Feb. 9, 2003
If you're ever stricken with insomnia or have too much time on your hands -- neither of these are problems for pizzeria operators, I suppose -- read an annual report issued by a publicly held restaurant company. Watching paint dry is more exciting than wading through the morass of cryptic legal lingo in these reports. And the math that makes up the meat of these documents is about out of the reach of anyone without CPA, MBA or CFO following his name.
Every business reporter owes a debt of gratitude to the stock analysts who live to pick apart these mysterious reports; those fine folk make sense of the numbers for the less-than mathematically inclined -- ahem -- and their analyses and speculation often yield solid story leads, such as the suspected sale of Donatos Pizzeria.
If you didn't read my story on the subject last week (see "Despite rumors, Donatos Pizzeria isn't for sale, says official"), I addressed the growing rumor that McDonald's Corp. will sell Donatos, the Columbus, Ohio-based pizza chain it bought in 1999. Since that time, little has happened with Donatos that couldn't have happened if founder Jim Grote still owned the chain.
In the 44 months since, Donatos' unit numbers climbed from 146 to 200 before falling back to 181 at the end of last year. In such a competitive restaurant market, net growth of 20 percent would impress most, but not when that company is owned by McDonald's Corp.
McDonald's total unit numbers are some 31,000, roughly 1,000 of which come from its four partner brands Boston Market, Chipotle, Pret a Manger and Donatos -- less than 3 percent of McDonald's total system. One analyst I spoke with called that percentage a mere "rounding error."
Steve Coomes, Editor
During the same 44 months, sales at McDonald's burger stores have fallen flatter than a Donald Trump endorsement, and its stock is now worth less than half its 1999 value. Immediate action, say analysts, is needed to right Ronald's foundering ship, and suggestions that McDonald's sell its underperforming "partner brands" like Donatos and Boston Market run rampant.
Both McDonald's and Donatos' officials deny a sale is imminent, though they admit they've heard the talk. It's business as usual until told otherwise, said a Donatos official, and that's surely the best course of action for now.
But word on the street -- specifically the streets of Columbus -- says Donatos is positioning itself for a return to its Grote days. Operators I've talked to claim there's no love lost between McDonald's and Donatos. Like college sweethearts married amid the glow of infatuation, both have become grumbling spouses who merely tolerate each other because they depend on each other's income.
Give them credit, they've tried to spice up the marriage with new menu items, progressive ordering systems and snazzy store designs, but the old flame only flickers.
Others I've talked to say the relationship hasn't soured at all. A key Donatos vendor I spoke with said the chain's moderate growth is more a sign Jim Grote is still in charge than a sign of struggle. The slow-but-steady expansion strategy, which with he built Donatos, remains its growth modus operandi, the vendor said.
Interestingly, Grote is slated to speak at the International Pizza Expo in Las Vegas this March, a move that runs counter to his near silence in the press since Donatos' sale to McDonald's. (McDonald's, it should be noted, has always kept the press at arm's length, so perhaps Grote's own sealed lips reflect that company's policy.)
Why then, will he now speak to a crowd of several hundred at Pizza Expo? Has McDonald's awakened to the marketing potential (read "franchisee-luring") of the inspiring and friendly personality guiding its Donatos brand?
Or is Grote going to announce something different, something along the lines of buying back his old company for a song?
Either way, it's interesting to consider the possibilities, fun to field phone calls from operators who've heard "Donatos people" have visited former suppliers to ask for "samples" that just so happen to be food products Donatos used before its '99 sale.
Is all of this mere rumor spread by food industry folk eager to chew and savor a choice morsel of gossip about a competitor? Maybe. Hasn't every successful operator, at some point, been buried to the knees in grist flowing from the restaurant rumor mill?
But I think the murmurings have some merit. The stock analysts who'll speak on the record say Donatos and McDonald's are destined for divorce, that parting will be sweet savings for the "Golden Arches" brand, which could use the cash.
I tend to agree with Morningstar analyst Carl Sibelski, who sees no point in McDonald's keeping a pizza chain it won't grow to at least 1,000 stores. "And I think (McDonald's) has proven that they're probably not going to be able grow that one," he said.
Who knows? Maybe I'm wrong. Been there done that, expect I'll do it again.
Let me know what you think by e-mailing me at email@example.com, or calling me at 502-241-7545.