Donatos—despite everything 2022 decided to throw at the restaurant industry—managed to open more than 55 locations across the U.S.
Jeff Baldwin, vice president of development and franchising, says success lies in a multi-faceted strategy to put the pizza chain in front of consumers traditionally and nontraditionally. The most significant part of that plan is Donatos’ years-long rollout into Red Robin restaurants nationwide.
As of late December, the brand was licensing its products in roughly 250 Red Robin locations, 50 of which came online in 2022. The menu includes nearly a dozen pizza selections (i.e. Founder’s Favorite, Pepperoni, Serious Meat, Very Vegy), which can be purchased as 10 or 14 inches.
Baldwin sees two main benefits to this partnership. For one, packaging Donatos in additional restaurants provides a better opportunity to access new customers. It’s similar to a ghost kitchen or virtual brand, except Donatos actually appears on the in-restaurant menu. The relationship also builds supply chain efficiencies, a factor that cannot be discounted given the industry’s recent issues with stoppages and shortages.
“Part of what makes Donatos Pizza, Donatos Pizza, are some proprietary products,” Baldwin says. “Our dough recipes, our pepperoni, our proteins, our cheese. And so with that comes some challenges around distribution. And so the ability to expand in new markets and across the East and West Coast with Red Robin allowed us to expand our distribution center capabilities and our supply chain.”
Donatos will enter 25 more Red Robin locations in the first quarter. The overall goal is to add 150 units, which would finish the process at around 400 locations. At that level, pizza would be in more than 75 percent of Red Robin stores.
The casual-dining chain is just as excited about the pizza deal. In Q2 of last year, Donatos earned $6.2 million in sales, mixing 60 percent dine-in and 40 percent off-premises. In the third quarter, stores serving pizza outperformed non-pizza outlets by 10.1 percentage points when looking at comp sales versus 2019. That’s an increase from 5 percentage points in the first quarter and 8 percentage points in the second quarter.
“We've been very happy culturally. We're very aligned,” Baldwin says. “They’re a premium brand. We're a premium brand. Their execution is great. So we're very, very happy with the partnership and again, it really lays the foundation for us in a couple of areas for what we ultimately want to promote, which is our traditional franchise growth.”
Donatos finished 2022 with more than 430 locations (including those Red Robin stores) and entered six new states— Iowa, Maryland, Missouri, Nebraska, South Dakota, and Wisconsin. Baldwin says the brand is primarily focused on franchise growth in the eastern half of the U.S., with new development deals signed in such places as Florida, Georgia, Oklahoma, and South Carolina.
Traditionally speaking, Donatos debuted five new brick-and-mortar units last year. The pizza chain searches for high-profile locations that allow for strong delivery sales. That means affluent neighborhood shopping centers that can hold an 1,800-2,000-square-foot freestanding building with 26-30 seats or a 2,000-square-foot endcap with a mobile order pickup window.
All new markets will be franchises; the corporately-owned footprint will remain in Ohio. Additionally, Donatos is partnered with REEF Kitchens as a ghost concept. Baldwin expects the brand to pursue more of those, particularly in markets where it’s more difficult to squeeze in a streetside unit.
To increase franchising interest, Donatos boosted its marketing efforts toward operators. Baldwin says it’s a story about premium product, community involvement, and value for customers and employees. It’s also about financial and geographical abundance. AUV is over $1.29 million, EBITDA is strong, and there’s whitespace for Donatos’ unique niche. The brand is positioned between national chains that opt for discounting, convenience, and digital ordering, and the mom-and-pop Italian restaurants that have stricter perceptions of quality, priced higher and don’t offer as much with convenience.
“We have a lot of brand advocates because they just love the product," Baldwin says. "And wherever they live, if there's not a Donatos in those markets, we get a lot of people that call us and say either we need to find somebody or they are interested in potentially expanding in those areas. So we love the customers that have that cult-following, but we're trying to extend that beyond and so we want to introduce the brand to folks maybe that we haven't been introduced to in the past.”
“And so our efforts around PR and extended media spend are really around that social, the emotional,” he adds. “Obviously, we're going to talk about some of the financial benefits and where we stand against some of our competitors. It's really about that emotional introduction to the brand because we believe we're different. We have a high-quality product that people really like. So we're just trying to get that message out from a PR perspective and a number of different channels.”
That message is backed by a recently restructured leadership team. Chief information officer Steven Graves, with experience from Sam’s Club and American Airlines, came onboard in May. Jodie Conrad, who served as Donatos director of brand marketing from 2000 to 2005 when the company was owned by McDonald’s, returned in September as chief marketing officer. Then there’s chief people officer Christina Jackson, an executive that spent time at Bath & Body Works and Designer Shoe Warehouse, and vice president of company operations Brian Thompson, who comes from Titan Restaurant Group.
Additionally, Donatos promoted Tony Capuano to vice president of franchise operations after various operations development and district manager roles and created the position of vice president of field operations excellence for Cheryl Bergsman, who spent the past few years as vice president of company operations.
Donatos competes in a pizza fast-casual segment that’s quickly expanding, and Baldwin believes the chain is able to separate itself not only because of its product, but also it’s numerous access points—dine-in, pickup, delivery, and catering. There are many ways to get to the customer, and that’s the key to winning.
“That portfolio builds on itself, meaning those transactions from catering help the transactions for dine-in, which helps transactions for delivery,” Baldwin says. “I mean we just continue to get that loyalty from our stronger customers, and we communicate through our loyalty program. And so for Donatos, it's really about having a much more robust system than most and being in that premium space if somebody really wants to have something that's extra. We're a great choice and there aren't a lot of good choices within the space that can do it the way we do it.”