Peter Piper, Inc.

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Peter Piper, Inc.

6263 North Scottsdale Road, Suite 100
Scottsdale, Arizona 85250
U.S.A.
Telephone: (480) 609-6400
Fax: (480) 609-6520
Web site: http://www.peterpiperpiza.com

Private Company
Founded: 1973
Employees: 50
Sales: $39 million (2003)
NAIC: 722110 Full Service Restaurants

Peter Piper, Inc. is the Southwest's leading family pizza and entertainment restaurant chain. The company and its franchises operate more than 150 pizza parlors throughout the southwestern United States and the Republic of Mexico. Its facilities range in size from 8,500 to 10,000 or more square feet and provide an abundance of seating and entertainment options, including big screen televisions, video games for teens and live-wire games, prizes, and play areas for small children. The restaurants serve a variety of pizza styles and toppings along with other items, including bread sticks, chicken wings, and salads. Most Peter Piper locations offer delivery service as well as dine-in seating. The company is backed by investment firms Venture West Group and Madison Dearborn Partners.

Origins

Peter Piper Pizza was founded in 1973 by New York native Tony Cavolo, a colorful owner and television pitchman whose thick New York accent made the chain's early TV campaigns memorable. Cavolo opened his first pizza parlor in Glendale, Arizona, with three guiding principles in mind: provide a quality pizza, sell it at a reasonable price, and make dining in his restaurant fun for kids of all ages. The operation first started out primarily as a pizza restaurant but slowly grew into the gaming business, from three to five games in the beginning to forty to sixty games later on. The formula proved to be a success, and by 1992 Peter Piper had established a regional chain of 100 dine-in/delivery/carry-out restaurants operated through ownership and franchise. The restaurants were located in Arizona, California, Colorado, New Mexico, Oklahoma, Texas, as well as Mexico.

Investors Buy Peter Piper in the Early 1990s

In November 1992, The Venture West Group, Inc., an Arizona investment company, acquired a majority and controlling interest in the Peter Piper. Venture West recruited new senior management and implemented a revitalization program to update and revitalize the Peter Piper concept. In July 1995, Peter Piper received a $12.8 million cash investment from Madison Dearborn Capital Partners P.P., a $1 billion Chicago-based investment firm that specialized in funding privately held companies. Mushtak Kahatri, the Madison Dearborn analyst overseeing the investor's stake in Peter Piper, refused to comment on future plans for the company. In August 1995, however, Peter Piper applied part of the financing to acquire its hometown and regional competitor, the 30-restaurant Pistol Pete's Pizza, and planned a program of conversion, renovation, and expansion to comport with the Peter Piper concept. The acquisition fit into the company's strategy of expanding its brand and updating its units, following a Phoenix prototype that was larger than its existing pizza parlors and featured brighter colors, games, and a menu of moderately priced counter-service pizzas. Peter Piper president Joseph R. Pederson said it was not the company's intention to expand the Pistol Pete concept but instead to convert all company-owned restaurants to the Peter Piper banner. The conversions would boost the company's business to 40 owned and 85 franchised stores.

Both Peter Piper and Pistol Pete's had similar business concepts in that they combined pizza and entertainment. However, Pistol Pete restaurants tended to be larger than those of Peter Piper, averaging 13,000 square feet to Peter Piper's new prototype size of 8,000 to 10,000 square feet, which seated around 300 patrons and allotted more than a quarter of its space to video games and other such machines. According to Pederson, the goal was to take a sleepy concept with a definable niche and take it national. With the acquisition, the company anticipated combined sales to exceed $100 million versus its previous annual sales of about $75 million.

On September 23, 1996, Rick Campbell, owner of the last two remaining Pistol Pete outlets, filed suit against Peter Piper, claiming that the company was attempting to monopolize the El Paso, Texas, pizza-restaurant market. Campbell alleged that Peter Piper and other parties had conspired to restrict his expansion in the market, had violated his franchise agreement, and had prevented him from converting his restaurants to the Peter Piper concept as other franchisees had done. The company, however, claimed that it had been supportive of Campbell's operations and denied violating any state or federal laws.

Peter Piper Rapidly Expands in the Mid- to Late 1990s

In November 1996, the company named C. Ronald Petty, the former president and chief executive officer of Denny's Inc., as its new chairman, president, and chief executive officer. After successfully turning around the 1,600-unit family restaurant chain over the previous three years, Petty took the helm of Peter Piper, a $100 million company ranked among the top-ten pizza-restaurant chains in the United States, in the middle of an aggressive expansion plan. Before joining Denny's, Petty spent twelve years at Burger King Corp., where he was president and chief operating officer for the chain's domestic division. He succeeded Joseph R. Pederson, who successfully positioned Peter Piper for growth and who returned to Michigan to become principal owner of a multi-unit restaurant company and real estate concern. At the time of Petty's recruitment, the company had 125 restaurants in seven southwestern states and Mexico with projected growth of 30 percent for the next three years.

The company focused on a basic pizza at a modest price of $6.59 for a large one-topping pie and attracted families with a combination of pizza and entertainment, including about 30 to 50 video and virtual-reality games, but not playgrounds like those at Chuck E. Cheese restaurants. Half of its sales were from take-out orders. The chain did not own the games but had an agreement with a supplier that rotated fresh games and split the revenue with the restaurants. The age appeal of the games presented a critical difference between the company and much of its fun-centered competition, which focused more on small children. Unlike its competitors, Peter Piper had gaming attractions that appealed to 17-year-olds as well as to five-year-olds. In the prizes linked to the games, the company enhanced value by offering coupons that could be saved up and redeemed for brand-name merchandise, including audio equipment, sporting goods, mountain bikes, and, in some markets, washers, dryers, and refrigerators. Under Petty, the company planned to augment its franchise growth by opening between 15 and 35 restaurants a year.

By July 1998, Peter Piper had signed eight franchise development agreements to open 137 new restaurants in three to five years. The restaurants were planned for California, Texas, Oklahoma, and Mexico. The company also planned expansion in the Midwest and on the East Coast. The company withdrew efforts to move into the Florida market due to cost but opened its first Michigan restaurant in June 1998 and one month later entered the Austin, Texas, market. The Austin market was targeted after the company conducted national demographic research, looking for households with 3.8 to 4 people. In 1999, citing favorable demographics, Peter Piper announced plans to open 80 branches of the pizza-and-games chain in the Los Angeles and San Diego areas over the next seven years. Southern California had long been an expansion target for the company, which had a large following among the Hispanic community. Ronald Petty, who left the company in 1998 to head a 340-unit Del Taco Inc. in Laguna Hills, California, observed that Los Angeles and Riverside counties included areas that were about 60 to 70 percent Hispanic. After Petty's departure, the company was run by interim president Neil R. Simon and executive director of operations Greg Barton.

Despite its rapid growth, the Peter Piper chain, was still dwarfed by such leading competitors as Domino's and Pizza Hut. It was therefore anticipated that Peter Piper would face stiff competition in the Southern California market, where national chains had a strong presence and western regional chains such as Round Table Pizza, based in the northern California city of Walnut Creek, had a loyal consumer base. Round Table alone had 540 restaurants, with about 100 in Southern California, and had plans to add another ten company-owned and franchised units in the area in 1999. In addition, Papa John's International out of Louisville, Kentucky, which ran the country's fourth largest chain with 2,061 restaurants, planned to add 200 units in Southern California by 2004. Nevertheless, approximately half of pizza chain customers in Southern California had children less than 18 years old, a group that Peter Piper directly appealed to with its game arcades.

Company Perspectives:

We blend the convenience of a great meal with a shared family experience. We have the hottest new video games for children, teens, and adults as well as prizes, play areas and kiddie rides for the children. Some locations even offer feature attractions. This is the recipe that has helped us to be the Southwest's leading family pizza and entertainment chain.

In the vanguard of establishing the Southern California restaurants was Ron Stillwell, Peter Piper's former vice-president of entertainment in Scottsdale, Arizona, and now one of its new California franchisees. Stillwell began signing development agreements in 1998 in an effort to expand the chain beyond the company's concentration of restaurants in Arizona and Texas. Stillwell's group of Peter Piper franchises operated under the company name Southern California Pizza, which was one of two such enterprises in the Los Angeles region. He and partner Terry Davis obtained franchise development rights for their Chino Hills, California-based company and opened the first of 25 planned restaurants in Colton, California. Southern California Pizza acquired the rights for the eastern halves of Los Angeles and Orange counties as well as for inland Riverside and San Bernardino counties. Another franchisee, Mike Storm, gained rights to develop ten Peter Piper Pizza stores in Puerto Rico and began construction of a 12,000-square-foot Los Angeles restaurant in the predominately Spanish-speaking community of Huntington Park in southern Los Angeles County. Storm, who was president and chief executive of Santa Monica-based Stormin' California Family Entertainment, also signed a seven-year deal in 1998 to build 45 restaurants from north of the San Diego County line to Santa Barbara, as well as in the San Francisco Bay area. Peter Piper was Storm's second choice for a franchising vehicle behind Chuck E. Cheese's, owned by CEC Enterprises of Irving, Texas, which could not offer him a development agreement. A third leading franchisee was Sunroad Restaurant Concepts, a joint venture between managing partner Patricia Cohen's U.S.-based business, Food & Fun LLC, and Sunroad Enterprises, a San Diego-based car dealer and real-estate developer. Cohen's family began franchising Peter Piper Pizza outlets internationally in 1994, when its Tijuana, Mexico-based company, Alimentos Y Diversiones, acquired the master franchise agreement for Baja, California. Sunroad obtained the rights to develop 14 outlets by 2003 in San Diego County, where it already operated one restaurant in the southern San Diego suburb of National City.

Change of Leadership in the 2000s

In August 2000, Frank Sbordone, Jr., Peter Piper's vice-president and chief financial officer since 1997, was named president and chief operating officer, succeeding Neil R. Simon, who remained chief executive and a board member. Tim Flynn, formerly the company's controller, replaced Simon as vice-president and chief financial officer. Both Simon and Flynn were veterans of Ruby Tuesday. Flynn came to Peter Piper after being controller of Ruby Tuesday's Tia's Tex-Mex division, and Sbordone was a senior vice-president at Ruby Tuesday before joining Peter Piper. Sbordone's goal was to expand both company-owned and franchised locations of the family-oriented chain, which then operated 51 company units and 97 franchises sites. Sbordone planned to move forward in a more deliberate manner, opening up a new concept in Chandler, Arizona, that it intended to use as a prototype for expansion. While in the past, Peter Piper focused on placing restaurants in neighborhoods, the company began building its newer restaurants, such as in Chandler, in high-traffic strip-mall locations with a large proportion of families. In addition, the company secured from Fleet National Bank an $18 million line of credit to pay off debt and provide new funds for expansion and the remodeling of existing restaurants.

By 2003, the Peter Piper chain had 48 company-owned and 97 franchised restaurants with an average unit volume of $1 million for food and beverages. Each outlet had 35 to 50 games, which accounted for approximately 35 percent of revenue. Pepperoni pizza was the most popular with children, although the seven-topping Works and the Chicago Classic were strong sellers as well. The company also introduced a hand-tossed crust version. Peter Piper continued opening up new restaurants throughout 2003, operating more than 150 company-owned and franchised outlets by 2004. Although increasingly operating within a crowded market, the company appeared well positioned to continue its profitability into the future.

Principal Competitors

Domino's Pizza, Inc.; Mr. Gatti's Inc.; Pizza Hut, Inc.

Key Dates:

1973:: The company is founded by New York native Tony Cavolo.
1992:: The Venture West Group acquires Peter Piper, Inc.
1995:: Peter Piper receives a $12.8 million line of credit from Madison Dearborn Capital P.P., a Chicago-based investment firm.
1995:: The company acquires hometown and regional competitor, Pistol Pete's Pizza.
1998:: The company signs eight franchise development agreements to open 137 outlets.