Special Report | July 2012 | By Sonya Chudgar
The Rise, Fall, and Rise of Sbarro
“The biggest enemy of a company that’s in financial trouble is time,” Bagley says. “If they have cash, they have time. But they need to generate some liquidity to give themselves time to turn around their operations.”
Sbarro, submerged in debt, had no choice but to file for Chapter 11 on April 4, 2011, and attempt to reduce its debt by half.
Bagley says a turnaround involves three steps: assessing the situation, identifying the biggest risks to the business short-term, and making changes so the company arrives at a stability point.
“In a turnaround, there are things you can do that don’t affect the customer, right?” Bagley says. “If I renegotiate a lease, if I cut a deal like Sbarro did with its lenders, that doesn’t affect the customer experience at all. That enables the company to be on more solid financial footing, which over a period of time, will improve the customer experience.”
Sbarro’s stability point arrived seven months later, at the end of November, when the brand emerged with reduced debt and an infusion of $35 million in capital from its lenders.
Greco Steps In
Greco enjoys puzzles. But we’re not talking about 100-piece jigsaw puzzles. His puzzles of choice are closer to $500 million on a balance sheet, and his quest is to arrange the pieces so they stop bleeding red.
Greco has led four previous financial turnarounds, most recently at Bruegger’s. His plan at Sbarro focuses on four areas: product, place, people, and positioning.
In terms of product, Sbarro reformulated its pizza recipe using all-natural ingredients, from whole milk mozzarella cheese to whole peeled tomatoes. It is working with manufacturers on original sauce recipes and styles, and it installed open-flame ovens that “give us a lot more theater than we had before,” Greco says.
The new pasta station, meanwhile, allows guests to build personal noodle dishes within 45 seconds.
The new positioning, “Hands On Italian,” is reflected in the food, PR, and point-of-sale materials. Greco also implemented a cultural hospitality program that teaches management in how to hire for attitude, train for skill, and empower for teamwork.
Executives are closely monitoring the aforementioned changes at 10 nationwide test units unveiled in June. All 10 were converted overnight in a “Mission: Impossible”–style adventure, with teams moving in at 9:30 p.m., dropping in the 6-foot-long pasta station, muscling the 5,000-pound woodstone pizza oven over the counter, and fashioning murals and menuboards so the stores could open the next morning.
While they reflect an updated design, the test units are not representative of the ultimate blueprint. Those will come in November, when Sbarro unwraps five units renovated in the next-generation design.
The Next Chapter
Greco’s team will analyze sales and conduct customer intercepts to gauge opinions at the test units. Customers, meanwhile, can look forward to the nationwide rollout of the new pizza recipe at the beginning of September.
Missano says Sbarro’s changes are not a one-shot process, but will continue to evolve over time. Next, the brand will take a closer look at its salad, dessert, and handheld offerings, and Greco hopes improvements will be made to them by the time the five next-gen units arrive in November.
As Sbarro plans for its future, Bagley warns against changing too much or too swiftly.
“In a turnaround situation, you’ve got to really convince everyone that while you’re doing things better, it doesn’t mean you were doing them poorly before, because maybe they liked the formulation of the coffee or the formulation of the pizza,” he says.
Rebranding as a fast-casual concept also requires a different management style, experts say.
“When you start talking about fast-casual types of concepts, that’s almost a whole different process [than a quick serve],” Bagley says. “There are multiple more touch points, which makes managing those locations a little bit different, and that’s one area where we see some of our clients in the past who try to change their concepts really struggle with that.”
But Greco isn’t worried.
“[The changes] will, once again, establish Sbarro as a leader in this space,” he says. “The things that are coming will be so far and above what others here in our space do, and for that matter, it will be so compelling that it will make us a strong competition for folks in other types of fast-casual spaces.”
Food & Beverage
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