Special Report | July 2012 | By Sonya Chudgar

The Rise, Fall, and Rise of Sbarro

Sbarro will use new pizza recipe and fast-casual rebranding to fight back from bankruptcy.

Sbarro updated its pizza recipe to appeal to modern restaurants visitors.
Sbarro updated its pizza recipe to appeal to modern restaurants visitors.
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One hundred days. That’s how long Jim Greco gave himself to right the sinking ship that was Sbarro when he took over as president and CEO in February.

The company filed for Chapter 11 bankruptcy in April 2011 and emerged from it in November, having shed $200 million in debt and 25 underperforming sites. But jiggering liabilities on a balance sheet had not addressed the limitations—which ranged from a subpar pizza recipe to an overreliance on mall traffic—that had caused Sbarro to drown.

“I recognize that Sbarro had, over the last several years, lost its lead in the space it operates,” Greco says. “Sbarro is an iconic brand with name recognition. And that is something that’s really hard to create and is very valuable. So I thought that it was a great place to start to build something back.”

On February 1, Greco stepped into Sbarro headquarters to recast the brand as a fast-casual contender. He concocted a formula called the 100 Day Plan, detailing how the Italian quick serve would leverage people, place, product, and positioning to enact its resurrection.

The changes debuted in June, when Sbarro rolled out 10 test units showcasing an updated pizza recipe, open-flame ovens, and a made-to-order pasta station, all rolled into the brand’s new motto, “Hands On Italian.” Team members now undergo cultural hospitality training, and an outside firm holds the blueprints for a next-generation design to be unveiled in November.

Five months into his reign as CEO, Greco says everything is going according to plan.

“We wanted to settle on a vision, we wanted to design a strategy to realize that vision, and we wanted to create the 100 Day Plan that called for a number of initiatives to be accomplished,” Greco says. “And everything that we sought to accomplish in the 100 Day Plan has, in fact, been accomplished.”

Sbarro’s Downfall

In 1967, seven years before the first successful mall food court was built, Sbarro engineered a mall location in Kings Plaza Shopping Center in Brooklyn, New York. The idea was simple: cook fresh, Italian food in an open kitchen and serve it quickly. Consumers ate it up, and the modern Sbarro concept was born. The brand became a staple as food courts boomed throughout the ’80s and ’90s.

But the quick serve that once offered “tastes to fit every palate” fell into troubled waters in the ’00s as rivals rose to challenge Sbarro’s offerings. Pizza Hut began peddling calzones in 2003 and pasta in 2008, and Domino’s stepped up to bat with a flashy new pizza recipe in 2011.

Consumers, meanwhile, were slowly slinking away from Sbarro in favor of a rising restaurant sector: fast casual.

“Fast casual was getting a really good grip on the consumer,” says Anthony Missano, president of business development for Sbarro. “It had done a great job of educating the consumer about quality and what to expect for a reasonable price, so the value equation was very strong, and I think at Sbarro we just were not consistent with that trend.”

Part of the trouble was the brand relied heavily on locations in malls, and as the recession hit around 2008, consumer confidence dropped and once-vibrant malls became ghost towns.

Greco concocted a formula called the 100 Day Plan, detailing how the Italian quick serve would leverage people, place, product, and positioning to enact its resurrection.

“If you look at what real estate costs were and construction costs in that 2005–2008 time period, they were extremely inflated,” says Dave Bagley. Bagley is a principal at MorrisAnderson, an operational and financial turnaround firm that has led bankruptcy recoveries for Sonic and Popeyes, among others.

“These malls that Sbarro was placed in were in geographic areas where there was a lot of continued growth during that period of time,” he says. “They were based on continued growth, and as we know now, some of those things didn’t come to fruition.”

Coupled with real estate costs were rising commodity costs. While corn and protein prices skyrocketed, inflation drove up price tags on cheese and flour. Gas prices grew faster than sales of the Apple iPad, and suddenly every input entering the store was costing exponentially more.

Coming in, Greco says, he noticed Sbarro was purchasing costly ingredients but charging low prices.

“I saw a company that was using costly ingredients to produce food that’s much better for you than typical fast food,” he says. “And, as a result, to cover the cost of materials we need to charge prices that are above fast food. But we weren’t delivering the whole fast-casual experience that we could.”

The Turning Point

In 2007, private equity firm MidOcean Partners bought Sbarro for $417 million. In 2010, it installed a new management team and appointed one of its managing partners, Nicholas McGrane, as CEO.

The changes were not enough. By 2011, Sbarro had accumulated more than $350 million in debt.