Franchise deals to spur Donatos expansion

July 28, 2008
Just five years after its marriage to fast-food giant McDonald's ended in divorce, the 45-year-old Donatos Pizza is flying high again.
The Columbus, Ohio-based chain has unveiled a new logo, advertising, Web site and packaging in recent months and is in the process of remodeling its stores. And after years of relatively modest growth, the company has signed a number of franchise agreements that could add at least 75 more locations during the next five years.
"We are thrilled with the franchise relationships we are building to bring Donatos Pizza to consumers in new markets," said Jane Grote Abell, Donatos president and daughter of founder Jim Grote. "Our franchise partners are well-known, successful companies that are both highly experienced in the quick-service restaurant industry and passionate about our brand and products."
Donatos' partnership with Piedmont Pizzeria LLC is the largest franchise deal of the company's 45-year history. During the next five years, the Piedmont partnership will add 64 new stores in North and South Carolina to Donatos' current 175-store presence.
In addition to the growth into the Carolinas, Donatos is expanding its footprint in Ohio with franchise stores in five new cities. The company is adding locations in Athens, Ashland, Mason, Springboro and Toledo.
Joining the majors
Donato's founder Jim Grote, then a sophomore at Ohio State University, put down $1,300 to purchase a small pizzeria on the south side of Columbus in 1963. Over the next 35 years, Grote built the company into a 140-unit operation, in part with exacting standards that included strict attention to food quality and portion control such as weighing the amount of pepperoni topping each pizza.
By 1999, the company had caught the attention of burger behemoth McDonald's, which was looking to expand its non-burger business through acquisitions such as Chipotle Mexican Grill and Boston Market. McDonald's bought the chain from Grote for a reported $150 million, although Grote stayed with the company as executive chairman.
At first, the marriage seemed to be made in heaven. McDonald's stepped up expansion and added a number of full-service restaurants to the brand. The company also opened several locations in Germany as part of a planned international expansion.
However, the expansion stretched Donatos' management team and the operation began to struggle. Twenty-three full-service restaurants opened, then closed, in Atlanta alone.
"Before the sale, we'd always been carryout and delivery," Grote told Pizza Marketplace in 2004. "We'd never had that hospitality element in our operations."
In 2003, after recording the first loss in McDonald's history, the burger giant decided to refocus on its core business and sell the pizza company back to Grote. Although the price wasn't disclosed, it was rumored to be in the neighborhood of $50 million, a third of what Grote had sold it for.
McDonald's then-CEO Jim Cantalupo said the sale would help eliminate "distracting and unprofitable operations," reallocate resources to McDonald's restaurants, and provide a more focused growth platform for Chipotle and Boston Market. Since then, however, burger chain has sold off those two brands as well.
Returning to the fold
The company spent more than a year getting its operation back on track and still feels some of the after-effects. In June 2008, the company shuttered seven full-service restaurants in Orlando, Fla.
Although he remains chairman and CEO, Grote handed the reins of the company to his daughter, Jane Grote Abell, in April 2007.
"Since the buy-back our focus has been on product quality and profitability at the store level," Abell said when the handover was announced. "The last couple of years have been setting the stage for our future - our new concept store and a strong franchise growth plan. Our new concept store design reflects a contemporary, premium expression of Donatos and can be built very economically."
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The new store design boasts architectural features including an open kitchen, floor-to-ceiling windows, and a revamped menu wall.
The company has also upgraded its menu, adding new items such as flatbread pizzas and expanding its sub sandwich offerings. In 2007 Donatos eliminated trans fats from prepared products on its menu by reformulating dough used for pizzas and bread sticks, and switching to trans fat-free oils for fried menu items.
The company also redesigned its point-of-sale system and implemented a new dough proofing process to create a more consistent product and reduce the amount of in-store space needed to prepare the pizza dough.
Today, the company and its franchisees operate more than 175 stores in seven states. Additionally, Donatos operates nearly 70 Take & Bake kiosks in Kroger stores and offers products at 16 entertainment and sports venues.
"When I founded Donatos Pizza in 1963, my goal was to make the best pizza and to treat others the way I wanted to be treated," said Jim Grote. "I wanted a pizza place that I could build with my family based on those principles. Looking back, we built that and so much more."

Topics: Operations Management

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