Web Exclusive | December 2011 | By Daniel P. Smith

Pizza Patrón Rebrands, Jumps Sales

Dallas-based company cut menu items and changed its pricing strategy to fight slipping sales.

Earlier this year, Pizza Patrón faced rising commodity costs and stagnant numbers across the 100-store system. CEO Antonio Swad, feeling pressure to deliver value for franchisees and customers, saw daring change as his lone solution.

"In this business, being timid is the quickest path to failure," Swad says.

So Swad, who founded the Dallas-based concept in 1986, started a major revamp targeting Pizza Patrón's product, pricing, and presentation. The extensive changes were recently tested in eight stores across five markets, and are now rolling out to the entire system.

Pizza Patrón identified its target objectives: reduce food costs by 3 percent, raise gross sales 4 percent, and improve gross margins for franchisees 9 percent. Leaders then crafted a bold new plan in which nothing except the long-held "Mas Pizza, Menos Dinero" brand promise was safe.

The company ditched its 12-inch and 15-inch pies in favor of one size, a reengineered 14-inch pizza that would help stores better manage use of flour, toppings, and cheese. The company also created a new tiered pricing system for all custom pies and increased the price of various side items (breadsticks, for instance, increased 20 cents) to boost revenue.

Finally, Pizza Patrón dedicated more in-store signage to combos, two-for-one deals, and custom pies to spark higher ticket averages.

Swad says the changes represent simplified operations and a more cost-effective product with the one-size pizza and revised recipe. He says franchisees liked the smarter pricing scheme to encourage higher revenue, as well as the targeted advertising, which included a streamlined campaign aimed directly at the brand's core Latino customer.

"For the first time, we looked at the business in its entirety rather than just putting out fires," says director of brand development Andy Gamm. "It's not the common course of action, but we felt the multilayered approach was the best way to get back on track."

That wasn't always the strategy for Pizza Patrón, though. Before the brand revamp, the company opted for quick-fix changes when problems arose.

In 2008, Pizza Patrón responded to high commodity costs by raising the price of its staple 15-inch pepperoni pizza from $5 to $6. Although Gamm says the price hike was a "serious, thoughtful decision," the company faced pushback from customers.

"We lost 25 percent of our business overnight," Gamm says.

The trial stores reported same-store sales growth of 30 percent, traffic gains of 21 percent, and a 7.5 percent jump in the average ticket.

In a hurried response, Pizza Patrón unveiled the $4 12-inch pie to appease its blue-collar customer base. Though the new offering hooked customers and stimulated traffic, it generated a new set of problems for Pizza Patrón. There were operational concerns because of the second pizza size—Pizza Patrón had offered only one size throughout its history—and tight margins because of the paltry price point.

This year's sweeping changes, however, have been more successful.

Within the first six weeks at test stores, gross sales jumped 15 percent and gross margins improved nearly 34 percent. Food and paper costs, meanwhile, fell 6.5 percent.

For a brand struggling with falling numbers throughout 2011, the eight trial stores reported same-store sales growth of 30 percent, traffic gains of 21 percent, and a 7.5 percent jump in the average ticket. Meanwhile, Pizza Patrón's other outlets continued to see flat numbers.

The numbers were so successful that Pizza Patrón ended the initial 90-day test early and began rolling out the revamped operations systemwide early last month. By the end of January, all the Pizza Patrón outlets will be on board.

"Our franchisees were getting results and our consumers were getting value, so why wait?" Swad says.

Mike Kelly, managing director at Brand Value Advisors, a New York–based brand and marketing advisory firm, calls Pizza Patrón's holistic approach a wise move.

"Some brands will introduce a great new pizza, but not have the price figured out or marketing aligned," Kelly says. "There are so many moving parts in the restaurant that if you can get it out there all at once, I think it's much easier to understand the high notes."

Kelly says a piecemeal approach can confuse franchisees and customers. He says Pizza Patrón's change highlights the advantages of a thoughtful, aggressive roll out that tackles price, product, and presentation simultaneously.

"The faster you can figure things out, the quicker you can improve," Kelly says.

Swad says his company's three-pronged overhaul shows the momentum swing that a strategic plan and the courage to execute can deliver.

"We're in a new normal, and it's the people who don't change that risk getting run over," he says.