Godfather’s Pizza Incorporated

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Godfather’s Pizza Incorporated

9140 W. Dodge Road
Omaha, Nebraska 68114
U.S.A.
(402) 391-1452
Fax: (402) 255-2685
Web site: http://www.godfathers.com

Public Company
Incorporated: 1973
Sales: $265.0 million (1997)
SICs: 2038 Frozen Specialties, Not Elsewhere Classified

Godfather’s Pizza Incorporated (Godfather’s) is the nation’s fourth largest pizza chain, with more than 500 corporate and franchised restaurants located in 40 states. The company initially prospered based on its introduction of thick crust pizzas with multiple toppings. Its primary competitors include Pizza Hut, Domino’s Pizza, Little Caesar’s, and Pizza Inn.

The 1970s: Godfather’s Heritage

In 1973 Godfather’s was founded in Omaha, Nebraska. While operating under the ownership of Diversified Foods Inc., a period of rapid growth ensued. The Pillsbury Company, the Minneapolis-based giant food corporation whose products include flour, baking goods, Green Giant foods, and Haagen-Dazs ice cream, bought Godfather’s and operated it as a subsidiary. Pillsbury also owned numerous restaurants, including Quick Wok, Bay Street, Key West Grill, Steak and Ale, Bennigan’s, and Burger King. From 1977 to 1979 Godfather’s was the fastest growing food chain in the United States in terms of sales growth. Development of the chain continued until its peak in 1984, when the company amounted to 911 Godfather’s restaurants, generating annual sales of $365 million.

Following that growth period, intense competition within the pizza business and the failure of many of its stores to open in prime locations resulted in declining sales and profits. In 1986 Pillsbury appointed Herman Cain, an employee of Pillsbury Company since 1977, as the new Godfather’s president. Cain had earned an impressive reputation previously with the Burger King restaurant chain division in the Philadelphia region, where he had rescued several of their operations. At the outset of his efforts to enhance stability for Godfather’s, Cain worked to settle several lawsuits filed by franchise owners, disposed of money-losing units, arranged for many of its units to provide home-delivery service, and introduced new products such as bacon-cheese-burger pizzas. Under his management the company showed profits for the first time in three years, according to Stephen Madden of Fortune.

In January of 1988 Pillsbury announced that, because of weakening corporate profits and difficulties in competing with McDonald’s, the fast food industry giant, the company planned to sell or close approximately 103 of its fast food and full-service restaurants. The company’s stock had plummeted approximately 62 cents on the New York Stock Exchange prior to the announcement, but began a steady climb after the restructuring announcement was made. Calvin Sims reported in the New York Times that “the restaurants that Pillsbury plans [ed] to divest itself of have been a $150 million drain on operating revenues and about $20 million drain on profits.” Pillsbury reported that it primarily intended to refocus attention on its Burger King restaurant operations, which had proven more successful than the others.

As part of the restructuring—and prompted by takeover rumors—Pillsbury encouraged a leveraged buyout of Godfather’s by a group of senior managers, led by President and CEO Herman Cain and Executive Vice-President and COO Ronald B. Gartlan. The purchase price was not disclosed, but was estimated by some analysts at $100 million. At that point, Godfather’s ranked fifth in the pizza segment lineup, having slipped from its third place ranking in 1985. The chain continued to face considerable competitive challenges and reported that although most of the company-owned businesses were profitable, many of its 420 franchisees, which paid royalties to the parent company, were not. Cain told James Scarpa of Restaurant Business Magazine that Godfather’s aim over the next several years was to move from fifth to fourth place in the ranking. Staffing levels were expected to remain the same, but to help finance the purchase, which was provided by Citibank, certain assets were sold. Cain stressed, “The easiest way for a big public company like Pillsbury to meet its goals to compound earnings per-share-growth is by opening more units and making investments that are bigger, bigger, bigger…. Opening units is a nice short-term way to help increase earnings.” Cain continued, “But long-term, if you don’t have people and resources to do that as effectively as you run your existing units, you can get into trouble.” He emphasized that their goal was not to surpass the competition in the number of units (Pizza Hut, for example, had 5,800 units at that time). Rather, he explained, “... our goal instead is to surpass them in average unit sales, which relates back to quality.” Cain reasoned that the ranking was misleading because Godfather’s average per unit volume of $429,000 almost matched the $466,000 per unit volume of Domino’s Pizza, and in their strongest regions Godfather’s outperformed the competition in unit volumes.

The company decided to concentrate on saturating several strong regional pockets, like the Seattle, Washington area, rather than trying to establish a larger national presence. Other strongholds included market areas such as Omaha, Nebraska; Kansas City, Missouri; Minneapolis, Minnesota; and Salt Lake City, Utah. Before looking to new markets, the company initiated a company store remodeling program and then planned for future expansion outside of existing markets. Under consideration were the vicinities of San Francisco, San Diego, and Pittsburgh; international markets also were suggested. Rather than relying heavily on passive income from the franchisees, Godfather’s anticipated maintenance of a core of 20 to 30 percent company-owned stores.

Delivering Convenience in the 1980s

In 1986 Godfather’s initiated a one-number pizza delivery system as a trial in the Seattle region, hoping that the one-number convenience would give the company a competitive edge at a time when the home delivery of pizzas was on the rise. According to company reports, home deliveries had grown to account for 60 percent of the pizza business, up from 40 percent a few years earlier. The company expanded the one-number program to the more than 60-unit Spokane and Yakima Washington markets, before considering the extension of the program systemwide. Menu development was another area undergoing changes. Specialty pizzas, including apple and cherry dessert pizzas topped with fruit fillings, were introduced. The company originally had eliminated their salad bars in favor of “Walk Away Salads,” in an attempt to focus on cost control, but found that since most of their restaurants were in strip malls, the prepackaged salads were not adaptive to that type of customer traffic. They opted to reinstate the salad bars in the form of luncheon buffets that included all-you-can-eat pizza slices.

In an attempt to catch up with the enormous advertising campaigns of its competitors, Cain also implemented a new media thrust soon after taking over the company. Godfather’s hired the ad agency Buckley/DeCerchio New York and created a humorous TV character called “Spooner Wiggins, Godfather of the Airwaves.” Scarpa described Wiggins as “an irreverent call-in radio show host who mixes good-natured barbs with plugs for Godfather’s Pizza.” The spots, he said, were “designed to boost awareness and create a ‘fun halo’ for the concept, much as the successful Noid character did for Domino’s.” In addition to TV advertising, Godfather’s became one of many corporations to introduce its products into the public schoolroom. Following the lead of Everything Yogurt, in particular, Godfather’s developed pizza-related games that elementary school teachers could use to “target” second and third grade children to master the basics of addition, subtraction, and fractions. Students were rewarded for good performance with certificates of achievement that could be redeemed for pizza coupons. Cain told John Soeder of Restaurant Hospitality, “When we tested this concept in classroom settings, we discovered that students not only worked harder when pizza was used as an incentive, but they also displayed more interest in the subject and learned basic mathematical facts more quickly.” He continued, “Kids love pizza. We wanted to channel their interest and enthusiasm in a positive way.” Cain’s industry-related accomplishments were rewarded by the International Foodservice Manufacturers Association, who presented him with the 1991 Gold Plate Award, naming him “Foodservice Operator of the Year.”

In October of 1992 Godfather’s started a new TV and print advertising campaign with the introduction of a new pizza product called the “Jumbo Combo.” Touted as oversized and price-friendly, the more than five-pound, 18-inch-diameter pizza sold for $13.99 and featured six toppings: beef, pepperoni, sausage, black olives, mushrooms, and onions. The company’s standard large pizza measured 14 inches. In addition, the company released the specialty “Super Hawaiian” pizza, a combination of “tropical” tasting ham, pineapple, bacon, green pepper, and mozzarella cheese, offered as a buy-one-get-one-free promotion.

Company Perspectives:

The mission of Godfather’s Pizza Incorporated is to profitably provide consistently good food and great service.

1992: Testing the Supreme Court Concept

In response to consumer demand for convenience and quality, Godfather’s became one of several branded chains who entered into the supermarkets. Cain told Louise Kramer of Supermarket News, “Brands create a certain expectation for the consumer. They say ‘quality.’ Shoppers know what they are going to get.” The partnership of the two food sectors was initiated because it was determined that 45 percent of the food dollar was going to restaurant and food service, while 55 percent went to supermarkets. In 1992 it was expected that five percent of Godfather’s business would be located in supermarkets within the following five years, and the company had already identified a large number of potential locations. The restaurant-within-supermarket food court concept was dubbed the “Supreme Court” and was implemented on a trial basis in the fall of 1991. The first was located inside the Price Chopper units of two Kansas City Ball’s Super Food Stores. The other Supreme Court was placed in a Riser Foods Rini-Rego Super-market, but was pulled later because of lackluster performance, according to Roseanne Harper of Supermarket News. Godfather’s management was hoping to draw in customers who might be skeptical about trying a supermarket pizza. Independent concept managers felt that it was important to offer variety by having several restaurant choices, with three as the minimum, rather than operating as a stand-alone operation. Other branded restaurant programs moving into the supermarket courts included Chi Chi’s, Bennigan’s, and Ricky Shaw’s Oriental Express, but they were less successful than Godfather’s, whose officials claimed that new management of the Supreme Court concept by Philadelphia-based ARA Services (one of the country’s largest foodservice contract companies) had improved efficiencies on site. Godfather’s fine-tuned their supermarket menus after experimentation showed that small pies and pizza by the slice were not selling, so they switched to offering only medium and large sizes. Supermarkets were hoping that alliances with restaurateurs who could share their experience would add to long-term profitability. According to a Supermarket News interview with Mike Clifford, a spokesman for Godfather’s, the company succeeded where others had failed because “we spent a lot of time developing products that fit the needs of those particular consumers. For example, we developed freshbaked, topped pizza for self-service. That required modifying our formulation to give it some shelf-life.” After having made a major investment in the Supreme Court and having learned from ARA’s organization and trainers, the company found that they could do better by running a program of their own, called the Fresh-To-Go Shoppe.

An Offer He Couldn’t Refuse: 1994

Herman Cain, whose academic background included a B.S. in mathematics from Morehouse College and an M.S. from Purdue University in computer science, became the 73rd president of the National Restaurant Association (NRA) and began his active political career as a speaker and lobbyist for the food industry, while maintaining his title as chairman of Godfather’s. His CEO duties were handed over to President Ron Gartlan. As the new NRA spokesman, Cain announced that he would focus his attention on “reforming the tax code, elevating the image of the industry and increasing the size of the association,” according to Amy Zuber of Nation’s Restaurant News. Cain was recognized as an active Republican who campaigned for U.S. presidential candidate Bob Dole during the 1996 race. “His stature in the field led Jack Kemp to anoint him the Colin Powell of the restaurant industry—and then to seek his support during the November election,” reported Peter Romeo in Restaurant Business. Romeo also stated that some in the industry worried that Cain’s “highly publicized face-off” over President Bill Clinton’s health care plan could hamper the industry under the Democratic administration. Cain had toured the country in a grass roots effort to warn those in the industry of the potential ill effects of Clinton’s health reform initiatives, positioning himself as a leader on those issues and bringing the food industry into the forefront of media attention. He argued that Clinton’s health care proposal would cost his business more than the 2.5 percent of sales that the administration had estimated, claiming that Godfather’s would have to increase the volume of sales by 16 percent to generate enough to cover the proposed mandated costs. He also argued that government intervention in the form of increasingly costly entitlement programs such as Medicare and Welfare were putting an overwhelming strain on the industry. Cain further established his leadership abilities when he was named deputy chairman and a director of the Kansas City branch of the Federal Reserve Bank, of which 12 branches exist nationwide, and when Nabisco Holdings Corporation named Cain chairman and chief executive officer to their board of directors.

As a leader for Godfather’s, Cain’s “empowerment” approach, which gives managers a vested state in store performance, has helped to keep the crew and management turnover at approximately half the industry average. He stated in a 1995 interview with Teresa Howard of Nation’s Restaurant News, “My next goal is for Godfather’s to reach its goal of financial independence.” He further stated, in reference to the company’s heavily leveraged debt, “I want to retire debt in order to allow us to grow the way we want to.”