- WHITE PAPERS
At first blush, the news appears scandalous: A pair of former Pizza Hut executives purchase a nearly five dozen Little Caesars stores, and aim to grow that number to 350. Think hard enough and you can almost envision a centurion in an orange toga brandishing a spear and storming a red-roofed castle.
But the real-life story lacks such tabloid drama. The truth is that two businessmen -- who just happened to have done well working as executives for the number-one pizza company in the world -- are back in the pizza business as competitors.
Perry Ludy, 50, and Terry Huffman, 48, launched Cutting Edge Pizza, LLC, in West Hartford, Conn., last summer. In the process they purchased 59 Little Caesars company stores in North and South Carolina, Virginia, Maryland, Missouri and Kansas. Neither will disclose the sale price, but Ludy did say a silent financial partner helped bankroll the deal.
Despite the potential for animosity between the men and their former Pizza Hut peers, both say they've had no harsh words with anyone.
"Some of those Pizza Hut guys, I still keep in touch with them, and they're pretty reasonable about the whole thing and wish us well," Huffman said.
Before leaving Pizza Hut 10 years ago, Ludy was a Pizza Hut regional vice president overseeing 1,000 locations, about 600 of which were company owned. Huffman was a director of operations under Ludy.
During that decade, Ludy served as president of an automotive glass replacement company and authored a book, Profit Building: Cutting Costs Without Cutting People. Huffman worked in investment and mortgage banking.
The pair since has reentered the pizza industry armed with ambitious goal to grow Cutting Edge to 350 stores in five years. Most of that number, Ludy said, will come from purchases of existing stores. That, he added, will allow each market to reach critical mass quickly, and pay for mass advertising efforts.
Despite the tall order before them, Ludy is confident Little Caesars' somewhat limited market reach makes their aggressive aims achievable.
"If you were talking about a chain that was all over the United States, it would be a bit more difficult," he said. "But Little Caesars is so under-penetrated, you can double the amount of locations and you'd still be underneath the radar screen of some of the big guys."
Voice of Experience
One person who knows well the sting of competing against his old employer is Dan Holland, president of Pizza Magia, a 35-store chain based in Louisville, Ky. And the bearer of barbs is Papa John's, where Holland served as president from 1990-'95.
Unlike Ludy and Huffman, cross words have been exchanged between Holland and Papa John's, which filed suit against Holland, Pizza Magia and some of its executives in 2000. At issue, essentially, are alleged trademark infringements and duplication of some of Papa John's systems.
"I don't envy those guys," Holland said of Ludy and Huffman and their reentry into pizza. "I was certainly surprised by the emotion that was there when I did this."
Holland says that while company-hopping is common in most industries, it's trickier and more emotional in the pizza business.
"Think about how lawyers go to other firms all the time or doctors change practices," Holland said. "But it's not quite as emotional there as in our industry ... because this industry is so competitive."
Holland stressed that it's always difficult on friendships when someone join ranks with a competitor.
"You really hate to see those friendships jeopardized when you go back to the industry in which you spent your whole career, like I did," Holland added.
For their part, Ludy and Huffman view the new competition differently. In fact, Huffman says that they're not really competing with their old company at all.
"Quite frankly, I don't think Pizza Hut views us as a competitor," Huffman said. "I think they're on a playing field that doesn't include us.
"Maybe it's just a different environment. But both Perry and I had been with Pizza Hut a long time, and we both left on good terms. In North Carolina, in fact, we're competing against a pretty good friend of mine that owns Pizza Huts there."
Given the struggles he's faced, what advice would Holland offer Ludy and Huffman if trouble arises?
"Be professional, abide by the rules, do the best job you can, and hopefully it can be friendly competition," he said. "Then, may the best man win."
Once Ludy and Huffman decided to get back into pizza, they did some extensive research to find the right chain. According to Ludy, Little Caesars' size offered the best opportunity for growth.
"Pizza Hut is a powerful company, almost located on any key street in the United States," Ludy said. "An organization like Little Caesars has far less units, but I think being able to come in and try some new things underneath the radar, if you will, is where I think the growth will be."
According to Huffman, Cutting Edge takes a detailed approach to managing stores: Huffman sees sales and labor figures for every store in the operation every day, and most other financials every week. Monthly meetings are held with all store managers, where they present detailed financials. "That alone has been worth several percentage points on the bottom line for us," he said." Ludy added that sales have grown 15 to 25 percent since Cutting Edge purchased those stores.
Ludy said that the next step in Cutting Edge's strategy is to reassemble his old team from people still working in the restaurant industry, but no longer with Pizza Hut. "Most of them are waiting for us to continue phase two of what we're doing with Little Caesars," he said.
"Phase two really involves turning on the sales faucet, now that we know we can control and direct that money to the bottom line," Huffman added. "We're doing some pretty aggressive value pricing, some things that are really turning sales on to serious double-digit growth right now. It's very exciting."
Little Caesars' product long has been recognized as a value entry, which is somewhat opposite of Pizza Hut's offerings. But Huffman says Cutting Edge isn't bothered at all by this difference in perception.
"Our image might be one that's generated more by our competitors rather than the actual consumer," he said. "I'm pretty proud of being the value choice."
In the end, Huffman said he won't look at brand names or product differences as a determiner of his company's success. He'll let the profits do the talking.
"I don't think you can argue with sales figures," he said.