- WHITE PAPERS
COLUMBUS, Ohio—Jim Grote is a man in full.
Contented, confident, wealthy and healthy. At 60 years old, he plays basketball in an "over-50 league," but he probably could lie his way onto the over-40 squad.
As if the life of Grote couldn't be any more charmed, he's back at the helm of the company he founded, 182-unit Donatos Pizzeria—which he sold to McDonald's Corp. in 1999 for an undisclosed but "couldn't turn 'em down" offer. And in December 2003, he bought it back for, you guessed it, an undisclosed but "couldn't turn 'em down" offer.
"Yeah, it was a win both ways," said Grote, smiling and leaning comfortably in a booth in one the company's pizzerias. "But McDonald's was a great company. They were very good to us. They really took care of us when they decided to sell (Donatos) back to us. The whole thing was a great experience."
And a learning experience as well: a 43-month-long course in operations done the Golden Arches way, the scientific, calculated way, a way largely foreign to Jim Grote.
Donatos' pre-McDonald's product trials were simple: get customers' opinions on new dishes, and if they garner enough thumbs up, put them on the menu.
McDonald's did much the same, said Grote, but to the nth degree. Using focus groups involving as many as 150 people, McDonald's questioned participants about every facet of Donatos' products and restaurants. Once collected and distilled, their answers set the direction for Donatos.
"Those focus groups determined what you were going to sell, what the product was going to be like, what your store would be like. It was helpful," but to a limited extent, Grote said. "It's a really good tool, but there's a danger of letting that drive your decisions beyond your instincts and what you know about the business. It's got to be part of the equation, not the answer to it."
In fairness, Grote said, that process is necessary for a large company like McDonald's, whose decision makers include engineers and food scientists charged with refining and streamlining every process. "There's a tremendous amount of skilled talent involved with that. It's an amazing thing to see."
Trials and triumphs
For years Grote dreamed of selling his company to a larger one that could grow it exponentially. Jack Greenberg, the McDonald's CEO who green-lighted the pizza chain's purchase in 1999, tried to grant Grote's wish, but never could.
Now when people ask him, " 'Why would you ever go back and put all this responsibility back on you?' And I have to say, 'Well, it's like somebody else had my kid for a while.' So I guess I welcome that responsibility.
-- Jim Grote,
But by 2001, McDonald's was having second thoughts—not about Donatos, but how to grow it.
Times were tough for McDonald's. Comparable-store sales at its flagship hamburger brand stores were negative, and the chain's stock price was sliding downward with the rest of the market.
Perhaps most telling is Grote's admission that Donatos wasn't prepared for the growth at the speed McDonald's wanted. To add stores quickly, Donatos had to pull its best managers from its most successful stores, plus it had to teach those managers how to serve customers in its new dine-in units.
"Before the sale, we'd always been carryout and delivery. But after the focus groups, it was decided that we were going to do dine-in, too," Grote said. "We'd never had that hospitality element in our operations."
Almost immediately, the dine-in units struggled; 23 new Donatos units were opened and closed in Atlanta alone. Worse yet, older Donatos, without their experienced managers, suffered as well.
Grote credited McDonald's with recognizing the problem and stepping in to teach Donatos its training system. But that help may have arrived a little too late to reverse the losses—at least in the opinion of its stockholders. By 2003 McDonald's stock was half its 2000 value. Market analysts roundly criticized the burger giant for not doing enough to fix its core business and accused it of being distracted by its Partner Brands (Donatos, Chipotle and Boston Market).
Despite analysts' cries to sell the Partner Brands—not to mention newly appointed CEO Jim Cantaloupo's numerous hints that he might do just that—McDonald's kept working with Donatos, helping train Grote's team and refine its systems. Those lessons, Grote said, are the most valuable he received while at McDonald's. They've also positioned the pizza company for future growth through franchising, which should begin in 2005.
"The way we trained people in the stores was raised to a whole new level during those four years," said Grote, recalling how Donatos trained its people prior McDonald's ownership. "Before, the manager became a manager because he was the best pizza maker. Then the next-best pizza maker was the assistant manager. Well, that didn't necessarily mean that manager was the best businessman for the job, but that was the traditional way we did it."
Now every Donatos' store management team is thoroughly cross-trained to set standards. Each person must master every role in the store, the goal is to prepare them over time to manage another store.
"This allows us to take a manager away from a store without leaving the store with untrained people," Grote said. "We've found that there's a $5,000-a-week variance between a store run by a really good manager and one run by a rookie manager. That shows how important it is to find the right manager."
McDonald's also freed Grote to focus on food, which he calls his strong suit. When asked whether Donatos' pizza was changed while under McDonald's—as many long-time Donatos customers insist it was—he chuckled.
"It's horse hockey," he said. "That's what I was most nervous about after the acquisition, especially with our classic thin crust. ... The only thing we did was developed a proofing system that proofed it longer and gave it a little more flavor. We've got the same dough recipe, the same sauce, the same pepperoni—those specs are tied in as tight as you can tie them."
Owning Donatos again is a bit of a mixed blessing, Grote said. While he enjoys calling the shots again, he's also had to seek out and choose an insurance carrier for his employees, set up a 401k program, tasks McDonald's handled for him. The responsibilities are heavy again, he said, but they're not weighing him down as they did before the sale.
After the acquisition, "it was the first time in my life I didn't owe anybody anything. I was sitting there with a big pile of cash and with all those responsibilities lifted off of me. I felt like I was two inches taller," he said. Now when people ask him, " 'Why would you ever go back and put all this responsibility back on you?' And I have to say, 'Well, it's like somebody else had my kid for a while.' So I guess I welcome that responsibility."
Also unlike when he was at McDonald's, Grote has to watch his company's expenditures closely. Not that McDonald's had loose purse strings he said, "but you knew for sure that they weren't going to run out of money!"
The leadership pressure is different now, Grote said, and mostly because his McDonald's experience made him a wiser man and a smarter operator. Not only did it help him see the pizza business in a new light, it uncovered the business potential of his daughter, Jane Grote-Abel.
Bill Rose, who McDonald's installed as president of Donatos when it bought the chain, expanded Jane's duties beyond the human resources department by adding oversight of areas in development and operations.
"Bill saw things in her that her dad might not have," Grote said softly. "He saw her afresh and she really flourished during that time. And now she's the chief operating officer."
Does that ensure her ascent to the Donatos throne when her father retires? Grote smiles and nods, but said he's not leaving anytime soon.
"I can't believe how getting the company back has energized me," he said. "Part of that energy is coming from Jane and the young team I've got around me, and part of it is just being challenged in a new way. As far as my time here goes, though, I'll be doing something with it as long as there's Donatos."
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