ANALYSIS: Got Pizza Music Café: A happy tune or a sour note?

Sept. 21, 2004

Did you hear about the hot new blend at Starbucks?

It's not some coffee bean dream team born of the finest from Colombia, Kona and Jamaica. Rather it's a brew of music and java.

According to the Wall Street Journal, when Ray Charles's posthumously released album, "Genius Loves Company," hit the shelves in the first full week of September, it became the second-best-selling album in the U.S. Of the 202,000 copies sold for $15.95 each during the period, roughly 44,000 (21 percent) were bought at Starbucks' 4,200 U.S. outlets.

It's not known what percentage of that take went to Starbucks' till, but if it's half as some have told me, one would imagine the tune heard hummed 'round its Seattle headquarters is "We're in the Money."

Entrepreneurs Mike Muzio and Tom Fornarelli want to mimic Starbucks' lead with their six-month-old concept Got Pizza Music Café. First and foremost, it's a pizza concept, but like Starbucks,

Steve Coomes, Senior Editor

Got Pizza sells CDs on the side. The pair figures the pizza will draw customers (and pay the operation's overhead), and at the same time, expose customers to new artists and their music. If all goes to plan, customers will be properly serenaded and buy some CDs for carryout.

"I saw the numbers Starbucks is doing, and it's absolutely astounding," said Muzio. "With (4,200) outlets, they're the second largest distributor of music in the country -- a coffee shop!"

By comparison, the nation's number-one music seller is Sam Goody's (which also owns Musicland and FYE). Together the trio accounts for about 5,100 locations, just 17 percent more units than Starbucks. Granted, Starbucks has nowhere near the music inventory of Sam Goody's or smaller music sellers like Wal-Mart, Circuit City or Best Buy. But, said Muzio, a recording artist turned publisher who lives in Tampa, Fla., Musicland doesn't have Starbucks' daily foot traffic.

Pizza for a song

Muzio makes up the music half of Got Pizza Music Café, while Fornarelli covers the foodservice end. Their company operates under the umbrella of publicly traded Blue Moon Group (OTCBB:BMOO), which includes the pizza chain plus four independent record labels (Blue Moon Records [R&B and hop] Nebulous Records [dance-pop], Fat Cats Records [pop] and a soon-to-acquired country label).

Fornarelli is a Chicago resident, a former Rosati's franchisee and the founder of a franchise company called Pizza Cucina. With Got Pizza Music Café, he said he's taking "all the rights and wrongs I've learned about this business over the years" and pouring it into this new venture. In doing so, he is focusing on pizza and salads, plus some pasta dishes at select sites. "Everything we serve is made fresh every day; we only have enough storage for 24-48 hours."

The pair's growth plans are ambitious. According to Muzio, they want to grow from their current five stores to 50 by the end of 2005, and then to 250 by the end of 2006 -- without franchisees. Store numbers will increase either from new unit openings or acquisitions of established independent operations.

"There are potentially hundreds of smaller owner-operators to which we can offer an exit strategy through the public company," said Muzio. Basically, sellers would receive BMOO stock for their shops.

Once the Got Pizza Music Café trade dress and recipes are incorporated, the former owners would run their former stores as corporate employees for a few years before cashing out.

"Think of how many people run their pizza shop well for years and then sell it to somebody who runs it into the ground," Muzio said. "This allows them to stay in the business a little longer and run it as a Got Pizza Music Café."

Are we singing from the same page?

If you're at all like me, you're reading this and scratching your head about now. Though I like the core idea of Got Pizza Music Café, I have some serious reservations about whether Muzio and Fornarelli can pull it off. Among my concerns:

1. What operator eyeing retirement would trade his business for stock rather than cash? Great operators take years building strong businesses, and come quittin' time, they want greenbacks for their hard work, not stock in an unproven company. Cash, not stock, buys the luxury boat and the retirement home on the coast.

Now, less-than-great operators might go for the trade, but if they aren't great operators to begin with, what makes Muzio and Fornarelli want their businesses, or think they'll go from good to great as a part of their concept?

2. Of the five GPMC sites, three are in Chicago, one in Miami and one in Tampa. How many times have we all seen good concepts die an early death when their owners set up units in far-flung destinations? Trying to control food quality, people and cash from a distance often invites trouble with product consistency, management oversight and sometimes theft. This is especially tough for young companies that have yet to build deep and experienced corps of managers.

3. Great companies penetrate and dominate geographically narrow markets for multiple reasons, not the least of which is advertising. Word of mouth remains the best and cheapest advertising, but it's hard to generate when units aren't within a short driving distance of each other.

Advertising also becomes terribly expensive when one or two operators are trying to gain exposure in a given market -- especially ones the size of Miami, Chicago and Tampa. For example, Papa Murphy's Take 'N' Bake Pizza operators do next to no advertising until there are at least 10 units operating in a single market. At that point the company believes mass advertising is affordable (because the burden is shared) and penetration is high enough to potentially serve the majority of the folks that receive those media messages.

4. Starbucks shops are selling Ray Charles CDs while Got Pizza Music Cafés are hawking the tunes of far lesser-known artists. I count myself among the diehard fans of independent artists, but I'm the first to admit there aren't many of us. Independent artists typically have local followings, so if GPMC scatters its stores too widely, few customers will recognize those tunes or their players and may just ignore them altogether. Until GPMC becomes large enough to sell the works of better-known artists or one of Blue Moon's record companies discovers the next Britney Spears, selling CDs may be difficult.

Does the whole idea strike a sour note with me? Not really. I like the way these guys are thinking: like entrepreneurs. You've got to admire their courage to think outside the box and their smarts for aping Starbucks' success.

But perhaps the Blue Moon boys would be wise to remember how the coffee king built its core business first, and then added CDs to the menu.

Topics: Commentary , Marketing , Public Companies

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