There's tremendous competition in pizza, and there's not that big a market for drive-through. We went the route he's trying to go, and we got rave reviews about the taste, but it didn't seem to make that much difference. It's still a very price-sensitive market. And the big players are on television all the time. You have to prop up sales with a disproportionate amount of advertising. We managed to offer franchisees a total turnkey investment cost of $180,000 -- we built our units off premises, too -- and we found they could survive at $250,000 in sales. Still, only a few of our franchisees are really doing well; the rest of them we'll probably convert to company units.
I hate to throw cold water on somebody else's idea, but we saw the same numbers he sees, and we drew the same conclusions. The sales are just not there. We're a couple years further down the road, and I would advise him to cut his losses and try something else.
FINANCIER
BRUCE RAUNER
General partner, Golder, Thoma & Cressey, a Chicago venture firm with an investment in several fast-food franchises with drive-through operations
It sounds like Goldman's got a lot of relevant experience, and it's nice that he's had a failure before. If you learn to be cautious but still optimistic, failure can be a good thing.
Still, I was troubled that his background is roast beef and chicken, not pizza. Gregg Pancero apparently is the one who really understands pizza, and our bias is that once you find people who are important to the success of a venture, make them full partners. Goldman should do more to make Pancero part of the team.
Goldman is trying to do major pioneering on several fronts, which is one reason we wouldn't want to invest. Pizza really is a dinner item; nobody's made it a successful lunch item. You can eat burgers while you're driving -- pizza you can't. And with pizza, there's a wide variety in tastes: while to some degree a burger's a burger, with pizza the crusts can vary, the sauce can vary, and it's hard to come up with a product that will appeal to a wide audience -- unless, like Pizza Hut stores, you're in a location where you're the only pizza around.
What's more, consumer perception of quick pizza is pretty negative; I wouldn't want to be fighting it. And I wouldn't want to bet a lot of money that Goldman will be the first to pull it off.
He's in Arizona and opening single outlets in northern and southern California -- that to me is very dangerous. Especially if you're pioneering: you've got to go for a cluster, focus on a market or two, become a well-known, proven performer there, then go elsewhere. He shouldn't be franchising yet, anyway. I don't think franchisee money should be venture money; you ought to have something that's demonstrated to be reasonably successful.
Bottom line, though, is how it tastes, and if your review is right and it's not any better than Pizza Hut, then the odds are pretty low that the company will succeed on even a modest basis.
COMPETITOR
RICHARD SHERMAN
Chairman and president of Rally's Inc., operator and franchisor of 230 drive-through hamburger restaurants in 24 states; former president, Church's Fried Chicken; former executive vice-president, Hardee's
He is in a crowded field -- just as we are -- but there's a significant opportunity because pizza has such a low food cost.
Goldman was known as a good Arby's operator, and he's somebody we respect. You can see by his commitment to the software and having it in place that he has thought about what is necessary to achieve speed. But his operating costs should be significantly lower, and he needs to pass that through his menu. If I were Goldman, I would want a business that could succeed without delivery, to keep the cost structure down. He might take out a register and some labor. And he needs to look at whether the menu is limited enough. Maybe he should offer only one size of pizza. I'd urge him to keep things as simple as possible.
His prices are not low enough. He ought to use price to get people to try his product. It's tough to communicate quality through the marketing clutter. If he wants me to go there, he has to give me a compelling reason. Drive-through is not enough. People don't like to admit it in marketing surveys, but they will go if something is a buck cheaper. I'd copy what Pizza Hut serves for lunch as closely and as legally as I could, and I'd be 25% cheaper.
If he looks at everyday lower prices and then gives people something extra, like "zesty" tomato sauce and better packaging, it could work. Phoenix is one of the most challenging markets in the country. If he can succeed there, he ought to be heartened.
TIME IS ON HIS SIDE
We're all for fast, but how does it taste?
It's unfair to compare Pizza Now!'s pie with the kind you get from your local old-country purveyor; as founder Philip Goldman will gladly point out, that version takes at least 20 minutes to make. Goldman's individual pan pizzas usually arrive in less than 60 seconds and set you back only $1.59. That in mind, the slightly stiff dough and somewhat chewy cheese seem like reasonable trade-offs.
The larger pizzas, which aren't as good a deal and take around seven minutes, taste about the same as any big-chain fare -- which is, Goldman believes, "perfectly acceptable."
And the competition? Pizza Hut's individual pan pizza tastes almost the same -- but can costs 40¢ more. Both Pizza Hut and Pizza Now! deliver satisfaction if you're in a rush, but neither has created a fast-food pizza for all time.
