Sixty years ago, U.S. General George Patton declared, "War is hell." The pizza price war in Australia isn't a whole lot different, according to Tom Potter.
More than a decade has passed since his company, 150-unit Eagle Boys Pizza, increased its pizza prices — and that's after they started falling from the $10 mark in 1993. Today, $5 (U.S. $3.75) for a 12-inch pie with unlimited toppings is the standard Down Under.
"I don't ever see prices going back up to where they were back then," said Potter, the company's managing director and the keynote speaker at the 2005 North America Pizza & Ice Cream Show on Feb. 28. The event was held in Columbus, Ohio. "That price level is what people have grown used to paying, and I doubt that can be changed."
Tom Potter, founder and managing director of Eagle Boys Pizza in Brisbane, Australia.
And yet the severe profit squeezing hasn't been all bad. Potter said it forced Eagle Boys to rethink its position in the marketplace and retool its operations, two things that have steered it back from the brink of disaster to a position of power.
"Price is just one part of this business, it's not everything," he said. "You have to focus on a sustainable point of difference, something that makes your business unique. That's what's made Eagle Boys successful."
A fighter in the making
Tom Potter never dreamed of becoming a pizza operator. After spending several years as a baker's apprentice, a bake shop owner and an industry consultant, he spied a new trend working its way into Australia: pizza delivery. After a brief stint with a struggling pizza company, he set out to open his own operation. In 1987, with the help of a loan from his mother, Potter launched Eagle Boys Pizza from the humble nest of his mother's garage.
The business model was simple: find small country towns that didn't have pizza, open up shops and declare them the best pizza around. In only two years, Potter was eager to franchise the concept and traveled to the United States to learn more.
As franchisees signed on, the company grew quickly. But its lack of systems and standards, as well as Potter's inexperience in finding quality franchisees, led the company to stumble.
"One of my first franchisees was a real shocker," said Potter, using the Aussie slang term for an unpredictable person. "To his credit, the guy was a really good guerilla marketer, but that wasn't always a good thing."
Potter explained how the franchisee would don an Eagle costume and stand in pizza competitors' parking lots handing out Eagle Boys materials. In one instance, the manager of a competitor's store confronted the franchisee, and a fistfight broke out. News of the dust up wound up in the local papers, and "gave us a ton of free publicity."
In the end, however, the franchisee became a bit too much of a rebel even for Potter, and he had to cut him loose.
"I learned rather quickly that not everyone is a good franchise candidate, and that I had to be much more selective," Potter said. "Choosing a good franchisee is sometimes like choosing a husband or a wife. It's got to be a good fit."
By 1992, Eagle Boys was 40 units strong. Potter moved the business to the city of Brisbane and stepped up his efforts to penetrate Australia's prime markets. A year later, the much larger chains of Pizza Haven, Pizza Hut and Domino's Pizza launched an all-out price war that nearly clipped Eagle Boys' wings. To survive, Potter slashed his corporate staff by 30 percent and sold his personal residence for much-needed cash to prop up the business. At the same time he discovered an employee had embezzled nearly $300,000 from the firm, and his wife wanted to end their marriage.
"It was her birthday, and I asked her what she wanted," the wry-witted Potter began. "She said, 'I want a divorce.' I thought for a bit and then said, 'I don't want to spend that much.'"
While amid the turmoil, the Australian Business Review named Potter its Australian Young Business Person of the Year in 1994, a move that both humbled and amused him. "If they'd have seen the shape we were in, they might have thought twice."
Still, the award marked a business-changing turning point for Eagle Boys. Along with the honor came a scholarship to the prestigious Owners/Presidents Management program at Harvard University in the U.S. The course (which ran for three weeks in each of three consecutive years) connected Potter to many business mentors who helped him rethink Eagle Boys' strategy going forward.
"A lot of what we did was review case studies of other businesses — other people's mistakes, really," Potter said. The experience taught him "to surround myself with other people who have made mistakes ... and could help me from falling into the same traps."
New pair of wings
If time in the trenches of the price war has taught him anything, Potter said it's to innovate. To reduce pizza box costs, Eagle Boys invented a single box with a center divider that holds two pizzas.
Every new Eagle Boys unit is constructed with a drive-through window, and he expects many existing units will be retrofitted to accommodate the service. To maximize drive-through and carryout, the company rolled out an instant pizza system two years ago that guarantees customers a total transaction time of 2 minutes or their pizza is free.
"The idea for those came from watching the burger chains," he said. "People can get in and out of those places in a couple of minutes, but nobody gets out of a pizza shop in anything less than 15. That's killing us."
The system allows customers to choose from a limited four-pizza range of offerings. The pizzas are par-baked at peak times and readied for quick carryout. The system has driven double-digit same-store sales gains at many units, he said.
The instant pizza system also encourages carryout, which Potter said makes up 70 percent of Eagle Boys' sales. Prior to the price war, delivery made up 70 percent of the business.
"When you combine our labor costs with what we get for a pizza, it costs a fortune to deliver," he said. (The instant pizza system) also works within our plan of serving customers located within 4 kilometers of our stores. People are bone lazy, but they don't mind driving that distance to get a pizza at a fair price."
At the advice of his board of directors, Potter has worked on "ridding our business of unprofitable customers." Since 80 percent of the chain's profits come from 20 percent of its customers, Potter said Eagle Boys has learned to focus on that segment's needs, not the whims of price hunters.
"To do that, you've got to know who your target market is and serve them," he said. "Those customers who'll go to the next bloke's for the cheaper deal, you don't need them."
Not that he ignores price-shoppers. They get their Eagle Boys pizzas on what's known as "Cheap Tuesdays."
"We've taken a normally slow night, dropped the price to a point where we can drive volume and still make money," said Potter. "If there's one thing I've learned about this business, it's the importance of volume. You can't survive at these prices if you're not driving volume."