Crain's Detroit Business

Little Caesar Enterprises Inc. bases its long-term success on perfecting one simple task: making the best large pepperoni pizza $5 can buy.

Fifty years ago, Mike and Marian Ilitch opened their first carryout only store with a $10,000 investment — Little Caesar Pizza Treat in Garden City.

The company is now the world's largest carryout pizza chain and for the second consecutive year has been called the “best value in America” by Barrington, Ill.-based Sandelman & Associates, a consumer research firm.

So how did it get there?

The Detroit-based company's ability to attract and retain consumers has more to do with its emphasis on leveraging costs than expanding its product line. “The most important factor in our carryout business is focusing on one thing and doing it extremely well,” Little Caesars President Dave Scrivano said. “When you try to cater to too many people, you dilute what you are good at.

“Little Caesars continues working at its core competency, making large pepperoni pizzas and selling them at a price our competitors find difficult to match,” he said.

The company has performed best when sticking to its value niche — whether it's “Hot-N-Ready,” “Pizza! Pizza!,” “Big!Big!” or other similar slogans. The company has at times with less success tried to compete on product variety as well, with various pizza specials and other product offerings.

It also ran into trouble when Mike Ilitch stepped back from day-to-day management in the early '90s to spend more time with his sports franchises. “I figured we had enough substance that I could step out of the business and we could continue to do quite well,” Ilitch, chairman of Ilitch Holdings Inc., said in a 1996 interview with Crain's.

But Little Caesars needed a captain, and the ship began taking on water. Crain's reported Little Caesars' net income climbed to $41 million in 1992, but by 1995 it dropped to $1.2 million. Revenue reached $774.1 million in 1993 but shrank 20 percent to $620.8 million by 1995. In 1997, it introduced a promotion: a one-day sale in which customers could get a large pepperoni pizza for just $5 — a promotion some say saved the company.

In 2004, Little Caesars reaffirmed its value-oriented place in the market by making the $5 Hot-N-Ready pizza a mainstay on its menu. In 2007 and 2008, Little Caesars was named the “best value in America” of all quick-service restaurant chains for its Hot-N-Ready pizza by Sandelman & Associates. The Illinois firm's syndicated Quick-Track research study monitors consumer awareness, usage and attitudinal measures.

“The Hot-N-Ready concept and Little Caesars whole carryout model provides them a different type of cost structure than we have,” said Tim McIntyre, vice president of communications for Ann Arbor-based Domino's Pizza Inc. “You can operate a Little Caesars with far fewer employees than a Domino's with the same amount of sales volume.”

A simpler store model eases operations and fewer product offerings allow Little Caesars to run at a lower cost than competitors who offer more services and wider array of products. McIntyre says Little Caesars' simple menu and carryout model has created a customer base different from Domino's.

“We have fundamentally different customers. Theirs are more focused on value and ours on convenience,” McIntyre said. “While we both recognize our customers are different, that doesn't stop us from going after their customers and them from going after ours.”

Exact figures for Little Caesars are difficult to get because it's a private company. But Darren Tristano, executive vice president of Chicago-based research firm Technomic Inc., puts Little Caesars systemwide sales at about $1.055 billion and estimates its restaurant count at 11,000.

Scrivano, without giving specifics, says that estimate is low. According to Technomic's research, Little Caesars has a 3.6 percent slice of the nearly $29 billion limited service pizza market, market share that has been growing over the past few years.

Dallas-based Pizza Hut Inc. has the largest market share, with $5.3 billion in sales, making up 18.2 percent.

Domino's has about 10.4 percent of the market with sales of just more than $3 billion, and Louisville-based Papa John's International Inc. has a 7 percent market share with sales of $2 billion.

Technomic reports Little Caesars systemwide sales steadily growing over the past three years from $830 million in 2006 to $930 million in 2007, a 12.1 percent increase, and $1.055 billion in 2008, a 13.4 percent increase. Tristano attributes much of the boost to steady unit growth, not an increase in sales.

Scrivano claims Little Caesars led all pizza chains in store growth in 2008 but wouldn't divulge sales figures or revenue. “We built stores in 41 states, in seven countries, and had greater net store growth, openings in excess of closings, than any other pizza chain,” Scrivano said.

In the early 1990s, sales began to lag, and in 1999 the company was hit with a class-action lawsuit from franchisees who complained about the low quality and high cost of food products from Little Caesar's in-house distributor. The suit was settled in 2001. Steve Price, partner of Oklahoma City-based Magnum Foods Inc. which owns 36 locations, said Little Caesars has worked hard to improve relations with its franchisees.

“Little Caesars has made changes in the past few years to allow franchisees to grow in the company,” Price said.

Todd Messer, executive director of Independent Organization of Little Caesar Franchisees, which owns 16 stores in Little Rock, Ark., said nothing heals wounds like success, and the company's focus on its value heritage helped it right itself.

“Many chains today have an identity crisis, but not Little Caesars,” Tristano said. “They have always understood who they are and how they are positioned in the marketplace and so do their customers. They are not a pizza chain trying to be a sandwich shop.”

Tristano said Little Caesars' value-based identity is one reason the chain is found in urban communities where cost is critical. “Most of the major chains are overlooking urban areas and moving to developing communities which are demographically significant and are more aligned with their product,” Tristano said. “Little Caesars is looking at all areas, not just affluent ones.”

In fact, Price said Little Caesars may pass on some higher-end markets. “It's true that we are a value-based family concept, and that fits well within middle-class suburban and blue-collar markets,” Price said. “We don't necessarily want to be in the high-end areas, because if you look at those markets you have fewer individuals per household.”

By locating in areas where its competitors won't, Little Caesars can become a much bigger fish in a much smaller pond.

“Little Caesars is better at competing against independent stores because it has a much easier time leveraging its economy of scale to fit the economic conditions of the community,” Tristano said.

That positioning has allowed Little Caesars to succeed in any economic climate.

“We are more resilient. ... Our sales have not increased as much as they have remained constant, while the other entities are struggling to carve their niche in the market,” Price said.

“We give them (customers) an honest price and an honest product, and we think consumers see that.”


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