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TelePizza S.A.

Calle Azalea
1 Edificio F-Miniparc 1
El soto de la Moraleja
28109 Alcobendas, Madrid
Spain
Telephone: ( + 34) 91 657 9000
Fax: ( + 34)91 650 9680
Web site: http://www.telepizza.es

Public Company
Incorporated:
1987 as PizzaPhone
Employees: 8,377
Sales: Pta 67.63 billion ($419 million) (1999)
Stock Exchanges: Madrid
Ticker Symbol: Telepizza
NAIC: 722211 Limited-Service Eating Places.

Fast-growing TelePizza S.A. has helped to redefine Spains eating habits. The Madrid-based chain of fast food restaurants and delivery services has built up a network of more than 767 stores. Approximately half of TelePizzas outlets are owned by the company. The remainder are operated under franchise agreements. Having built up the largest selling fast food chain in Spain, where it outperforms even McDonalds, TelePizza has set out to conquer the world. More than 250 of its outlets are located in the international market, especially in Chile, Portugal, Mexico, Poland, the United Kingdom, France, and Morocco. TelePizza has also branched out from its original pizza recipe, bringing the restaurant concepts TeleGrill (chicken, ribs) and Tele World (international food court) to the Spanish consumer. Floated on the Madrid stock exchange in 1996, TelePizza ranked as that exchanges fastest-growing stock for most of the rest of the 1990s. Uncertainty over the companys futureas founder Leopoldo Fernandez Pujais sold his 40 percent of the company in late 1999helped to hurt TelePizzas share price, especially amid rumors of a possible merger between TelePizza and rival TeleChef. That merger, in fact, became reality when the two companies agreed to join forces in February 2000. The merger will create a mostly complementary network of restaurants featuring nearly all of the typical fast food items, from pizza to hamburgers to sandwiches and beyond.

Changing Eating Habits in the 1980s

Fast food was more or less unheard of in Spain up until the late 1980s. The countrys dining habits typically revolved around long, drawn-out, family-centered mealsoften featuring the Spanish specialty tapas. Foreign foods remained in large part ignored in a country that was only just emerging from some five decades of fascist rule. The death of Francisco Franco in the 1970s returned Spain to the fold of its democratic European neighbors. The country quickly and enthusiastically adapted to the new liberties of democracy, especially the liberalization of the countrys economy. The result was an increasingly active lifestyle, where, for the first time, women joined the work force in massive numbers.

As in other countries, these changes led inevitably to changes in dining habits. With less time to prepare meals and, also, more leisure activities to distract the diners attention, the country was ripe for the introduction of fast food. Among the first to recognize this shift in the countrys culinary culture was Leopoldo Fernandez Pujais. In 1988 the Cuban-born, American-raised Pujais opened his first restaurant, selling pizzas delivered to the customers door.

Pujals had come to the United States in 1960 at the age of 13, joining the first Cuban exodus following Fidel Castros rise to power. Sent by his wealthy father, a lawyer, to Ft. Lauderdale, Florida to improve his English, Pujais soon was joined by his family, who had been forced to give up their home. Pujais spent the rest of his youth impoverished; the familys Havana home later served as the Philippines embassy in Cuba. After finishing high school, Pujais joined the army, where he rose to the rank of captain, assigned to the officer training school in Fort Belvoir. In 1969, however, Pujais was sent to serve in Vietnam. His story might have ended thereslated to be sent on a spy mission to Cambodia, Pujais was instead assigned a desk job, through the intervention of one of the officers he had trained at Fort Belvoir. As Pujais himself told The European: I was extremely lucky not to be involved in serious combat. Nonetheless, Pujals,s military background was to benefit his later career.

After finishing his tour of duty, pujals returned to the United States, where he took on American citizenship. Pujals graduated from Stetson University in Florida, married, and began a family. He also began his career as a salesman. For this, Pujals applied to and won a position with Procter & Gamble, to receive the benefits of that companys expertise in sales and sales training. Pujals quickly distinguished himself at P & G. Assigned to selling Camay soaps, Pujals met an entire years sales targets in just three months. When Pujals was offered only a mere $1,000 bonus for his efforts, he quit Procter & Gamble and instead joined the sales force of Johnson & Johnson, for which he sold heart valves and other surgical supplies.

Pujalss career lasted longer with Johnson & Johnson. Fluent in both English and Spanish, Pujals was soon sent to Guatemala, and then to Spain, where he was named to run the companys sales and marketing division in that country in 1981. Nonetheless, by the late 1980s, pujals began to look for new opportunities. Encouraged by his father, pujals determined to set out on his own. As he told the Independent: By then I was 40 and my father told me that if you hadnt founded a business by then, it would be too late. So I decided to give it a try.

Pujalss American background enabled him to recognize that Spain was undergoing a similar shift in work culture and dining habits as had occurred in the United States in the 1960s. With more and more women joining the work force, and people working longer hours, consumers began seeking greater convenience in their shopping and food needs. pujals was convinced that the time was right to introduce American-style home delivery to the Spanish market. pujalss food choice turned to pizza. Before opening his first store, pujals spent time performing extensive market testingoffering free pizzas to his suburban Madrid neighborhoods teenagers, pujals experimented with different dough and topping recipes, polling his teenage test audience until he found a recipe that appealed to them all. With that recipe, pujals, now joined by brother Eduardo, opened his first outlet, called PizzaPhone, in 1987.

Fast Food Giant in the 1990s

Pujals initially stayed with his job at Johnson & Johnson, working nights at PizzaPhone. By 1988, he was convinced of the pizza delivery services future. In that year, pujals left Johnson & Johnson and sold his home to finance his companys growth. pujals and brother Eduardo also managed to raise some $300,000 in outside investments. The pair went to work polishing the companys concept. Changing its name to TelePizza, pujals looked back to the United States for inspiration. For one, the company, borrowing from McDonalds, insisted on promoting a clean image, not only in its stores, but also among its employees, who were expected to dress neatly and behave politely to customers. Fast delivery was promoted as another company plus: taking a leaf from Dominos Pizza in the United States, TelePizza began touting its own 30-minute delivery service. Madrid, and soon all of Spain, was to be crisscrossed by a fleet of specially outfitted Vespa scooters painted in what the company called TelePizza Red. For those who preferred dining out, TelePizza offered a comfortable sit-down setting, akin to that found at a Pizza Hut restaurant.

Pujals brought other elements of his military and sales background into play. Sales were monitored carefully in daily computer reports, not only store by store, but street by street. Once a store reached a certain sales volume, a new outlet was opened in a nearby location to maintain the level of service and quality. Managers were expected to book sales increases each month, or risk being taken to task. pujalss military-inspired insistence on discipline and cleanliness was matched by intensive marketing effortsincluding blanketing neighborhoods with leaflets tucked under the windshield wipers of parked cars.

In a country where fast food was rare and home delivery even rarer, TelePizzas success was instant. By 1990, the company operated 20 stores. Soon after, the company began exporting its concept internationally, touching other countries with the fast food bug, starting with Portugal and Chile, and then Poland and Mexico as well. Spain, however, remained the companys primary market. In the first half of the 1990s, TelePizza achieved dramatic growth. By 1995, the company operated more than 250 TelePizza outlets.

By then, too, a storm was growing in the companys ranks. A dispute erupted between pujals, on one side, and brother Eduardo and the companys investors, on the other. Eduardo and the investors wanted to cash in on the companys success, taking a share of its rising profits. pujals, however, determined to continue reinvesting profits to fuel the companys continued expansion. The rift that developed quickly saw Eduardo take control of the company away from its founder. Angered, pujals sold part of his stake in the company to Banco de Bilbao y Vizcaya. Recognizing Pujalss importance to the company, the bank managed to calm the situation by bringing the two sides to a compromise. In 1996 pujals agreed to float the company on the stock market, enabling Eduardo and the original investors to cash out their shares.

Key Dates:

1987:
First PizzaPhone restaurant opened.
1988:
Name changed to Telepizza.
1990:
Opening of 20th restaurant.
1992:
International expansion to Portugal, Mexico, Chile, and Poland.
1996:
Listing on Madrid Stock Exchange.
1998:
Opening of 600th restaurant; stock split 20 for 1.
1999:
Acquisition of Hippo Pizza (UK); launch of TeleOriental; founder Pujals sells stock.
2000:
Merger of TelePizza with TeleChef.

TelePizzas public offering counted as one of the most successful in the Madrid exchanges history. Oversubscribed some 49 times, the stock proved popular not only among the growing numbers of professional investors in Spain, but also among the companys customers. TelePizzas employees, too, were offered a chance to cash in on the companys successin part to give them a stake in the companys continued strong growth. More than 95 percent of employees accepted TelePizzas offer of stock. The fast rise of the share price gave way to a situation in which, for some employees, their share dividends were worth more than their annual salary. In the first 18 months of trading, TelePizzas stock had multiplied by ten; in 1998 the company split its stock in a 20-for-one split to maintain a lower limit on its per-share price.

The stock offering enabled the company to step up its expansion drive. By the end of 1998, the company had grown to nearly 600 locations and had captured some 60 percent of the countrys pizza market, a large enough share to force Pizza Hut to exit the Spanish market. TelePizza went on the acquisition trail, buying up rival chain Pizza World (the companys success had inspired a number of imitators) from Agrolimen, adding that chains nearly 100 outlets. In recognition of the rising popularity of the fast food market in general, TelePizza began to diversify into other food types. In 1997 the company launched the TeleGrill concept, featuring chicken and ribs specialties. TelePizza also began developing a TeleOriental concept, featuring Chinese, Japanese, and Indian food specialties. At the same time, TelePizza began plans for its own food court style restaurants, borrowing from the American style of a centrally located dining area surrounded by several restaurants offering various food specialties, all of which were available for home delivery. The first of the companys prototype food courts opened in Madrid in 1998, featuring TelePizza and TeleGrill specialties.

After opening the first TeleOriental in Madrid in 1999, the company moved into a new market, buying up the United Kingdom-based Hippo Pizza chain and its 13 locations. TelePizza also jumped into northern Africa, opening its first locations in Morocco. While the companys fortunes continued to increaseby the end of 1999 the company operated more than 760 outlets, including more than 250 outlets outside of Spainit once again ran into difficulties among its shareholders. In June 1999, pujals, who remained the companys leading shareholder, while relinquishing the chief executive position to Carolos Lopez Casas, announced that he had sold some five percent of the company to the Balive and Olcese families, owners of rival fast food chain TeleChef. The sale announcement touched off consternation among investors, particularly in that the sale had been made at a below-market price, and touched off rumors of a possible merger of the two companies. The resulting confusion sent TelePizzas stock plunging for the first time since its public offering.

To stabilize the situation, pujals agreed not to pursue the sale of any more of his stockworth 31 percent of the companyfor at least 120 days. In September, however, pujals announced that he was selling off his remaining stock, selling another 5.4 percent to the TeleChef families and the remaining 25 percent to institutional investors. pujals, said to have pocketed some US $320 million in the deal, then stepped down as the companys chairman. The sale once again set off merger rumors between TelePizza and TeleChef, a move criticized by analysts who were unimpressed with TeleChefs own management. Although both parties denied that a merger was being considered, such a move seemed inevitable.

That inevitability came to be in early 2000. In February of that year, the two companies announced their agreement to merge operations, with the merger expected to be completed by the end of that month. The resulting fast food group was to become the undisputed giant of the Spanish fast food landscape and a strong contender in the burgeoning European and Latin American scenes. With mostly complementary locations, the new management stated its intention to close only 20 TeleChef locations, while converting an additional 20 to a new combined TelePizza-Telechef concept. These moves helped restore confidence in TelePizzas future growth.

Principal Subsidiaries

Circol; Delivery Delta; Eydal; Fawn; Inmobiliaria Lombard (Mexico); Luxtor; Minena; Mixor; PizzaNorte (Portugal); Pizzas Del Centro (Mexico); Precocinados Naturales (Prenasa); Sedes; TelePizza Algeciras; TelePizza Chile; TelePizza Cordoba; TelePizza Fuenlabrada; TelePizza Insular; TelePizza Logrono; TelePizza Mexico; TelePizza Moratalaz; TelePizza Polonia (Poland); TelePizza Portugal; TodoPizza (Mexico); TodoPizza Limitada (Chile).

Principal Competitors

Dominos Pizza, Inc.; Pizza Hut Inc.; PizzaExpress; Whitbread pic.

Further Reading

Barghini, Tiziana, Spains Telepizza Promises Sizzling Shares, Reuters, June 30, 1999.

Fancy a Pizza? Talk to Telepizzas New Machine, Reuters, March 25, 1999.

Hay ley, Julia, Telepizza Shares Plunge on Sale Report, Reuters, September 21, 1999.

Morais, Richard C., Sizzler, Forbes, March 22, 1999.

Nash, Elizabeth, Dateline: Madrid: The Cuban Who Conquered Spain, Independent, March 17, 1999, p. 2.

Navarro, Juan, Spains Telepizza Parts Ways with Founder, Reuters, October 22, 1999.

Parry, John N., Pizza Magnate Delivers the Profits, The European, December 19, 1996, p. 28.

Tremlett, Giles, Leo Rakes Up Profits from His Pizza Delivery Business, The European, April 20, 1998, p. 50.

M.L. Cohen

TelePizza S.A.

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