Pizza Patrón Stops Franchising - To Strengthen Its Brand

After 10 years of franchising, Pizza Patrón is taking an interesting approach to strengthening its brand for future growth and profitability: the company has put its franchising program on hold. As its first-ever renewals come up, the company is renewing only with the franchisees it wants to move forward with in the years ahead.

"We took a look at the whole business, at the state and health of the whole company," says Brand Director Andy Gamm, "and found it was in our best interest and that of the brand to suspend the franchising and focus on a different strategy for growth, and to go with company stores for the first time."

Unit growth in the coming years, he says, will be primarily through new company-owned stores, although some still will occur with the remaining franchisees. Pizza Patrón also will explore licensing agreements in grocery stores and non-traditional locations. The company currently has 89 stores, 79 franchised and 10 owned by founder Antonio Swad, who started the company in southeast Dallas in 1986.

The unit count had been up to 102, but in 2013 the company began closing underperforming stores. Last year, Pizza Patrón opened 7 new restaurants and closed 20. The company is forecasting that a handful of additional locations will close this year, but expects to finish 2014 with 25 new stores, more than 30 percent above the current count.

And last Friday (Jan. 17), Pizza Patrón announced that despite closing nearly 20 percent of its stores in 2013, it achieved the highest overall yearly sales in its history. In the press release, Swad said, "By closing some of our most poorly operated stores and purging the system of our least engaged operators, we are now able to concentrate our focus on the fundamentals of our restaurant business."

"The underperformers had a lot of commonality as far as engagement of the operators with the business," says Gamm - not something franchisors can always detect in the franchise award process. Renewals, he says, will be on a case-by-case basis.

"We have some great franchise partners and will renew agreements, but we're not accepting any new franchisees into the system," he says. The company does not own any real estate for its franchised units, and non-renewal locations will be de-identified or converted. Gamm says the reasons for this radical shift in strategy are straightforward:

1. Higher standards - The franchisees who are renewed are those who currently represent the brand well and maintain system standards. And with company stores, the brand is sure to be run well, and any problems can be solved on the spot, without costly delays or litigation.
2. Faster execution - Getting buy-in and consensus from the full cadre of franchisees can be time-consuming, frustrating, and worse, as any franchisor knows. Rather than take months of persuasion and expense to introduce a new idea, the brand can move ahead at its own speed in its own stores, and is counting on support from the franchisees it re-signs.

Take for example, the company's "Pizza Por Favor" promotion in 2012, which offered a free large pepperoni pizza to anyone ordering in Spanish. The promotion was slated for April, but was delayed until June.

"What you may not know," says Gamm, "is that behind the scenes we had tremendous pushback from franchisees," with more than half refusing to do it, for one reason or another. "We were convinced it was the right thing to do so we fought for it," he said, and by June had almost everyone on board. In the end, the company gave away 80,000 pizzas in the one-day, three-hour promotion. But there was a price to pay in time and effort.

"It took a lot of finagling and talking to get the franchisees to buy in to the idea. We were trying to get consensus, rather than moving forward," he says - which served as further impetus to hit the brakes on new franchising. "We were spending a lot of time on things that we thought were eating a lot of our resources," says Gamm. "We wanted to concentrate on executing the business." Pizza Patrón is not alone in dealing with this, he adds.

Also, he says, "We have such a focus on connecting with the Mexican-American customer. Pizza is such a competitive business, and we feel an urgency to move forward and execute." Anything that detracts from that goal has to go.

As for the timing? "That 10-year renewal is probably the easiest opportunity, but then you have to be careful to make sure everything is handled properly," says Gamm. "Franchising has a lot of laws and protections, and they're there for a reason. We tried to work personally with everyone who didn't seem like a good fit, or who was not happy in this business," he says.

But as every franchisor learns, sometimes it just won't work, and sometimes it's nobody's fault. "When I got into this business I never expected to close any stores," says Gamm.

"We believe all the steps we are taking will pay off in the long run," said Swad. "And, we feel very good about the progress we have made so far.”