Question

Pizza Experts

Itwas September 1989, and Joe Hillier and Harold Baker, prospective franchisees, were excited about their upcoming interview with Rob and Wayne Moore. The brothers were co owners of Pizza Experts, the mostpopular pizza company in Newfoundland, and they were about to Select a suitable franchisee for St. John's, Newfoundland. Despite previous success in selecting franchise owners, Rob and Wayne wondered if the existing franchise agreement offered the right benefits to attract the "best" franchisees. Conversely, Joe and Harold were interested in owning a Pizza Experts franchise only ifitprovided sufficient returns. The interview.

would allow the two groups ofmen to evaluate the franchise arrangement and each other

Company and Market History

In 1985. Rob Moore left Rob's Pizza Palace, a St. John's restaurant owned by himselfano three others, to create Pizza Experts. On December 10, 1985, Pizza Experts opened its doors on Torbay Road (Exhibit 5), This was a popular location for family and fastfood restaurants, as it was adjacent to a heavy residential area in the Eastend of the city. Without formal market research studies on the area, Rob had reacted to his business instincts in selecting Torbay Road as the site. His instincts proved accurate; in the 1986 business vear, sales exceeded the expected $300,000 level. In August 1986, less than a yearafter opening the Torbay Road Store, Wayne Moore opened Pizza Expers' second store in Churchill Square This was a very successful retail area, housing specialty shops and services near Memorial University of Newoundland (student population of approxima tely 16.000). In February 1988, the brothers opened a third store on Kenmount Road, a prime commercial area of the cily. According to Rob sales continued to increase atthe Churchill Square and

Torbay Road outlets due to a new marketing concept, i.e., pizza delivery to your doorstep within 35 minutes. He also believed high frequency advertising and posive word-of-mouth advertising led to increased patronage atall stores.

In the late 1980s the pizza market was booming across Canada. According to Food Service and Hospitaliy magazine, more than $400 million profit was eamed in 1988 by Canada's top 100 pizza establishments, and every pizza company ranked in their Top 100 list experienceo sales growth. A major portion of this growth was in the take-out and delivery part of the usiness. According to the Canadian Restaurant and Food Services Association, the take-ou and delivery market grew by 16%, outpacing all other food sectors in 1988. This market was expected to be the largest future growth leader, due in part to the VCR revolution.

Consequently, the number of people interested in entering this booming market was growing, making it easier to attract potential franchisee owners for expanding pizza companies.

1

Rob and Wayne perceived these growth opportunities in the pizza market and decided to se up Pizza Experts franchises. As Rob noted, "Franchising is the fastest way our company can expand; major capital requirements are covered by the franchisees. In addition, having franchisees to operate individual outlets provides more time for Wayne and me to develop future strategies for Pizza Experts."

After the Kenmount Road outet was operational, the Torbay and Churchill outle ts were placed on the market as franchise opportunities. The two stores sold quickly because ofthe good reputation built by the established Pizza Experts restaurants. 'Me Kenmount Road store remained owner operated. The first franchise outside St. John's was openedin Mount Peard in

August 1988. Much to Rob's delight, the new ownerhad previously been employed by Pizza Experts. As Rob said. "We like to build from within, since these are the people most famillar with ouroperations. A month later, a franchise was opened in Comer Brook about 700 km from St John's on the West coastof Newfoundland. The most recent franchise opened or Water Street, in the downtown district of St. John's, in June 1989. After four years, Rob and Wayne's company had expanded rapidly from a single outiet to a $5 million operation comprised of six restaurants. Rob believed Pizza Experts had become the most popular pizza company in Newfoundland. On an average Friday night, the St John's utlets alone handled more than 1,000 telephone requests for pizza delivery.

The Franchise Arrangement

As part of the franchise application process, potental owners of Pizza Experts outlets had to submit a Pizza Experts franchise application to Rob and Wayne

Moore (Exhibit 1); they were also required to agree to credit and personal reference checks.

Furthermore, potential franchise owners were usually required to have $150,000 dollars personal net worth in order to merit an interview. Potential franchisees were permitted to evaluate an income projection and Pizza Experts Proven Recipe of Success (Exhibits 2 and

3). The income projection was not an income guarantee; it did, however, give the future owner an idea ofexpected revenue and costs. It was also imperative that the franchisee put many hours and a lot of additional resources into creating a successful restaurant.

The Pizza Experts initial franchise fee of $25,000, and royalty fee of 4% of annual gross eamings were somewhatless expensive than those of competitors (Exhibit 4). Rob felt it was necessary for the franchisee to have a minimum of $50,000 cash to cover equipment purchases and leasehold improvements. Previous experience had shown thata $ 10,000 operating line of creditwould be necessary to cover working capital needs. The initial franchise term was ten years, with an option to renew for another ten years. Franchise fees would be renegotiated upon renewal

As part of the franchise agreement, ingredients for all outets were ordered from one supplier to standardize quality. They were packaged with the Pizza Experts logo and sold to the franchise outlets. "Dough is the pizza; anyone can sprinkle on the toppings," claimed Rob. The Moore brothers had spent years experimenting to develop the bestpossible crust and did not wan franchisees to use anything else. Rob substantiated his beliefin the importance of the dough/crust by citing a 1987 study conducted by M-5Advertising. The St. John's market research company identified taste as a positive factor for 42% of those who had eaten at Pizza Experts.

A close, friendly atmosphere in an efficiently run business was encouraged at all locations, and closely monitored by Rob and Wayne. In fact, franchise owners adhered to a regular reporting schedule. Wayne, who was in charge ofinance, received daily, weekly, and monthly sales data from each franchisee. In addition, each franchisee had to produce audited annual financial statements. If there were any problems with operations, the franchise owners had to answer to the Moore brothers directly. One franchisee had already been replaced because o poor management skills and his refusal to take the brothers' management advice to improve performance. The Moore brothers did this reluctantly; they believed in providing managemen advice to franchisees not only in start-up, but for the duration of the franchise agreement.

Having exhausted all options to improve performance in the affected outet, Rob and Wayne had no choice but to end the franchise relationship because of its potential negative impact on the Pizza Experts family

As further support and protection for franchisees, Rob and Wayne provided territory protection.

To accomplish this, the city was divided into five zones with population blocks of 25,000

people (Exhibit 5). Zone protection guaranteed thatonly one store would be built in each zone.

herefore, future restaurants would be situated properly around the city thus reducing "cannibalisation" of established outets' markets. This zoning also ensured quick pizza delivery during the busy weekend nights. Each outlet was allotted a particular zone so that delivery service would be efficient and the possibility of one store becoming swamped with orders would be minimized. To emphasize this concept, a new marketing slogan was also ntroduced: "You are now entering the Pizza Experts Zone." The Moores knew the zoning had proven successful, since 80% of Pizza Experts takeout customers stated location as their mair eason for selecting the company when surveyed in the 1987 study by M-5 Advertising. Pizza Experts also used a centralized computer system for take-out orders. The orders were sent to the appropriate zone and the franchises were billed for their proportional use of the telephone and computer system used in delivery operations.

Once a Pizza Experts franchise was operational, the outlet had to take partin a co-operative advertising program supported by 3% of annual gross sales. This program helped ensure growth ofthe company, positive exposure for new outlets, and continuation of the existing consumer advertising program. To give the restaurants continued visibility, the co-operative advertising program utilized four media: radio, television, newspaper, and direct mail. The franchise owners metmonthly with Rob and Wayne to discuss the merits of proposed advertising programs. No new sales promotional activities were adopted unless a majority of the franchisees agreed to the new concept.

Since Pizza Experts catered to pizza lovers between the ages of 18 and 40, a theme offun and entertainment was emphasized. Charie Chaplin, used on the Pizza Experts logo to symbolize relaxation and enjoyment, reinforced this theme. As well, one unique advertising medium, a St John's Transportation Commission bus, used the Charlie Chaplin symbol, and reminded pizza lovers of the delivery guarantee and Pizza Experts phone number ("double one-double 011).

The Franchisees

All Pizza Experts established franchise owners had many of the qualities the Moores looked for in a franchisee. From experience, Rob knew the importance of a franchisee's reputation. "If an owner is not well liked, that owner is not going to be supported by the community." Since Rob viewed St. John's as a conservative centre, with thirty-three pizza shops in the greater metropolitan area, he believed the importance of a favourable public image and an outgoing personality could not be minimized.

Rob also stressed the importance of dedication. Owners had to focus all their efforts on the restaurant. Ambition.and quality were notenough. Other desirable characteristics were sound financial backing, business sense, experience, and education. Although there was no ranking

search financial backing, business sense, experience, and education. Although there was no ranking system for these characteristics, all applications were measured using a plus/minus rating.

The financial background and favourable exposure in the community were weighted fairly heavily. The Moores preferred "business marriages," where individuals with experience in the estaurant business would team up with people having sufficient capital to start a franchise.

Rob and Wayne were impressed by the number of individuals interested in learning more about the Pizza Experts franchise concept Applications arrived regularly from potental franchisees. In the most recent screening, Rob and Wayne identified Joe Hillier and Harold Baker as the best candidates for further consideration.

Potential Franchisees' Background

Having completed the application form, Joe and Harold believed they had many of the qualities the Moore brothers seemed to be looking for in their franchisees. Joe had a Master o Business Administration (MBA) from Dalhousie University in Halifax, Nova Scotia. During his academic studies he had been employed as an assistant manager for an independent pizza outlet, and for the pasttwenty three years he had owned and operated an income tax service in Comer Brook. Joe had a lotof practical experience but his references indicated thathe was 1ou

not receptive to newideas and change. He came from a well-respected, wealthy family in the Comer Brook area. Over the years Joe had managed to save $100,000 for a newbusiness venture, and his family was prepared to provide another $20,000 if required.

Harold had received his high school diploma from Brother Rice High School in St. John's and a business diploma from the Newfoundland Career Academy, a private college. While atthe Academy, Harold studied Business Administration, a one-year course with a primary focus on accounting and computer training. Course work, however, also included entrepreneurship different forms of Canadian business, communication, and supervisory skills. Harold was ar enthusiastic individual with a well-rounded business background, despite having declared bankruptcy in his previous venture. Undaunted by the bankruptcy, Harold had no difficuly quickly finding employment In fact, he was immediately employed as a marketing manager with a major oil company in St. John's.

His references highlighted his ability to produce excellent marketing promotions, but commented negatively on his brash mannerisms. With their combined skills, Joe and Harold were confident they could open and successfully run Pizza Experts' next franchise in St.John' The men were looking forward to meeting Rob and Wayne and finding outmore about the franchise agreement.

Case Questions

1. Identify the factors Rob and Wayne considered important in evaluating potential franchisees. Evaluate Joe and Harold against each of these criteria. Make a recommendation to the Moores on granting a franchise to Joe and Harold

2. What, ifany, elements of the franchise arrangement should be altered to enhance the benefits each party would receive?

3. Given the information provided in the case, would you buy a Pizza Experts franchise rather than purchase another pizza franchise, Would there be advantages to starting a business from scratch rather than purchasing the franchise? Evaluate the options.

4. What advice would you give an entrepreneur evaluating a Pizza Experts agreement?

Answer 1

1)

This assessment will allow Rob and Wayne to decide the factors of potential franchisors.

1. Application info
The next assessment will be conducted between the franchisor and his organisation. Once you purchase a franchise you enter into a long-term contractual partnership, so it is necessary to spend some time studying the past of your prospective partner 's outcomes.

2. Aid Support
After assessing the franchisor's and product safety, you will then assess the franchise project's strengths and weaknesses.

3. Regulation on Public Affairs
The next step is to look after the legal implications of the franchise agreement.

4. Support help
If you have achieved this level and are willing to continue, then the next step is to analyze the franchise's financial aspects. In general, the costs of integration and the expected revenue fall into two classes

5.Those screenshots
If you're satisfied with these areas, you'll go deeply to ensure that the franchisor's sales forecasts for cash flow predictions are practical for your franchise. Moore must be told or notified that the franchisor is not entitled to own the Marks or Scheme and that the franchisor is also entitled to revoke the franchisee 's grant in breach of the franchise.

2)

The Franchisor benefits include monthly royalty payments and increasing financial risk expansion.
Franchisers benefit from reduced risk, mark recognition and help to parenting.
Potential franchisors can choose a franchise by location, interest, funds to allow a very flexible franchise deal

• Compensation Criteria
• Franchisees get the following benefits:
• Greater chance of success when the business model is evaluated
• Support, preparation and know-how for franchisors
• Brand awareness and marketing across the country.

3)

Yes, I plan to start my own company with my own children, so you've got the chance to get off the ground. It's fantastic for some, and can be very frustrating for others. It is better fit for those who don't have a new theory of business and those who want to navigate the way their company is handled and decision taking processes. This condition fits just fine. You will call the shots when you do run your own business.

4)

I would like to give a consumer advice evaluating pizza expert cooperation and this is:

Investment experience
All contractors planning new ventures need to note that someone will still be there to help direct you along the way. It's no different buying a Franchise.
End and conclude the franchising agreement
Given the continuing and contractual existence of the franchise partnership, young entrepreneurs need to understand and seek long-term, reasonable compromises in order to safeguard their interests. It will be easy to understand the terms of the franchising agreements.

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