Sept. 14, 2010
When 2009 third quarter earnings for Pizza Hut parent Yum! Brands shored up a dismal 13 percent same-store sales decrease from the previous year, NPC International, its largest franchisee, famously took its franchisor to task. NPC CEO Jim Schwartz’s call for the franchisor to step up and find the right message to connect with consumers made a dramatic splash in the industry media. Afterward, the company found its footing, spearheaded on a $10 pizza promise and new ad campaign. Subsequent earnings numbers have been climbing.
NPC is among the few franchisees that can command such respect and attention. Its sheer size – 1500 stores -- makes it one of the ten largest fast food chains in the nation, nevermind franchisees. And as Schwartz will tell you, 44 of NPC’s last 50 quarters have seen same store sales improvement. How does a franchisee weave such a success story? We asked Schwartz himself, who has been with the company for almost 20 years.
What sort of organizational fundamentals do you preach to your top team-members that allows you all to achieve your level of success?
I think it’s a few things: One, we’ve always been a very conservative company. Conservative companies, especially in markets like ours, survive and do very well. Secondly, we’ve always said, we really are just in the people business, and in the good people business. … If you look at our executive team here, the lowest number of years in terms of tenure is 12. We’ve got a very experienced team that works well together.
What do you mean by “conservative”?
I think ideology is the better way to say it. We are not a fancy company; we fly coach. We don’t stay in fancy hotel rooms. We live a conservative spirit, which started with our founder back in 1962. Fiscally we are as well: it’s an ideology that plays through every decision. We never take on huge amounts of debt (for example).
Are there any sort of consistent differences between your system and the franchisor’s? I know you're bound to many things as a franchisee, but where does your system tend to differ?
There are always going to be cultural differences you have when you go from one Pizza Hut franchise to another, or company store. We tend to stretch higher on quality cues the consumer sees. But I’ll tell you the big difference with us versus the franchisor: When they own a few hundred stores, it’s more about the brand and marketing. We are much more profitability and operations focused. And I’d think you’d see that with (most franchise concepts).
What has been your biggest challenge in the last five years?
The year 2009 was personally my biggest challenge in my career, period, with the economic downturn and its impact to the consumer. And quite honestly, as has been decently documented, Pizza Hut was not connecting with the 2009 consumer. We (NPC International) take great pride in our same store sales growth – in fact we’ve had same store sales growth in 44 of the last 50 quarters. We’re not happy 2009 was our most negative year. So how do you keep people motivated? How do you ensure financial strength of the organization? How you do those things is the most difficult (challenge), I find.
How do you hire new team members -- what do you look for?
It really starts with one thing for us – we try and identify people that have a passion for serving customers. Once we find those kinds of people – I don’t care if its one of our great team members, or executives – you have to be about enjoying customers. If not, you don’t have a connection.
We can determine this face to face with pointed and key questions. We also do testing around that issue. When you match those things up, you get a good personal profile.
How are you picking new locations?
We’re pretty saturated, but out there looking for new, more non-traditional locations. We’re asking, what about the territories or areas we’ve never thought of? The small town with lots of traffic flow because it’s a growing bedroom community? Or travel town – people going from larger to smaller locations to live outside the city? We’re just starting to think about those nontraditional locations.
We’re also working with military these days to look for those; working with school systems is something we’re always done, but we’re expanding that platform. In terms of new physical footprint sites, I’d limit that to new territory that we’ve never thought about because it was (previously) not big enough for us.
What new legislation concerns you most?
What’s important with respect to legislation is that Washington needs to understand the impact business makes on the economy. And I feel Washington may be out of touch with that. Small- and medium-sized businesses make the U.S. as unique as it is, with that entrepreneurial spirit. That growth spirit is something we need to make sure we have legislation that addresses, not legislation that makes guys like me, CEOs, sit around and wonder, “I don’t know if I should grow because that might happen to me.” There’s too much unpredictability in Washington. There’s an agenda that leaves us concerned and confused about what legislation may lead to in the future.
What do you think is the secret to being a successful franchisee?
I think there are times you have to remember: you are a franchisee. I think that sometimes, the franchisee wants to be the owner of the brand. You’re not. And to try and create differences simply because you’re not, creates unnecessary conflict.
Plus, great franchisors listen to smart franchisees.
What other pizza chains do you admire? What restaurant executives impress you?
Who do I think shows the most guts these days? Domino’s. Their attack on themselves on quality of product was as bold as I’ve ever seen. Not saying I admire it, but it’s one heck of a gusty move.
As for executives: The McDonald’s organization led by Jim Skinner. I’ve never seen someone that, with as much as they’ve done in last five years, expand that demographic and daypart base as successfully as his team has, with an operating platform that seems to work well. And operations seem to have improved, despite doing more business in those dayparts and demographics. It also seems they have the respect and admiration of franchisees, who are wiling to follow. And where necessary, they’ll step up and incentivize franchisees to make these investments. It’s very impressive from an executive standpoint.
It’s also fun to watch up-and-comers; what’s really cool about them is the innovative spirit. Growing from an innovative company to a franchise company, that’s where it becomes a challenge. But I love the innovation.