Mr. Gatti’s, LP

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Mr. Gatti’s, LP

THE BEGINNINGS, 1964–79

PIZZA TAKES OFF: 1980–86

PIZZA WARS: 1987–99

THE NEW MILLENNIUM

PRINCIPAL OPERATING UNITS

PRINCIPAL COMPETITORS

THE BEGINNINGS, 1964–79

James R. Eure, a retired Air Force lieutenant colonel who served during World War II, loved pizza. His penchant was not for ordinary pizza, but lovingly crafted pies with tangy tomato sauce, provolone cheese, and the finest sausage and pepperoni. Colonel Eure, as he was called, wanted to introduce the community of Stephenville, Texas, to his particular style of pizza. In 1964 he borrowed money and opened a small pizzeria to serve his neighbors and friends, who praised his astoundingly good pies.

The Colonel decided to take his pizza expertise to a bigger area, so he and his wife Patti moved about 250 miles south to Austin, in 1968. The next year, 1969, the Colonel opened the “Pizza Place” with high hopes. He already had the real estate mantra “location, location, location,” going for him, since Austin was home to the University of Texas. It proved an excellent venue for the Colonel’s tasty, one-of-a-kind pies. Word spread quickly and demand grew, so much so that the Colonel opened several other locations in the Austin area.

Within five years there were 13 Pizza Places, but the Colonel was not satisfied. He wanted to take his pies beyond Austin to the rest of Texas and into neighboring states. He also wanted a more distinctive name, so he took his wife Patti’s maiden name, Gatti, and added “Mr.” Mr. Gatti’s soon became synonymous with the tagline “The Best Pizza in Town,” and the Colonel meant it, from his specially formulated tomato sauce to his real smoked provolone (not mozzarella) cheese.

In 1974 the Colonel was approached by investors who wanted to expand Mr. Gatti’s through franchising. Colonel Eure accepted their offer and sold the company. Under the new ownership, Mr. Gatti’s was transformed: locations were updated with a stylish new decor, and the first franchised unit opened in Cedar Park, north of Austin.

Mr. Gatti’s continued to grow, opening new locations in central Texas, then past its border. During this time, two factors shaped the future of pizza and the foodservice industry: the advent of “fast” delivery and the arrival of “deep dish” or pan pizza. Delivery had long been available at small pizza parlors, but the arrival of Domino’s significantly changed the market. The Ann Arbor, Michigan-based chain spread like wildfire, setting up shops near colleges and military bases. While aware of Domino’s growth, Mr. Gatti’s did not consider the delivery chain much of a threat, since Gatti’s patrons sought not only delicious pies but a comfortable dining experience as well.

In 1978 Mr. Gatti’s was bought by Texas entrepreneur L. D. “Brink” Brinkman of the Kerrville-based LDB Corporation, one of the nation’s largest carpet and flooring manufacturers. At the time of the acquisition, Mr. Gatti’s was Brinkman’s first foray into the foodservice industry and had a few analysts scratching their heads. Nevertheless, Brinkman was a fan of the Lone Star chain and had the funds for its expansion.

PIZZA TAKES OFF: 1980–86

By the early 1980s more and more Americans were eating out, both in fast-food establishments and at sit-down restaurants. Deep dish pizza, launched nationwide by Pizza Hut (though it had long been a favorite in Chicago), was the rage. Mr. Gatti’s, like most pizzerias, had some version of the thick crusted pie on its menu. Domino’s Pizza, meanwhile, had continued to grow at an unprecedented rate and pizza purveyors large and small began delivery services to compete.

By 1981 Mr. Gatti’s franchises had popped up throughout Texas and into Louisiana, Kentucky, and Tennessee with the total number of locations reaching 260. Other developments in the pizza market were spurred by health concerns, as customers sought alternatives to pizza, considered too heavy or filling, for lunch. Mr. Gatti’s acknowledged the trend by offering weekday lunch buffets in 1982, while Pizza Hut responded with its “Personal Pan” pizzas. Other chains followed suit offering buffets, smaller pies, pizza by the slice, or adding salads to their lunchtime fare.

Pizza Hut continued to dominate the market with more than $1 billion in sales for 1982 and over 4,000 eateries. As the Hut hit its billion-dollar milestone, Domino’s was second in the number of units with over 1,000 and revenues of $400 million. Regional chains had continued to extend their territories, with Mr. Gatti’s testing the waters to the north and east while the California-based Round Table Pizza worked its way east and southward. Round Table garnered steady growth from 350 locations in 1984 to 460 in 1985, with revenues of $134 million and $162 million, respectively. Mr. Gatti’s had reached 350 locations nationwide, yet had sales of only $130 million for 1985.

Mr. Gatti’s planned to open from 50 to 75 new units annually in two dozen states. In addition to tweaking the menu with pasta dishes and sandwiches, several Mr. Gatti’s had also begun delivery service and saw a healthy jump in sales. In both the Austin and Louisville, Kentucky, areas, Mr. Gatti’s offered “one-number” dialing, advertising one phone number for the entire metro area to be routed to the closest unit for delivery. Within months, the ease of one-number dialing led to a dramatic sales increase, so much so that delivery king Domino’s followed suit for its major metropolitan areas.

COMPANY PERSPECTIVES

At Gatti’s, we know there’s no shortcut to quality. Since 1969, every ingredient has been selected to fit our high standards and exceed other’s. We are one of the few pizza restaurants that use 100% real smoked provolone cheese. Here, cheese is more than a topping used to cover and hold ingredients, it’s our key ingredient. Our dough is made fresh each and every day by hand in our own kitchens. Our signature pizza sauce recipe has been entrusted to the tomato experts at Heinz and is adhered to with exacting standards. Our delicious pepperoni is made especially for us by the meat experts at Hormel and can’t be found anywhere else. Quality ingredients is what makes Gatti’s the best pizza in town. Our founders Colonel Eure and his wife Patti “Gatti” Eure wouldn’t have had it any other way.

Despite the popularity of the pizza market, which had surpassed burger chains in unit growth (31,000 pizzerias versus 26,500 burger outlets for 1985), according to Restaurant Business magazine, several chains began to lose their footing. Godfather’s Pizza, once ranked third in the nation, behind Pizza Hut and Domino’s, was bought by the Pillsbury Company and imploded due to mismanagement and slumping same-store sales. Mr. Gatti’s, too, experienced problems with market saturation and lower same-store sales in some areas. To counteract slipping sales, Gatti’s began renovating its older pizzerias and explored new venues including trendy Ventura County, California.

PIZZA WARS: 1987–99

Near the end of the decade the top two pizza chains were still Pizza Hut and Domino’s, the latter breaking records for both unit growth and revenues. Other pizza chains were caught up as mergers and acquisitions ruled the industry. The ShowBiz Pizza Time and Chuck E. Cheese Pizza entertainment chains merged, while Mr. Gatti’s and Little Caesar Enterprises bought smaller chains. Michigan-based Little Caesar quietly bought 11 outlets, and Mr. Gatti’s acquired 44 units.

Mr. Gatti’s buying spree consisted of three purchases: 14 of its franchised units in and around Nashville; the 19-unit “Musselman’s” chain; and an 11-unit pizza chain called Red Geranium, bringing Mr. Gatti’s total outlets to 337 for 1987. Mr. Gatti’s also continued its popular “Call 1” program, expanding the delivery system into all of its markets and offering some a 30-minute delivery time, Domino’s claim to fame.

Mr. Gatti’s remodeling of older stores continued, bringing in a new three-room design. The main dining area was considered the “entertainment” room with a large-screen television, while there was a smaller “Garden” room for patrons seeking more quiet, and the third was a party room for local events. Salad bars, which had remained a big draw during lunch, were being installed at all outlets, and the “No-Wait” lunch buffet had been expanded to three or four days in most chains. Some Mr. Gatti’s offered a dinner buffet as well, on selected evenings.

By 1988 revenues for Mr. Gatti’s reached $143 million, with 325 locations nationwide. The company’s management, however, had been in flux, with several chief executives in as many years. Brinkman himself finally took the helm, planning to open up to a dozen company-owned locations and two dozen franchises in Mr. Gatti’s 17-state region.

The 1990s, however, proved difficult for Mr. Gatti’s as sales fell and competition from Pizza Hut, Domino’s, Little Caesar’s, and such regional chains as Donato’s, Shakey’s, CiCi’s, and Pizza Inn took their toll. The company filed for Chapter 11 bankruptcy protection in 1991 and began reorganizing. Within two years, Mr. Gatti’s had shed underperforming units and was climbing out of debt.

The new and improved Mr. Gatti’s of the middle and late 1990s was streamlined and focused on its core business: making delicious pizzas and providing a pleasant dining experience for its customers. The chain had succeeded in raising same-store sales and had decided to try something new: an entertainment concept similar to Chuck E. Cheese called “GattiTown.” The $3 million 27,000-square-foot prototype opened in its home base of Austin, with plenty of seating for dining, large-screen TVs, and a huge video and gaming arcade for kids.

THE NEW MILLENNIUM

At the beginning of the 21st century, Mr. Gatti’s seemed to be on solid ground. The company’s GattiTown entertainment complex had been a success and several more were built in Texas. Within a few years, however, the pizza chain was facing an uncertain future. Parent company LDB Corporation was in financial trouble and by 2003 was forced into bankruptcy.

KEY DATES

1964:: Colonel James R. Eure begins making pizzas in Stephenville, Texas.
1969:: Colonel Eure opens “The Pizza Place” in Austin, Texas.
1974:: A group of investors acquires Mr. Gatti’s from the Colonel.
1981:: Mr. Gatti’s is acquired by L.D. Brinkman Corporation.
1982:: Mr. Gatti’s begins serving a weekday lunch buffet.
1984:: One-number delivery dialing is introduced in Austin and Louisville, Kentucky.
1986:: Mr. Gatti’s buys several regional pizza chains.
1989:: The company celebrates its 25th anniversary.
2004:: Blue Sage Capital, LP buys Mr. Gatti’s from LDB Corporation.
2005:: New CEO Mike Mrlik takes the helm.

In November 2004 Brinkman, which had owned Mr. Gatti’s for 26 years, sold the pizza chain to the Austin-based Blue Sage Capital, LP, a private equity firm, for a reported $24 million. Blue Sage partner Jim McBride told the Austin Business Journal (December 9, 2004) Mr. Gatti’s was more than worthy of saving: “It’s Texas-based, family-owned and in need of a transition. And the company is mature, profitable and has solid growth prospects.” Blue Sage was also involved with another foodservice chain, the Illinois-based Cosi, Inc., and was helping fund a national rollout of the sandwich and coffee chain.

In May 2005 Mr. Gatti’s named a new chief executive and president, Michael Mrlik II, formerly of New World Restaurant Group, Inc. (owner of Einstein’s Bagels, Noah’s Bagels, and New World Coffee). Mrlik replaced Don Brinkman, son of L. D., who had stayed with Mr. Gatti’s after the chain was sold. All was not, however, smooth sailing. Blue Sage filed suit against LDB Corporation in April 2006, alleging the former owner had not been truthful about the pizza chain’s financial status and a myriad of issues facing the franchise.

Perhaps to leave behind the past and concentrate on the future, Mr. Gatti’s became simply “Gatti’s” as Blue Sage looked to expand the chain. The huge, game-filled GattiTown and GattiLand “eatertainment” complexes continued to perform well and Blue Sage had financed the opening of two dozen locations ranging from 19,000 to 30,000 square feet. In 2007 there were 150 Gatti’s locations in Texas, Louisiana, Kentucky, North Carolina, South Carolina, Tennessee, Indiana, and Virginia. Texas, its home base, still had the highest concentration of outlets, with over 80 locations.

Nelson Rhodes

PRINCIPAL OPERATING UNITS

GattiLand; GattiTown; Gatti’s To Go; Mr. Gatti’s Pizza.

PRINCIPAL COMPETITORS

CEC Entertainment Inc.; CiCi Enterprises, Inc.; Domino’s Pizza, Inc.; Little Caesar Enterprises, Inc.; Papa John’s International, Inc.; Pizza Hut, Inc.