Marco’s Franchising LLC

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Marco’s Franchising LLC

5254 Monroe Street
Toledo, Ohio 43623-3140
U.S.A.
Telephone: (419) 885-4844
Toll Free: (800) 262-7267
Fax: (419) 885-1125
Web site: http://www.marcos.com

Private Company
Incorporated: 2004
Employees: 1,600
Sales: $218 (2005 est.)
NAIC: 722211 Limited-Service Restaurants

Marco’s Franchising LLC is a Toledo, Ohio-based company that operates a chain of carryout and delivery pizza stores, offering pizza that it says is inspired by a century-old recipe from the founder’s family. The menu also includes salads, oven-baked sub sandwiches, CheezyBread, CinnaSquares (a cinnamon pastry served with vanilla icing), and soft drinks. Only a few Marco’s units provide dining areas, but they have done well, prompting management to consider adding seating to future outlets. The company controls 145 units (40 company owned), 95 of them located in Ohio, 28 in Michigan, and 15 in Indiana. Possessing national aspirations, Marco’s has taken steps to expand beyond this core area, opening a handful of units in Nevada, Arizona, North Carolina, and Wisconsin. Although Marco’s founder, Pasquale “Pat” Giammarco, sold the Marco’s Pizza system in 2004, he remains a minority shareholder, holding a 15 percent interest, and he continues to own and operate about two dozen units in northwest Ohio. Giammarco also works with Marco’s Franchising in concept development. Marco’s Franchising is owned by its president, Jack Butorac, Jr., a man well versed in the restaurant industry who came out of semiretirement to run the chain.

COMPANY FOUNDED: 1978

Giammarco was born in Italy and immigrated to the United States with his family at the age of ten. He originally became involved in the pizza business in Detroit, where he managed several stores. He then moved to Ohio, where at the age of 26 he opened his first Marco’s Pizza store in the east Toledo suburb of Oregon in 1978. Just a year later he began franchising the concept while also opening more company-owned units. Because Giammarco was careful in his selection of franchisees, the chain slowly grew beyond its Toledo base. “We want more commitment than just investment from franchisees,” Giammarco told the Toledo Business Journal in 1987. He continued, “Unless an owner is willing to be active in the operation of the business on a daily basis, he cannot own a Marco’s Pizza Franchise.” The people that were accepted by Giammarco initially invested about $225,000, an amount that included a $10,000 franchise fee, and secured another $40,000 to $70,000 in credit. For their franchise fee the operators received 10 to 12 weeks of training. A 4.5 percent royalty fee based on net sales then supported ongoing services, and another 2 percent was contributed to support advertising. By 1987 the Marco’s chain numbered 32 units, all located in Ohio and half company-owned. Many of them posted annual revenues of more than $500,000.

Giammarco continued to maintain a strong grip on the chain’s expansion. Gradually Marco’s spread eastward from Toledo, entering the communities of Amherst, Lorain, Elyria, Avon Lake, and Bay Village. Finally, in 1990 Marco’s entered the Cleveland market. Five years later the chain had about 75 units in Ohio, some 50 located in the Toledo market and two dozen in Cleveland and northwest Ohio. Marco’s had also spread to the neighboring states of Indiana and Michigan, opening 18 stores in Michigan and another four in Indiana. About a third were company-owned units, the rest franchise operations. Marco’s franchise program was also gaining recognition by now, ranked No. 34 by Success Magazine as one of America’s “Best Franchise Businesses” in 1995.

NEW HEADQUARTERS OPENS: 1996

In 1996 Marco’s opened its 100th store, located in South Bend, Indiana. By this stage, systemwide sales had reached $45 million. It was especially impressive that stores opened for more than one year enjoyed sales increases of 15 percent. At the end of 1996 the company was also ready to move into a new $2.5 million, 30,000-square-foot headquarters in Toledo. Marco’s could support accelerated growth for the first time in its history.

Over the next four years the Marco’s chain topped the 125-unit mark (40 company owned), spreading as far as Erie, Pennsylvania. There were as many units in the Cleveland market as in the Toledo area. As the new century dawned the growth spurt came to an end as the pizza category was saturated and the economy began to sour. There was no shortage of people interested in a Marco’s franchise, however. “If we took everyone with money who was interested, we would probably have 1,000 stores,” Giammarco declared in a 2001 interview with the Toledo Blade, “but 900 of them would be failures.” He added, “It’s a time to build from within.” Thus, the Pennsylvania store was closed, as well as a few others, and Marco’s narrowed its focus to an area within 200 miles of Toledo, content for the moment to operate in Ohio, Indiana, and Michigan. To spur growth the company toyed with a new kiosk format called Hot2Go, which offered a limited menu. One of the units opened at Toledo Express Airport, and two more in Ohio Turnpike plazas. While larger rivals like Pizza Hut and Papa John’s were reporting losses and Little Caesars was in the midst of shutting down hundreds of stores, Marco’s was at least able to maintain sales growth. In 1999 the company-owned stores brought in $22.1 million in sales, an amount that increased to $23.9 million in 2000. Moreover, the company carried no debt.

Marco’s continued its holding pattern until early 2004. The company ranked No. 30 among pizza chains in the United States in 2003 with systemwide sales of $65 million, according to the industry publication Pizza Today. To help resume growth of the chain, which had dipped below 120 total units and 25 company-owned units, Giammarco brought in Jack Butorac, Jr., as a consultant. A 30-year food industry veteran, the 56-year-old Butorac had held executive posts or served as an owner-operator for the Fuddruckers hamburger chain, the Chi-Chi’s and Zapata/Zantigo Mexican restaurant chains, Two Pesos Mexican Cafes, KFC, and Rib Tavern, Inc. He then led an investment group that in 1995 bought the Louisville, Kentucky-based Tumbleweed Inc., which operated the Tumbleweed Southwest Grill chain. Under his leadership, Tumbleweed opened its first international units, made an initial public offering of stock, and in 1999 gained a listing on the NASDAQ. He then retired in 2001.

COMPANY PERSPECTIVES

Marco’s Pizza has built its business on a strong foundation of excellent quality products, superb customer service and great value. Like a builder who works hard to make sure each foundation of a building is perfect because he wants the building to last, Marco’s Pizza works hard on the foundation building blocks of its business.

One of the regrets in Butorac’s career was his failure to seize an opportunity to become involved with the Papa John’s pizza chain during its formative years. In Marco’s he recognized a company that possessed a strong base and a concept that possessed a great deal of untapped potential for growth. Once again he put together an investment group, which would include key members of his future management team and a pair of undisclosed Louisville investors, and formed Marco’s Franchising LLC. In January 2004 the company acquired the franchising rights to the Marco’s chain and the principal assets of Marco’s Inc., the previous parent company. Although he turned over the reins to Butorac, who succeeded him as CEO, Giammarco became a shareholder in the new company and retained the ownership of 25 company-owned Marco’s Pizza stores in the Toledo area. He also stayed on as a business and concept adviser to Marco’s Franchising. Butorac told the Toledo Blade, “I’ve got a lot of crazy ideas, and I’m looking for him to be the rudder to keep it in line.”

Butorac split his time between his residence in Louisville and Toledo, expressing no interest in moving the headquarters of the pizza chain. He quickly took steps to launch expansion, hiring a seasoned executive in Bryon Stephens to take charge of business development and franchising. Stephens had 20 years of experience in franchising at A&W Restaurants, Long John Silver’s, Pizza Hut, KFC, and Taco Bell, and he had been involved in the rapid rollout of national chains. To head marketing Butorac recruited Syl Sosnowski, who also had more than 20 years of experience in domestic and international franchising, spending 11 years at KFC and 6 at Papa John’s. In addition, Butorac stocked his team with other industry veterans to fill key positions.

Butorac set a goal of growing the Marco’s chain to 500 units in four years. The first step for the new ownership team was to begin a rebranding effort. Because what differentiated Marco’s from the competition was that its founder was actually born in Italy, the company played up the chain’s heritage, creating the “Ah!thentic Italian Pizza,” slogan. In keeping with this idea the restaurants were redecorated to offer a more authentic Italian look. The front counter was made from natural wood and a stone wall separated the kitchen from the lobby.

At the same time, Marco’s launched an aggressive franchise development program, which included internal financing to help new franchisees to open three units within 18 months. The company also looked to use high technology to help it target markets that were best suited to the Marco’s concept, hiring Troy, New York-based MapInfo, a software company that created a predictive site model for the chain. First a typical customer profile was developed using Marco’s point of sale information and other data. That profile was then employed to locate particular markets that offered a high number of those individuals. Moreover, the system was able to offer further help on selecting specific sites for a restaurant in a new market. Potential new markets that turned up included Lafayette, Indiana; Lima, Ohio; Lexington, Kentucky; and Phoenix, Arizona. The research also revealed that opportunities still remained in markets where Marco’s was already well represented. For example, Cleveland, which was already home to 38 stores, was deemed capable of supporting another 35 to 40 stores.

FRANCHISING PUSH LAUNCHED: 2005

With preliminary work completed, Butorac and his team began in earnest in 2005 to expand the Marco’s chain through a more aggressive franchising effort. The company moved into the Indianapolis market by acquiring nine Pizza Magia units, which were subsequently converted to the Marco’s chain. Former Toledo residents also stepped in to spread the brand to entirely new markets. In Phoenix, Arizona, Tom M. Herman, a former Toledo businessman, opened a pair of units in 2005. A third Marco’s store in the state soon followed. Herman’s goal was to own about 30 Marco’s stores in the Phoenix area. Another Toledo resident, Jim Tippin, who once ran four car washes in the city, secured the rights to open Marco’s units in Las Vegas, another of the top markets determined by MapInfo, where Tippin owned a second home and pursued a hobby playing poker. Tippin finished third in a major poker tournament and used the winnings to purchase a Marco’s franchise. To help run what he hoped would be ten stores in the Las Vegas market, Tippin brought in his retired brother, Jerry, the former owner of a Toledo card shop.

All told, Marco’s added 24 stores in 2005, a company record. It also experimented with adding chicken wings to the menu, a change that Giammarco did not support and one that would not stick. A pan pizza also failed to make the cut. A more successful idea was the introduction of a grilled chicken pizza. To help support the expansion program and reposition the Marco’s brand, emphasizing the company’s Italian roots, a new marketing campaign that included TV spots, billboards, direct mail, and point-of-purchase materials broke in Indianapolis in the summer of 2005. Also as a way to develop more franchisees, the company developed a financing package for veterans of the military, which Butorac believed were well trained and disciplined enough to become successful entrepreneurs.

KEY DATES

1978:: Pasquale Giammarco founds Marco’s Pizza in Toledo, Ohio.
1979:: Marco’s begins franchising.
1990:: Chain expands into Cleveland.
2004:: Giammarco sells controlling interest.
2006:: Arizona units open.
2007:: North Carolina unit opens.

In 2006 Marco’s introduced another incentive to help in its franchisee recruitment, offering current franchisees a share of the royalty paid by anyone they brought into the system, amounting to 30 percent of the royalty income for three years. Another effort to grow the chain was the establishment of an area representative program, which assigned the rights of a territory to an area representative, who would essentially become a mini-franchiser, responsible for the recruiting, approval, training, and oversight of franchisees within their territory. In turned they received 40 percent of franchise fees and royalties.

Marco’s opened fewer than 20 new stores in 2006, but dozens of new stores were in development and negotiations were underway with potential area representatives. In early 2007 the company entered its sixth state when a store opened in North Carolina. The franchisee hoped to open another 50 units in North and South Carolina. Also in 2007 Marco’s opened a unit in Wisconsin. By the end of the year the company hoped to be represented in ten states. Primary targets included Pittsburgh, Pennsylvania, an obvious choice since it was located close to Cleveland; other possible opportunities were identified in Alabama, Florida, Kentucky, and Tennessee.