Rolling In Dough
In 1966, Ron and Joe ("Pep") Simek wrested a $5,600 loan from a local banker and bought a Chevy freezer truck that was big enough to carry 1,800 frozen pizzas to taverns, gas stations, resorts, bowling alleys, and other retail outlets. In the next four years, the Simek brothers transformed a tavern that sold dime brews into a producer of frozen pizza that folks around Medford, Wis., said tasted pretty good.
Today, more than 140 commission route salesmen in the drivers' seats of Tombstone Pizza's fleet of trucks deliver, store-to-store, hundreds of thousands of frozen pizzas and a companion line of beefsticks. Many competitors regard such a delivery system as a relic of the horse-and-buggy days, but the Simeks stick to their way of doing business, saying that the control it gives them over their product's quality is worth it. Last year the family-owned company increased its sales 27%, from $49 million to $62 million, in line with a five-year compound annual growth rate of 27% to 37%. The numbers speak for themselves in a volatile industry that has been hurt by price wars and an influx of low-cost brands that promise, but don't always deliver quality.
In the race to slice up the frozen-pizza market in the Upper Midwest Tombstone Pizza Corp., 250 miles northwest of Milwaukee, continues to win market share over such major corporate contenders as Pillsbury Co. and General Mills Inc. Like the tortoise in its race against the hare, Tombstone's success is based not on size but on singleness of purpose: to continue companies treat as a plain commodity -- as something special. "We're basically a single-product company," says D. David ("Dewey") Sebold, Tombstone's exectitive vice-president and general manager. "We don't have the luxury of bringing out a new specialty product each week, and we can't compete with larger companies by cutting prices."
Robert Davis, a marketing professor at the Stanford University Graduate School of Business, sees Tombstone's marketing approach as an example of his "bent-arrow theory" at work. "The life of a product can be thought of as an arrow moving from left to right," says Davis. "The product begins as a specialty and evolves into a commodity. While customers generally perceive value in a specialty product for reasons other than price -- say service or image -- they are more likely to choose a commodity simply because it is less expensive than another."
To "bend the arrow back," to inhibit the evolution of a product from a specialty into a commodity, says Davis, companies must develop effective strategies. They might, for example, introduce a more service-oriented delivery system, enhance their reputation in the marketplace through advertising and promotion, raise rather than lower prices, or produce a higher-quality product. The key to Tombstone's success is a combination of these strategies, including a commitment to producing a high-quality, higher-price specialty item and then selling this product through a tightly controlled sales network staffed with Tombstone's own salaried managers.
In the early 1960s Ron and Pep Simek had no such vision of success. They had just opened a tavern in Medford, Wis., and named it the Tombstone Tap, after the graveyard across the narrow tar road. Beer, the only alcoholic beverage the tavern was licensed to sell, went for a dime a glass. Because the business barely provided a livelihood for the two Simek families, Ron and Pep and their wives, Joan and Fran, broadened their offering by serving pizza, which they baked in the stove in the Tap's cramped six-foot-by-six-foot kitchen
Pep virtually stumbled on the well-kept secret formula that is the basis of Tombstone's eight varieties of pizza. Dancing to the music of the "Peppermint Twist" one night in the Tap, he slipped and broke his leg, an injury that relieved him of tending bar for several months but allowed him the time to experiment with spices in the kitchen. Before long, the Simeks were freezing a dozcn pizzas on request, then several dozen, and selling them wholesale to other taverns.
Brisk sales provided profits for personnel and capital expansion. In 1972, the Simeks began construction on their current 162,000-square-foot plant where they make their own sausage and pepperoni and maintain a fleet of freezer trucks and trailers. As Robert Davis explains, "One of the best ways a company can provide a specialty product is to execute the manufacturing process better than anybody else in the business." To ensure quality pizza crusts, Tombstone moved its bakery operation in-house instead of relying on an outside supplier.
During the early '70s Ron and Pep supervised every aspect of Tombstone's daily operations, down to making sure that the trucks were tuned and that just the right amount of tomato sauce was applied to the pizza crust. But, while they bird-dogged operational details in Medford, they lost their ability to oversee the growing sales operation, which included 24 commission route salesmen and more than a dozen distributors that they had signed on for expansion purposes. The specialty was turning into a commodity; the arrow was taking flight.
Without adequate supervision, the route salesmen built up profitable new accounts while neglecting established ones. Some salesmen and distributors fell behind in their payments to Tombstone. When Ron told one salesman to get his receipts in on time, the man replied, "It will ruin my credit rating." Many of the men, it turned out, were keeping $6,000 to $7,000 of Tombstone's receipts in their bank accounts. "If someone had to buy a car or a boat," says Pep, "he'd use three weeks of Tombstone receipts to pay for it. When we'd ask him to pay up, he'd get goddamned insulting. "
"We had a mess out there," admits Pep, today 55 years old and Tombstone's chairman. "Everybody was selling pizzas, everybody was doing what they wanted. Because we had a good product, there was demand and it was easy to sell. But the sales force was hard to control."
Signing on distributors had allowed Tombstone to expand its market into a dozen states. But many of the independent companies handled a smorgasbord of other items -- ice cream, pot pies, potato chips -- which they treated as commodities, without the special attention Ron and Pep had used to build their reputation.
Reports of poor service and sporadic deliveries reached Medford and confirmed Ron and Pep's worst fears: "I figured that for every written complaint or telephone call there had to be plenty more people out there who didn't take the time and just lived with that complaint. . . or went out and bought something else and formed a different habit," says Ron, 52, the company president.
Without conceptualizing that they wanted to "bend the arrow back," Ron and Pep agreed that they wanted to regain conrol of Tombstone's sales. To do that, they would have to bring in management help. In 1975, they hired Grant White, 32, as their first salaried sales manager. Within a year, they added Dewey Sebold, also 32, who had an impressive track record at Ciba-Geigy, the Swiss-owned chemical company, where he had most recently managed the field sales group out of San Diego. Both men had served beer at the Tombstone Tap during college.
Sebold's experience with a well-structured field sales network quickly helped him see that Pep's assessment of the field was accurate -- things were "a mess." Sebold argued that the best way to regain lost control was to replace the distributorships with Tombstone's own sales force.
Although the Simeks first resisted replacing distributors -- which required no fixed expenses -- with salaried managers, they finally agreed with Sebold's reasoning that the measure of control gained in the field would compensate for the cost of setting up the system.
Building a sales force in six years from 24 route salesmen with no supervisors to 143 routemen managed by 20 supervisors, 19 district managers, and 4 regional managers was a slow, sometimes arduous, process. White traveled often in those days, to places like Little Falls, Minn., looking for salesmen to service the routes inherited from former distributors. In 1976, he spent eight months commuting between Medford and Little Falls. During those months, he hired two local routemen and ran the third route himself until he could fill the position. The distribution system in 1976 was similar to that used by Tombstone today: A driver left Medford with a trailerload of frozen pizzas and either met up directly with a route salesman or dropped off the load at an 18-by-20-foot freezer warehouse where it would be picked up and delivered directly to retail outlets.
Tombstone's investment in its distribution system -- in both its fleet and manpower -- is only as valuable as the ability of its sales force to sell new accounts and to service established ones. In 1976, Tombstone introduced a sales training program for all route salespeople. Recruits receive field training for a minimum of four weeks, learning fundamentals about pricing, stocking shelves, and maintaining their vehicles. Then they spend a week in Medford, fine-tuning their selling techniques. The group reviews the classic points of a sales presentation: Determine the needs of the customer, identify the individual responsible for the buying decisions, make contact and explain the benefits, not just the features, of the product. After making the pitch, seek a commitment by asking for the business.
The training moves from general concepts to specific tips on selling Tombstone's products. In role-playing sessions, members of the group practice selling the pizza to one another and to the trainers. "If they can sell to their peers and leaders," remarks White, "selling to the guy in the field is a piece of cake." White throws out typical customer objections -- "Not enough space," "Price is too high," "I'm already handling enough brands" -- to prepare the salespeople for cold calls.
Tombstone's hiring record shows that the most successful managers have come up through the company, not from management jobs outside Tombstone. "We try to get salesmen into supervisory positions as soon as we can," explains Sebold. "Then, when we expand, we have company-trained people to travel to the new territory."
Today, all of Tombstone's sales managers in the 17 states where Tombstone does business have paid their dues as Tombstone route salespeople, putting in as many as 12 to 14 hours a day, five or six days a week. "That kind of work can grind on you," admits Grant White, although he claims that turnover is lower than it was five years ago.
An incentive for the salespeople is the opportunity to become salaried supervisors in as little as a year. From the supervisory level -- the training ground for management -- salespeople advance to district managers and are given authority over developing new accounts, hiring, and firing. "They're not puppet positions," says Sebold. "You have to give managers authority as well as responsibility to get things done. You delegate not because you don't want to do the job but because, if you've picked the right people, they can probably do it better than you can."
Besides its network of sales managers, Tombstone maintains five distributors in Michigan, Minnesota, South Dakota, Wyoming, and Hawaii. Hawaiian shipments are arranged through a broker who buys Tombstone pizzas mainly for the military. Tombstone sends its freezer truck to Alameda, Calif., where the broker arranges to have the shipment picked up. Distributors conduct business in the same manner as Tombstone, sending their vendors directly to stores. White agrees with Sebold, however, that Tombstone's strongest card is its own sales force. "Being a one-product company can sometimes be a negative," notes White, "but it's also a plus, because it's hard to lose perspective on what we're selling. If you don't sell pizzas, then you don't sell anything." Although distributors' salespeople have taken the training program, he notes, they don't have the same focused aggressiveness because they are selling a range of products.
Until the mid-1970s, the bulk of Tombstone's pizzas were sold to taverns, campgrounds, motels, gas stations, and other small outlets. When Sebold arrived, he led the Simeks through a formal, almost textbook approach to defining Tombstone's market. "We realized we weren't only in frozen pizzas, we were also in the convenience-food business. That opened up a whole new market segment for us. We could compete not only against pizza but also against pot pies, TV dinners, and other frozen entrees." Tombstone began to concentrate on developing new business among food stores -- which today accounts for 75% of sales -- holding to its original system of store-door delivery.
Sebold had advocated a direct sales force because it gave Tombstone the control over its product that no distributor network had. He and the Simeks stuck with direct store delivery for the same reason: It provided desirable control over their pizza. Tombstone's sales force goes directly into the stores where they not only restock the shelves and take new orders, but also provide product demonstrations -- a key part of Tombstone's marketing effort to stand out as "special."
"As competition gets stiffer," notes Sebold, "every pizza producer claims to be selling 'quality,' so the word no longer has any relative value." Tombstone packages many of its products in clear plastic -- most producers box pizza -- so that the customer can see what he is buying.
Last year, Tombstone hired Charles Stoerzinger, formerly a marketing manager at Green Giant Co. Stoerzinger plans to make a modest shift in the marketing program by increasing demonstrations in new markets and focusing on more traditional forms of advertising -- such as TV, newspapers, and couponing -- in established markets. Under Stoerzinger's direction, Tombstone has also retained a new Minneapolis advertising agency, Campbell-Mithun Inc., which will, he believes, result in more creative advertising campaigns and better media buys.
Some food-store buyers -- who prefer to work through brokers and to warehouse products themselves -- have resisted Tombstone's direct store delivery approach. Dominick's Finer Foods chain, with 74 supermarkets in the Greater Chicago area, opened its doors to Tombstone vendors only in May, after two years of negotiations. "Store-door delivery not only creates congestion," says Larry Nauman, vice-president of advertising and public relations for Dominick's, but "every time a driver opens the back door to enter or leave the store, it's an opportunity for theft" or for that person to rearrange the shelves to out-position competitors' products. But Dominick's finally agreed to carry Tombstone Pizza, because, says Nauman, "customers wanted Tombstone real bad. We were losing action without handling it." Notes Pep Simek: "When you're tied for the No. 1 -- selling product in Chicago, they have to start taking you seriously."
The Simeks see no reason why they can't continue to operate their store-door delivery system when they are 2, or even 20, times the size. After all, they point out, Frito-Lay Inc., the $1.9 billion-a-year company that has carved out a 40% share of the more than $5 billion-a-year salty-snack industry, runs a highly efficient store-door delivery system.
Tombstone is also girding itself for rising fuel costs. "You have to assume they'll increase," says Dewey Sebold. "But even if gas rises to $3 a gallon, we're prepared to streamline our fleet, shorten our routes, and still call on our major, most profitable customers." So far, Tombstone has seen no reason to expand its use of brokers and distributors to carry its goods to retail shelves.
The belief at Tombstone Pizza that its product is special starts at the top. "At Tombstone, you know areas you don't tamper with," says Sebold. "You don't, for instance, screw around trying to make Pep's pizza sauce any different."
Such a commitment to maintaining product quality is at the heart of Tombstone's success. Without Ron and Pep Simek's fixation that pizza sauce must be applied just so, Tombstone would have found it difficult to bend the arrow back to continue turning out a specialty instead of a commodity product. "And once you've got a commodity," says Dewey, "there isn't much allowance for drift. It's difficult to ever turn back and develop market share in the specialty, high-quality end of the business."
"The risk a company runs when it wants to market its product as a specialty rather than a commodity," adds Stanford's Davis, "is that it may resort to all sorts of strategies at the expense of quality. The test, in the long run, is a good product."
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