Winners in 2004

* Dairy farmers: Following nearly two years of devastatingly low cheese prices, dairy farmers saw strong demand return to a milk market that was weak on supply. Hoping to survive the recessions of 2001-'03, farmers trimmed herds to reduce excessive milk supplies. When dairy use increased this year, there was nowhere for prices to go except to record heights. In April, the price for cheddar blocks hit an all-time high of $2.20 per pound.

After lingering at $1.80 a pound for much of the spring and summer, several small crashes in the fall followed, only to be offset by even stronger price rebounds as winter approached.

Though pizza operators enjoyed the upswing in business, the price of cheese largely erased the profits gained by that increased volume. Many independent operators actually raised prices for the first time in years, while many chains held firm to their cut-rate positions.

* Pizza Hut and the 4ForAll. The January nationwide rollout of the 4forAll sent the company's comparable-store sales soaring to plus-9 percent in February; at last check they were averaging close to plus-6 percent for the year. Interestingly, in 2003, franchisees threatened revolt if they were forced to adopt the operationally challenging four-square pie, but wildly successful market tests in Florida told them they had a winner and they changed their minds.

Since then, Papa Murphy's and Pizza Inn have rolled out similar four-way feasts.

* Inno-Pacific Holdings and franchisees of Shakey's Pizza. Since 1993, Inno-Pacific Holdings has owned and operated Los Angeles-based Shakey's Pizza — while also driving it into the ground. When the Singapore-based company bought Shakey's, the chain had approximately 230 stores. When The Jacmar Companies moved to buy the struggling pizza legend from Inno-Pacific in September, there were only 63.

To call the relationship between Inno-Pac and the franchisees discordant is putting it mildly. Franchisees have sued the company on multiple occasions for breach of contract and other charges, and it appeared they had Shakey's (Inno-Pacific, really) over a barrel when Jacmar bought and, arguably, rescued it.

The Singaporeans got $4.5 million for the company — a far nicer deal than losing a likely $10 million to the franchisees — and also desperately needed money to prop up its nearly bankrupt Singapore interests. Additionally, Shakey's franchisees got to avoid a jury trial, were paid $2.5 million to cover their legal fees and received a new franchisor in Jacmar, which already operates 19 Shakey's.

Since the purchase, Jacmar has begun pouring buckets of capital into Shakey's in hopes of not only restoring it to its former glory, but growing it to 1,000 units and positioning it for a public offering within the next 10 years.

* Domino's Pizza and its initial public offering. Though Domino's IPO was the single-largest restaurant industry offering in history, the price fetched by the world's second largest pizza chain in its July sale fell a bit below expectations.

Regardless, the company accomplished exactly what it set out to do in the sale: provide a return on investment to its majority shareholder, pay down a portion of its debt and provide a new stream of revenue that will be used to market grow its business in the U.S. and abroad. Plus, the stock is now trading above its offering expectations.

Domino's solid business model, it's strong leadership and its expected-to-increase stock price will prove to be a money-making combination investors will enjoy for years to come.

* Middleby Marshal and the WOW pizza oven. This fall oven manufacturer Middleby Marshall won a Chicago Innovation Award for a new conveyor oven it claims to be 50 percent more energy efficient than the 1999 industry standard. Additionally, it can cook a pizza in 5.5 minutes (2 minutes less than similar ovens) while operating at a constant temperature of about 400 F.

How does it do that? According to company sources, air flowing from its jets strengthens when a pizza is placed on the conveyor belt, and then decreases when the oven is empty.

The oven remains in test at select Domino's and Pizza Hut operations and may be available industry-wide by mid to late 2005.

Losers in 2004

Pizza profits: Despite an overall increase in business this year, record cheese prices, meat toppings prices and fresh tomato prices have combined to narrow operator profits tremendously.

As regards cheese and toppings prices, producer corrections to herd counts should ease the price pain slightly in 2005. It's also unlikely that Florida, where much of the nation's fresh produce is grown in the fall and winter, will ever see another four-hurricane run on the Sunshine State. The storms' combined damage sent fresh tomato and green pepper prices soaring to $55 to $60 dollars per case in some regions. Typically operators pay closer to $14 for fresh tomatoes and $10 for green peppers.

Pizza Inn: An ongoing board of directors scandal has all but halted any growth or progress at the 410-unit chain. In June the chain's legal counsel and senior vice president, Keith Clark, stepped down, followed by the ouster of Pizza Inn's CEO and President, Ronnie Parker, in November. Both men were part of a group of four executives who, with board approval, rewrote their labor agreements in 2002 to include huge parachute payouts that could devastate the company. Proof that Parker viewed himself as the largest hog at the trough: His annual compensation package consumed nearly 50 percent of Pizza Inn's profits in 2004.

Clark is now in arbitration with Pizza Inn, and Parker is threatening to sue the chain.

Little Caesars franchisees: Despite a landmark 2001 settlement between Little Caesars and its franchisees — an agreement that gave franchisees unprecedented say in the workings of the chain — Little Caesars corporate turned around and sued 40 franchisees in May, accusing them of using products that don't meet its specs.

Not so ironically, the same franchisees being sued had formed a buying co-op in 2003 to procure products from an approved vendor other than Blue Line, Little Caesars' product provider and distributor.

Strangely, these same franchisees are among the top operators in the Little Caesars chain.

* Domino's Team Washington. Frank Meeks was regarded by Domino's founder, Tom Monaghan, as that chain's greatest franchisee. When he died of pneumonia on Nov. 9, the 48-year-old Meeks was a 60-unit operator in the Washington, D.C., area and was a hero to his hundreds of employees.

Stories to watch in 2005

* A potential leadership change at Papa John's. In December, John Schnatter, founder, president and CEO of Papa John's, said he may step aside if he can't get the company headed in the right direction by March or April of 2005. Negative comparable-store sales have dogged the company in recent years and Schnatter is wondering whether he's the right leader to reverse the trend.

Industry analysts have wondered the same thing for some time now.

Like many great entrepreneurs who create and build great companies — Domino's Tom Monaghan among them — Schnatter has not shown the ability to push the company beyond the lofty heights he helped it achieve so quickly in the 1990s. After years of criticizing franchisees for the company's performance, he's shouldering a share of the blame and considering life outside the CEO's chair. But don't expect a complete departure from the leadership team is forthcoming. As a 27 percent owner of the company, Schnatter's influence will remain strong for the long term.

* Birth of delivery driver unions. Despite two failed attempts to start delivery driver unions in pizza shops in Nebraska and Ohio, you can safely bet that members of the Association of Pizza Delivery Drivers will try again in 2005.

Reasons given for the failures of both votes this fall include disorganization on the part of voting drivers, pressure on employees from store operators not wanting drivers to unionize, and a lack of driver desire for unions.

Chalk up these early misfires to learning experiences that likely will be averted in 2005.

* Pizza Hut employee lawsuits. All the pizza industry should keep watch of two serious lawsuits filed against the world's largest pizza chain: one centered on delivery driver compensation; and another over whether some of the chain's assistant managers technically are exempt from overtime pay.

Should Pizza Hut lose either suit, pizza companies nationwide would face drastic changes in how their employees are compensated and given job titles.

* Corporate shakeout at Pizza Inn. Since a board of directors scandal rocked Pizza Inn, majority shareholder Newcastle Partners has worked methodically to change the make-up of the struggling pizza chain's leadership. With two of four senior officers gone, the writing may be on the wall for the remaining pair, vice presidents Ward Olgreen and Shawn Preator. Along with Parker and Clark, they participated in employment agreement revisions designed to line their pockets while clearing the coffers of Pizza Inn.

The change in leadership, hopefully, will get the company moving forward again toward a return to its early 1980s glory, when it had more than 800 units.

A look at my predictions for 2004, and five new ones for 2005

To be fair and admit when I'm wrong, let's have a look at some predictions I made for 2004.

1. Cheese prices won't spike as they did in 2003. (Hmm. Seems I was about 60 cents per pound off the mark.)

2. Two chains to watch: CiCi's Pizza and Papa Murphy's Take 'N' Bake Pizza. (Not exactly a bold, daring pick, I know, but a correct one. These two will continue to change the pizza landscape with their respective well-executed all-you-can-eat buffets and take-and-bake pizza concepts. Though industry watchers wonder if a public offering is inevitable for both chains, my sources tell me it's definitely not on the menu at Papa Murphy's, but that it will happen at CiCi's within the next few years.)

3. Pizza Hut's Italian Bistro concept will be one to watch. (This hasn't happened quite as quickly as I thought it would, but if you listen to the enthusiasm in the voices of the Yum! Brands brass on public conference calls, you can bet it's only a matter of time before we see more of these units.)

4. The low-carbohydrate trend will have a negligible and temporary effect on pizza. (It appears I was right with this one. Even operations that rolled out low-carb pizzas report that sales of regular pizzas weren't impacted by the low-carb craze — which appears to be dying a slow death lately.)

5. Gift card use will skyrocket. (I can find no evidence to support this prediction, though Pizza Hut began offering its gift cards in Walgreen's pharmacies nationwide.)

Predictions for 2005

1. The cheese price roller coaster will be much smoother this year, but expect prices to remain above average while supplies remain firm but balanced.

2. While continuing to promote their core pizza products most heavily, more chains will add healthful offerings, such as salads. Expect to see these offerings bundled in family meal deals.

3. Despite high cheese prices, operators of all size will experiment and offer broader and more vividly flavored cheese combinations on pizzas.

4. High gasoline prices and the increase of crimes against delivery drivers will result in the formation of at least a half dozen driver unions next year.

5. Pressure from drivers to increase reimbursement will drive the increase of delivery charges at large pizza companies.

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