Papa Gino’s Holdings Corporation, Inc.

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Papa Gino’s Holdings Corporation, Inc.

600 Providence Highway
Dedham, Massachusetts 02026
U.S.A.
Telephone: (781) 461-1200
Toll Free: (800) 727-2446
Fax: (781) 461-1896
Web site: http://www.papaginos.com

Private Company
Incorporated: 1963 as Piece O’ Pizza Inc.
Employees: 5,000
Sales: $145.1 million (2006)
NAIC: 722110 Full-Service Restaurants

Papa Gino’s Holdings Corporation, Inc., is the Dedham, Massachusetts-based operator of Papa Gino’s Pizzeria and D’Angelo Grilled Sandwiches regional chains. Most outlets are located in Massachusetts, Rhode Island, Maine, and Connecticut. Papa Gino’s Pizzeria has one franchise unit operating in Queensbury, New York, while D’Angelo also operates single outlets in Vermont and Florida. All told, there are about 160 Papa Gino’s Pizzeria units and more than 200 D’Angelo stores, of which about 150 are company owned. There are also a dozen company-owned units that combine the Papa Gino’s Pizzeria and D’Angelo brands.

Papa Gino’s Pizzeria offers a variety of pizzas (based on the authentic recipes brought over from Italy by its founders), salads, appetizers, pasta, cold and hot sandwiches, pockets, and panini sandwiches. The chain offers catering, and some of the units provide delivery. D’Angelo stores offers a wide variety of cold subs, hot subs, pockets, salads, soups, gourmet cookies, and beverages. D’Angelo also offers catering. A company-owned commissary provides fresh pizza dough and other supplies to Papa Gino’s Pizzerias, while D’Angelo operates its own bakery. Papa Gino’s Holdings Corporation is owned by its management team and financial backer, Bunker Hill Capital LP, which holds a controlling interest.

FOUNDING FAMILY IMMIGRATES TO UNITED STATES: 1936

The founder of Papa Gino’s, Michael A. Valerio, was born in Villa Latina in the Frosinone province of Italy, about 50 miles southeast of Rome. In 1936 he immigrated to the United States with his family, settling in the predominantly Italian community of East Boston. According to company information, the Valerios brought with them recipes that had been in the family for generations, which Michael and his wife Helen then put to use when they opened their first pizzeria, called Piece O’ Pizza, in East Boston in 1961. Restaurant Business offers a different chronology in a company profile published in 1983, when Michael Valerio was still the company’s sole owner. According to Restaurant Business, Valerio “opened his first pizza shop in East Boston in 1953, additional locations opened in the 1950s and early 1960s under the name Piece O’ Pizza restaurants. The company was incorporated in January 1963 as Piece O’ Pizza Inc.” Most of these stores were located in downtown Boston with limited seating and focusing on takeout, serving pizza and grilled sandwiches. The two varying accounts agree, however, that the small chain changed its name to Papa Gino’s of America, Inc., in 1968. Over the years all of the Piece O’ Pizza units were sold until only one remained by 1983, located in Everett, Massachusetts.

Papa Gino’s began spreading to New England suburbs in the late 1960s through the mid-1970s, at a time when retailers were abandoning the cities for the new regional malls. Because mom and pop pizzerias were well entrenched in the urban areas, the suburbs with much less competition were a natural place for a pizza chain such as Papa Gino’s to find growth. Papa Gino’s opened units in the new malls as well as smaller shopping centers, and in 1975 generated revenues of $11.3 million.

Rising interest rates curtailed mall development in the late 1970s, and Papa Gino’s responded to the situation by opening freestanding restaurants in the late 1970s and early 1980s. The units provided 100 to 125 seats, offering both tables and booths. There was limited service: customers placed their orders at the front counter and picked them up when their numbers were called. Along the way the chain also spurred growth by adding to the menu to attract more customers. In 1977 the stores responded to the popularity of salad bars by adding a $1.99 all-you-can-eat smorgasbord. Two years later Papa Gino’s added a complete line of 17 submarine sandwiches. In 1981 an all-you-can-eat salad bar was added, and in October 1982 thick pan pizza was introduced. By the end of that year some of the stores also began offering delivery.

The chain numbered 125 units by 1983, generating in sales of $65 million. The greater Boston area included 50 units, while 35 more outlets were located elsewhere in Massachusetts, 15 in New Hampshire, 13 in Connecticut, 6 in Rhode Island, 4 in New York, and single stores in Maine and Vermont. All were company owned, because in order to maintain quality control, Papa Gino’s opted not to franchise its concept. A commissary in Needham Heights, Massachusetts, supplied the restaurants with most of the products, although outlying stores made their own pizza dough each day, and each store was responsible for buying its own fresh local produce.

Papa Gino’s hoped to add about 20 stores a year in the 1980s, and by 1990 the chain reached 218, located in the New England states and New York, as well as Florida. Sales for 1989 reached $135 million, in increase fueled in part by a new emphasis on delivery and takeout. To better compete against Domino’s Pizza and its 30-minute guarantee, Papa Gino’s invested in a new home-delivery computer system, installed in 36 New England stores. Not only did the high-tech system significantly shorten delivery times, it provided the company with the names, addresses, and phone number of customers, information that could be used for marketing purposes.

At the start of the 1990s management was finally ready to pursue franchising the Papa Gino’s brand as a way to take the chain into New Jersey and Pennsylvania as part of a strategy of spreading north to south from its New England base and south to north from its beachhead in Florida, but management moved cautiously. As president Ralph J. Guarino told Restaurant Hospitality in 1990, “It’s almost like selecting a spouse; they’re very easy to marry, but kind of hard to get rid of, so we want to be sure we’re right for each other. We want to have the right person attached to us.”

When the economy soured and lapsed into recession in 1990, New England was hit especially hard, adversely affecting Papa Gino’s, which was forced to change tack. Projected sales of $150 million did not materialize, and the company barely improved upon the prior sales by posting revenues of $136 million. In order to squeeze out a profit, the company for the first time in its history was forced to trim its payroll, laying off 25 employees. It cut costs further by scrapping the rollout of the delivery system. Papa Gino’s also terminated its franchising program.

COMPANY PERSPECTIVES

Papa Gino’s Holdings Corporation, Inc., is committed to building upon the legacy of the founders’ principles and values to provide high-quality products, attentive service, clean, convenient, attractive restaurants, and a premium value experience for every guest. Guest loyalty closely parallels the company’s employee loyalty.

FOUNDERS SELL: 1991

Sales continued to dwindle in 1991, and in November of that year Valerio and his wife decided to sell Papa Gino’s. The buyers were an investment group headed by Gordon Miles, chairman and CEO of Rusty Pelican, and included the New York venture capital firm of McCown De Leeuw and Co. and Boston’s Berkshire Partners. The new owners launched their own franchising program, and over the next two years seven franchised units opened. However, the Miles’ group also took some steps intended to dress up the balance sheet to effect a quick return on the investment: a wage freeze, the modification of recipes, and outsourcing food preparation to cut costs. The measures worked at first but soon backfired. Other area chains, Pizzeria Uno and Bertucci’s, cut into Papa Gino’s business, and sales began to slide. The bottom line was also hurt by management’s investment in expansion and another attempt at introducing a delivery system.

In November 1993 a new CEO was installed at Papa Gino’s, Robert C. Taft, formerly with the Skipper’s seafood chain. He quickly put a stop to expansion and hired a management team to focus on the health of existing stores. To win back customers, the chain emphasized what had always differentiated it from the competition, the diversity of its menu. More importantly, it upgraded the quality of the food, which had slipped considerably under previous management. For example, Primo Pizzas, a line of gourmet pizzas, was introduced, as were new appetizers and dessert offerings. In addition, the stores received a much needed face-lift, as new awnings and signs were installed.

By early 1996 the Papa Gino’s chain was reduced to 180 units but eager to resume expansion, despite being saddled with a heavy debt load. In order to gain the capital and resources it needed for growth, Taft engineered a sale of Papa Gino’s to Noble Roman’s Inc. for $10 million in stock. A Midwest chain with 85 units, Indianapolis-based Noble Roman’s planned to raise $25 million through the sale of stock and secure another $27 million in credit to complete the sale and fuel expansion. As part of the deal, Taft was to receive stock options in the new company. In June 1996 he left to take a position with the Golden Corral steak-house chain, but just weeks later the merger with Noble Roman’s was called off when it appeared the two sides would be unable to iron out the details by a July 31 deadline. The two pizza chains went their separate ways, but Papa Gino’s was without a chief executive.

D’ANGELO ACQUIRED: 1997

Replacing Taft was Thomas J. Galligan III, a PepsiCo veteran who had joined Papa Gino’s in 1994. In February 1997 Papa Gino’s was recapitalized, allowing it to escape the debt burden that had hindered its growth for the previous five years. New computer systems were installed, new training programs implemented, and some stores were remodeled while other underperforming units, or ones located too far away, were closed down. Now, instead of being acquired, Papa Gino’s was able to become a buyer. In August 1997 it acquired a submarine-sandwich chain, D’Angelo’s Sandwich Shops Inc. from Pizza Hut, a PepsiCo unit, paying $55.5 million, much of the money coming from an equity investment by BancBoston Capital, which gained a controlling interest in Papa Gino’s. In this way, Papa Gino’s avoided taking on the kind of debt that had caused earlier problems.

D’Angelo’s had been founded in 1967 in Dedham, Massachusetts, as Ma Riva’s Sub Shop and was acquired by Pizza Hut in 1993 to provide greater distribution of its pizza and other products in the Northeast. All told, D’Angelo’s included 148 company-owned stores and another 55 franchise stores. Pizza had been added to 66 of the company-owned units, and Papa Gino’s elected to convert 25 of them to the Papa Gino’s Pizza brand. Otherwise, the plan was to run Papa Gino’s and D’Angelo’s, renamed D’Angelo Grilled Sandwiches as separate chains. Combined they totaled 378 units and annual sales of more than $200 million.

The D’Angelo chain grew cautiously under Papa Gino’s management, adding just 13 company-owned units while existing franchisees opened another seven by the end of 2002. At this point a ten-year moratorium on adding new franchisees expired and the chain looked to spur further growth by adding fresh franchisees to develop such targeted markets as Hartford, Connecticut, and Long Island and Albany, New York. A five-year plan developed for the sandwich chain called for expansion to 400 units, primarily in markets contiguous to New England. The parent company was also looking to expand both the D’Angelo and Papa Gino’s brands by combining the concepts into one shared unit. By the fall of 2003 a dozen of the cobranded units were operating, five of them on the Massachusetts Turnpike.

KEY DATES

1953:: Michael Valerio opens first Boston pizzeria.
1963:: Company incorporated as Piece O’ Pizza Inc.
1968:: Name changed to Papa Gino’s of America, Inc.
1982:: Thick pan pizza introduced.
1991:: Valerio sells company.
1997:: D’Angelo’s Sandwich Shops Inc. acquired.
2005:: Management team and Bunker Hill Capital acquire company.
2006:: Papa Gino’s Pizzeria name is adopted.

In 2005 Papa Gino’s was still controlled by Banc-Boston, which was interested in finding an exit strategy. Galligan’s management team was also eager to find a new backer, one that was willing to invest in the growth of the business after several years of essentially running in place, albeit same store sales enjoyed steady increases during this period and a remodeling program for D’Angelo was well underway. In April 2005 Galligan and his team teamed up with the Boston equity firm of Bunker Hill Capital LP to form Papa Gino’s Holdings Corporation to oversee the D’Angelo’s and Papa Gino’s operations.

In 2006 Papa Gino’s opened its first franchised unit since the early 1990s, a cobranded unit with D’Angelo, located in Queensbury, New York. The owners, Tom and Jerry Burke, Dunkin’ Donuts’ franchisees, along with Eddie Binder, a former Dunkin’ Donuts marketing executive, planned to open another 31 cobranded units in the Albany and Hartford areas over the next three years. A stand-alone Papa Gino’s franchise restaurant was also in the works for an Albany suburb.

Other changes were also underway in 2006. Papa Gino’s introduced its first new pizza line since 1999. Called Rustic Pizza after two years of development, the new item was a free-formed, crisper pizza topped with a cheese blend that included Asiago cheese, while Romano cheese was sprinkled on the crust. It was all part of a new product program, which included eggplant panini and new desserts and was itself part of a larger effort to reconnect the brand to what been so successful for Michael Valerio: an authentic Italian-cuisine heritage. To help make this case with consumers, the company also introduced a new store design and ad campaign. In addition the pizza chain took a new name, becoming Papa Gino’s Pizzeria. A new tagline developed for the ad campaign read “The family pizzeria since 1961,” although it might have been more accurate to say, “The family pizzeria since 1953.”