years to come.

For more information on MOD Pizza, refer to our “Homepage” and click through on MOD under Privately Held “Up and Comers”

Re-Printed from November 12, 2015

I returned last night from the Restaurant Finance and Development Conference in Las Vegas, with 2600 restaurant related professionals, the must-attend Conference of the year, IMHO.

Every operator should know that long term success depends on the corporate culture that begins at the top. The best panel I attended included presentations on “Culture” by James White, CEO of Jamba Juice, Phil Greifeld, CEO of Captain D’s, and Scott Svenson, CEO of MOD Pizza. You’ve all no doubt heard of Jamba Juice, and Captain D’s, but you will no doubt be hearing a great deal about MOD Pizza, which is one of the leaders in the rapidly emerging “Fast Casual Pizza” segment. In any event, each executive described their approach somewhat differently, starting with the customer or the employees, but the end objective is the same.

The last question, posed by Beth Ewen, the moderator, was: “What event can you describe that illustrates your “culture”. White and Greifeld gave fine examples, but Scott Svenson, who had been compelling throughout (to me, anyway) spoke last and told the following story.  I don’t expect to do it justice here, but I will try. As they say “you had to be there”.  

Scott said “A few years ago, we hired a new associate, Corey, who was wearing an ankle bracelet, after being arrested three times. The personnel person who hired him at the entry level obviously thought he had potential. When asked a week after hiring, about her selection, she just said: ‘I just think he has something’. So Corey did very well, and after a year or so became a store manager. Turns out that in his store a $2200 cash shortage was discovered, and naturally it had to be considered, from his background, that he could be involved. After talking to him, we decided that he could, and should, be trusted, and we all moved on from the incident. Corey moved on up and became one of our top training leaders, moving around with new store openings, an outstanding person within our organization. So a while back we had an organizational meeting, within which we were focusing on our “culture”, so to speak, and we asked each person to describe what MOD Pizza means to them. Corey was the last to speak, and you should understand that he is big, and bald, and tatooed. He stood up, turned his back to management, faced the group, pointed his finger at them, saying: ‘MOD Pizza means EVERYTHING to me, and not one of you guys is going to f…k it up”.

Obviously, I was very impressed with Scott and his description of the organization he has built. After the meeting I told him I thought he was a cross between Howard Schultz, Danny Meyer, and Nick Sabin (U.of Alabama, Roll, Tide!).

Mod Pizza has grown from 35 units a year ago to 85 units today and will be approaching 200 locations by the end of 2016. Since 80-90% of the stores are company owned, this is an unusually challenging objective, and the Company has been staffed accordingly. There are about 125 people at the head office today, soon to be a support staff of 175. It’s expensive, but necessary to get where they want to go. Scott and his wife have built two successful businesses before so they are not naive in terms of the pitfalls vs. the opportunity.

In my four decades following the restaurant industry, I can’t think of any company that has grown this fast with company operated stores, from a small base, including Starbucks, to my recollection. The Svensons are well equipped to succeed and I hope that they do. Harvard Business School should do a case study on this one.

ADDITION TO WEBSITE – “Privately Held Up & Comers” – Starting with Fast Casual Pizza – see above

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PENDING THE RELEVANT COMPANY’S REGISTRATION WITH US, THIS PARTICULAR CONTENT IS LIMITED TO SUBSCRIBERS. For $100/year, SUBSCRIBE HERE. Other content is available by way of Home Page.

INCLUDED IN YOUR ANNUAL SUBSCRIPTION:

  • Access to Corporate Descriptions of all publicly held restaurant companies and selected non-restaurant franchisors.
  • Broad economic insight. As described in “Restaurants/Retail – Why Bother?” the restaurant and retail industries provide a leading indicator of far broader economic trends. You no longer have to be the last to know.
  • Two to three analytical pieces per week (“Roger’s Rap”) personally written by Roger Lipton describing corporate developments within his industry specialization, including their relevance to the broader economy.
  • Periodic “macro” discussions personally written by Roger Lipton, analyzing fiscal and monetary matters that will likely affect your investments and your business.
  • A free copy of the legendary best selling book, How you can Profit from the coming devaluation, as shown at right, written in 1970 by Harry Browne, which predicted the 2000% rise in the price of gold. This profound piece is more relevant today than ever, so Roger re-published it in 2012. This book will help you preserve the fortune you are in the process of accumulating.