Count down at Little Caesars

 
July 19, 2005

An official of Little Caesar Enterprises recently claimed the fourth-largest pizza chain in the United States operates nearly 2,000 domestic units.

Surprised?

If so, count yourself among many in the pizza industry who thought the chain ran significantly more units — close to double that number — including some of the Detroit-based chain's franchisees. The privately held company is legendarily reticent to reveal details about its operations, which made the July 13 unit-count disclosure by Little Caesar Enterprises real estate vice president Michael Atwell that much more startling.

One of the last published accounts of a Little Caesar's official stating a store count came in 1999, when chief operating officer Harsha Agadi told Pizza Today magazine there were 4,000-plus units in the system. His statement followed the closure of 400 units in a single night just three months before. (Agadi later left the company for undisclosed reasons.)

Over the next several years, Little Caesars unit closures in the U.S. and around the globe signaled a steady drop in outlets. In August of 2004, Nation's Restaurant News reported that Little Caesars' Uniform Franchise Offering Circular put the company's U.S. unit count at 1,720, significantly less than Agadi's 1999 claim, but without mention of international units.

Additionally, the store locator feature on the company's Web site lists no international units, and in the past few years, the company has pulled out of Mexico and Japan, countries in which it once planned to open a combined 900 units.

Hearing that Little Caesars had fewer than 2,000 units took Brent Snavely by surprise. (Read also Little Caesar's 2,000 pizza units are half the number claimed in 1999.) The veteran reporter from Crain's Business News Detroit has watched the chain from afar in his five years with the publication, but he was assigned to cover the company earlier this year. He reported on the July 13 real estate development meeting at which Atwell spoke.

"When he said that, I immediately thought it sounded low," said Snavely. "I'm sure I wasn't the only one thinking that."

Asked whether the company's system is truly half the size Agadi claimed in 1999, Little Caesar's spokeswoman Laura Baccella responded in an e-mail statement: "Little Caesars is a privately held business that does not disclose sales or store count numbers. Speculative statements by current and former company employees are inaccurate."

Agadi, now the chief executive officer of Atlanta-based Church's Chicken, did respond to a request for an interview.

Don McNeilly, executive director of the Independent Organization of Little Caesars Franchisees, said both Agadi's and Atwell's claims are likely accurate.

"I would say that both of those numbers are pretty close, based on stories and figures I've seen and based on when they were given," he said. "Store numbers have declined, so they're at least reasonable."

Does it really matter?

Telling a company's store-count story accurately has little to do with its public relations plan, but a great deal to do with honest and full disclosure in franchise sales. By law, the UFOC must state the number of stores in the system at the time it was published, and list the contact information of the operators of all those stores. Some states also require the UFOC provide contact information for franchisees who have left the system.

UFOCs typically are passed from a franchisor to a prequalified potential franchisee, though some services sell them for $200 to $300 each.

According to Reston, Va., franchise attorney Ellen Lokker, a UFOC must be updated at least annually, though state-by-state requirements may call for more frequent revisions if a serious material change occurs.

"Changes to the offering or the agreement (the contract with the franchisee) would be significant enough of a material change to warrant a revision," said Lokker.

Would the disappearance of 2,000 stores over the course of several years force Little Caesars to make an update? Not necessarily, Lokker said, if the decline were steady enough. Additionally, she said franchise laws aren't black-and-white rules when it comes to mandating particular updates. "It's more of a judgement thing, really, as to why they do it. But if a thousand stores closed in a year, that's certainly a material change worth noting."

What makes Little Caesars' refusal to state store numbers intriguing is its willingness to claim two years ago that, after an extended decline, it's now on a roll. In April of 2003, the company announced in a news release it had posted an 11 percent same-store sales increase for the prior 18 months — a time when its nearest-size competitors, Pizza Hut, Domino's Pizza and Papa John's all were battling barely positive, flat or negative comps. It also said franchise interest had increased more than 500 percent over the prior year. (read also Is Little Caesars truly rising again?)

What Little Caesars didn't do was back its claims with hard numbers. Mike Scruggs, the company's senior vice president of global operations told PizzaMarketplace at the time that the rate of new store openings all over the U.S. proved the chain was on the rebound. (When asked how many units were opened in the 18-month period in which it posted such strong sales, he declined to elaborate.) He added that sales of $5 "Hot and Ready" pies were driving customer counts dramatically upward and that "We'll probably be up about 19 percent on the whole year."

So how does the company claim such strong results when its store counts have slipped so dramatically? Little Caesars won't say. It also hasn't made any similar sales claims since 2003.

A large, multiunit Little Caesars operator who asked not to be identified, described the company's public relations peculiarities this way: "It's always kind of a mystery what the numbers really are."

McNeilly, a former franchisee, agreed. "The company lets us know what it wants us to know, and that's the way it's always been."

What isn't mysterious, McNeilly said, is the positive mood that exists today between the company and its franchisees. In short, everyone's getting along well, which is far different from the tumultuous times around the turn of the millennium.

"The company's happy and so are the franchisees," said McNeilly. "Hot and Ready has been the ticket that has turned this thing around. New franchisees are opening new stores all the time and the existing franchisees are putting in stores where they once were open before."

As best as he can tell, the store-closure tide of the past several years has been stemmed. "The only stores they're closing are when they want to relocate them in better spots. I see them reopening them three blocks away on a better thoroughfare. I don't think they're losing stores."


Topics: Little Caesars


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