Article

Fazolis caps year of growth with Wal-Mart pilot

October 21, 2010 by Valerie Killifer — senior editor, NetWorld Alliance

Over the past three years, Lexington-based Fazoli’s and its team of veteran executives have worked hard to overcome the chain’s once downward slide. But since the appointment of Carl Howard as its CEO in 2008, the Italian concept has completely revamped its menu, opened several new-store prototypes and brought in the first new franchisee in four years.

The company has also announced another major milestone: the completion of an agreement with Wal-Mart to open an in-store Fazoli’s restaurant in St. Louis. The location will be the first non-traditional opening for the chain and will feature the brand’s full menu and carryout service. The 2,000-square-foot restaurant also will seat approximately 50 guests.

Howard said the agreement is the first step of many to extend the 230-unit Fazoli’s brand into non-traditional locations such as airports and college campuses. It also marks the success of Fazoli’s recent brand overhaul as part of its Enhanced Service Program (ESP).

The program was first launched in the markets of Dayton, Ohio, St. Louis and Kansas City, Mo., and marked a season of change for the brand that, at one time, boasted upward of 400 units.

Howard’s ESP included a complete overhaul of 90 percent of the menu and the hiring of industry veterans such as Papa John’s former VP of Strategy and Brand Marketing Cathy Hull as chief marketing officer, former Pizza Hut executive Rodney Lee who now serves as CFO, and former McDonald’s executive Scott Diebert as VP of Supply Chain Management and Quality Assurance.

In almost three years, Howard said the company has been able to increase its food quality and reduce costs due to measures put in place by Diebert. And thanks to Hull, Fazoli’s was able to lower prices while increasing menu quality during the recession.

“We’re really focused on driving that top-of-mind awareness,” Hull said. “In terms of marketing the brand, we’re really laser focused on that.”

A prototype of the in-store Wal-Mart Fazoli's restaurant.

To help build that brand awareness, the company ran promotions to simultaneously drive in-store traffic and introduce customers to the menu changes. The marketing effort worked and in 2009 Fazoli’s posted positive guest counts for the first time since 2006.

Another part of ESP was to introduce melamine tableware to diners, an improvement over the disposable plates and utensils that had historically been used in stores. The company re-introduced a dining-room employee whose sole purpose is to walk around and pass out breadsticks. Additionally, employees now carry food out to diners, a big change to the chain’s service model that is costing the company another $500 per week, per store, in terms of increased labor.

“The breadstick person creates an energy in-store …” Hull said. “It also was perceived as a value loss once it went away. So, we’re reinstating the value.”

Howard views the recession as the creator of opportunity for the brand, not a harbinger of doom.

The changes, in addition to improved guest counts, have been reflected in the 80 straight days of increased same-store sales for the quarter and the best September sales month since 2002 with a 5.9 percent comps increase. “The numbers aren’t big, but they’re growing every day,” Howard said. “And, we’re doing everything with our own capital.”

Fazoli's is owned by Sun Capital Partners, the same private-equity firm that owns Bruegger's, Boston Market, Captain D's and Friendly's, among several other restaurant chains. Howard said some of the intiatives headed by Fazoli's are also being used by Boston Market -- thanks to an infusion of cash by Sun Trust -- to rebrand the system.

Next up for Fazoli's is the rollout of its enhanced service program in the Kentucky markets of Paducah, Lexington and Louisville, in addition to the chain's first store openings in Normal and Champaign, Ill., and Lincoln, Neb.