Bertucci’s Inc.

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Bertucci’s Inc.

14 Audubon Road
Wakefield, Massachusetts 01880
U.S.A
(617) 246-6700
Fax: (617) 246-2224

Public Company
Incorporated: 1984 as Bertucci’s Inc.
Employees: 4,502
Sales: $120.2 million (1995)
Stock Exchanges: NASDAQ
SICs: 5812 Eating Places; 6719 Holding Companies, Not Elsewhere Classified

Bertucci’s Inc., a casual-dining chain, owns an ever-growing collection of full-service Italian restaurants that operate under the name “Bertucci’s Brick Oven Pizzeria.” During the mid-1990s there were roughly 80 Bertucci’s restaurants scattered throughout 13 states in the eastern United States, each of which featured wood-fired brick ovens (which cook hotter than conventional pizza ovens) and served gourmet pizzas, salads, soups, and pasta dishes. Founded in suburban Boston, Bertucci’s expanded quickly during the 1980s and 1990s, growing from a single restaurant in 1981 to the sprawling restaurant chain it had become by the mid-1990s.

By the time Joseph Crugnale decided to invest his time and energy into building a chain of Bertucci’s Brick Oven Pizzeria restaurants, he had already amassed a substantial fortune, enough to warrant an early retirement for the Italian-born restaurateur. Remarkably, Crugnale had placed himself in this enviable position, sitting atop a $4.5 million fortune after less than a decade of work, by the time he was 31 years old. His greatest success, however, was still to come. Bertucci’s would be Crugnale’s crowning achievement, overshadowing by far what he had accomplished during his 20s and increasing his already sizable fortune considerably. From a single restaurant in 1981, Bertucci’s developed into a chain that, during one five-year period, grew by 3,157 percent, quickly inundating the midscale restaurant market surrounding the Boston area with a collection of full-service restaurants. As the chain grew, extending its presence outside of Massachusetts and then outside of New England, Crugnale’s reputation grew, making both the founder and the company models of success in the U.S. restaurant industry.

Born in Sulmona, Italy, Crugnale landed his first job in the restaurant business after his family emigrated from their home country and settled in New England, where during his high school years Crugnale worked as a porter at the Sonesta Hotel in Cambridge, Massachusetts. Crugnale accumulated additional experience by working in restaurants in Massachusetts and Florida, gaining expertise in cooking from the chefs there, before making his entrepreneurial debut in 1974 when he opened his own ice cream stand. The following year, Crugnale refinanced his father’s home and purchased Steve’s Ice Cream from founder Steve Herrell, paying $80,000 for the enterprise that eight years later would make him a multimillionaire.

Origins

Crugnale built Steve’s Ice Cream into a lucrative national chain, establishing 26 stores through franchising agreements by the time he sold the concept to Integrated Resources in 1983 for $4.5 million. Under Crugnale’s stewardship, Steve’s Ice Cream had become wildly popular and it also indirectly spawned the creation of his signal success, Bertucci’s. Two years before Crugnale divested himself of Steve’s Ice Cream, he opened the first Bertucci’s Brick Oven Pizzeria in his home town of Somerville, Massachusetts, establishing the Italian restaurant, with its wood-fired brick oven, two doors away from one of his Steve’s Ice Cream stores. At the time, the reason for opening the Italian pizzeria was to eliminate the possibility of an ice cream competitor moving in; eventually, however, its existence would transcend any connection to forestalling the establishment of a competing ice cream shop.

The drive to secure prime real estate dictated Crugnale’s actions after he sold Steve’s Ice Cream, leading the Bertucci’s founder into the real estate business. With the $4.5 million gleaned from the sale of his ice cream chain, Crugnale embarked on his new career in real estate. After less than two years, though, he became bored with malls and office buildings and reconsidered the potential of his pizzeria concept. Crugnale was convinced that Bertucci’s, a name he had picked out of a magazine on a flight to New York, would work on a larger scale, with the restaurant’s wood-fired brick oven and exotically topped pizzas providing the distinguishing characteristics for a chain of pizzerias. Crugnale made bold plans, resolving to open 20 Bertucci’s Brick Oven Pizzerias during the ensuing five years, investing his future efforts wholly in achieving with pizza what he had previously accomplished with ice cream.

Expansion Begins in Mid-1980s

Crugnale’s ambitious expansion plans began with the opening of two restaurants in January and April 1985, each outfitted with an open-hearth brick oven fueled by hardwood logs and each serving specialty pizzas topped with an eclectic array of ingredients such as artichoke hearts and roasted eggplant. The wood-fired brick ovens, inspired by a visit to his grandmother’s home in Italy, became the hallmark of Crugnale’s restaurants as he expanded the chain during the mid- and late 1980s. He began by establishing units throughout the Boston metropolitan area, then moved outward in concentric circles, saturating white-collar markets in the region surrounding Bertucci’s corporate headquarters in Woburn, Massachusetts. Crugnale endeavored to fulfill his objective of establishing 20 restaurant units by 1990, and he designed each restaurant differently, avoiding the presentation of Bertucci’s as a chain. Crugnale also eschewed financing the expansion through franchising agreements, something he had been pressured into doing when he operated Steve’s Ice Cream and for which he evidently had developed a distaste. “Franchising is a different business,” Crugnale explained to Restaurant Hospitality. “You have to operate under a different set of rules, a set of rules I don’t like.”

No two Bertucci’s were alike, yet each contributed profits to one company and that company was recording explosive growth as customers flocked to Crugnale’s restaurants. Although Bertucci’s was expanding at a rapid rate, little was spent on advertising to promote the chain’s growth. Instead, the company relied nearly exclusively on word-of-mouth recommendations to compensate for the less than one percent of revenues that was spent on advertising. As the chain grew to 14 restaurants by the end of 1989, recommendations came not only from satisfied customers, but also from dining publications in the Boston area and from USA Today, which listed Bertucci’s as one of America’s top ten pizza restaurants in 1989. As the company entered the 1990s coming off its astounding 3,157 percent five-year growth rate, expectations for the future were justifiably bright, educing Crugnale to project that in the decade ahead Bertucci’s would become a publicly traded company and would expand into a 100-unit chain with restaurants scattered throughout major metropolitan markets stretching between New England and Florida.

Ambitious Plans for the 1990s

Again, Crugnale’s expectations were decidedly ambitious, but the company was already moving resolutely toward becoming a pervasive fixture along the Atlantic seaboard by the beginning of the 1990s, having expanded its menu to include soups, salads, and an assortment of pasta dishes before moving into markets in Rhode Island and New Hampshire. To finance the realization of Crugnale’s proclamation, Bertucci’s became a publicly owned company in July 1991, when the company offered the 21 units composing the Bertucci’s chain on the market for $13 per share. By the end of the year, after sales had increased 30 percent from the previous year to reach $37.4 million and net income had increased a gratifying 90 percent to surpass $3 million, Bertucci’s stock price had nearly doubled, selling for $24.75 per share as the company continued to thrive despite the debilitative effects of a nationwide recession.

In 1992, when the number of Bertucci’s restaurants increased from 26 to 36, Crugnale inaugurated delivery and takeout services, fueling sales growth further. The company’s low food costs, which amounted to roughly 25 percent of sales, kept profitability high and rounded out what was proving to be a consistently successful enterprise on all fronts. The criteria for site selection during 1992 and in the years ahead were the same as the demographic factors that governed Bertucci’s expansion during the 1980s: an area populated by white-collar professionals, 100,000 people within five miles of a Bertucci’s unit, and average annual household incomes of $40,000.

Falters in the 1990s

Adhering to these stipulations, Crugnale pushed the Bertucci’s concept forward, rapidly pursuing his stated goal of establishing 100 restaurants by the end of the decade. The bigger the chain became, however, the more Crugnale and the rest of Bertucci’s management had to navigate in unchartered waters, leaving the company exposed to the uncertain vagaries of operating in unfamiliar markets. For years, Bertucci’s had expanded in concentric circles that rippled outward from the Boston area, but during the first half of the 1990s that strategy was abandoned to develop a more comprehensive geographic presence in the eastern United States. In 1994, when 18 new Bertucci’s units opened their doors, the company moved into a host of new markets, including Orlando, Ocean Township, New Jersey, Atlanta, and Chicago, widening the chain’s geographic scope substantially. The lack of familiarity with these and other new markets began to affect the company adversely. Sparking interest in some of the new units was proving to be more difficult than anticipated. By the end of 1994, when the company scaled back its expansion plans for 1995, announcing it planned to open between 10 and 12 units over the next two years instead of between 12 and 15 units in 1995 alone, the signs of wear and tear on the rapidly expanding chain were beginning to show.

Bertucci’s difficulties were not made easier by a wrongful death lawsuit levied against the company the following year, in 1995. A year before the suit was filed, a New Hampshire woman, Janet Walker, had dined at a Bertucci’s restaurant in Salem, New Hampshire and ordered a chicken pesto sandwich after reportedly asking the waitress whether or not the pesto sauce contained nuts, to which Walker was allergic. The waitress, according to the lawsuit, failed to mention that the pesto sauce did contain nuts, and as Janet Walker ate the sandwich she went into anaphylactic shock and then slipped into a coma. A week later, Walker died, prompting her family to file a $10.4 million lawsuit against Bertucci’s in July 1995.

Reassessment for the Future

The charges against Bertucci’s came midway through the bleakest year in the company’s history. Although sales increased 17 percent in 1995, eclipsing $120 million, and nine new restaurants were opened, the company’s profits plunged 43 percent during the first fiscal quarter, followed by a $2.92 million loss in the fourth quarter. By the end of the year, Bertucci’s was in the red, registering an $886,000 loss for all of 1995. The company that had spent all of its corporate life growing by leaps and bounds was now stumbling after its first decade of existence, reeling from the growing pains associated with what one industry observer characterized as a promising concept that tried to become a national power too fast. Crugnale conceded that there were problems hobbling the company as it entered 1996, but his comments characterized Bertucci’s difficulties as nothing extraordinary. “What happened to us is typical of what happens to anybody,” he related to Restaurant Business in January 1996. “You get beat up, you make mistakes, you stub your toe.”

In 1996, Crugnale and the rest of his management team were intent on proving that Bertucci’s difficulties merely represented a minor, temporary injury. Although the company expected to open eight new units during the year, the strategy for the future included a slower pace of expansion than recorded in the past, that is, opening smaller restaurants, renovating units more frequently, marketing more aggressively, and developing a greater presence in existing markets before entering new markets. Despite the signs of growing too fast, too soon, Bertucci’s represented a powerful force as it entered the late 1990s, buoyed by sales that had grown exponentially during the course of its existence. Whether or not Crugnale and the rest of his management team could maintain a commensurate pace of growth in the future hinged on the success of the company’s revamped strategy for the late 1990s and the continued popularity of Bertucci’s Brick Oven Pizzeria restaurants.