Tom Sacco believes he’s sitting on the “best unsung restaurant story in the country today.” Heck it was news to him just a few months ago.
The 30-year industry veteran joined Dynamic Restaurant Holdings, LLC, parent company of Happy Joe’s Pizza & Ice Cream and Tony Sacco’s Coal Oven Kitchen (no relation to Tom Sacco), as CEO in November. Before DRH reached out, Sacco, who previously clocked time with Red Robin and BJ’s Restaurant and Brewhouse, had never heard of Happy Joe’s—a brand founded in 1972 by Lawrence Joseph “Happy Joe” Whitty, a former Shakey’s Pizza manager.
But his due diligence didn’t quite go as expected. He rang up former colleagues from the brand’s home base of Iowa. “If not for these people, who I would call really close allies I can trust, I would say somebody had written a script for these guys to preach to me,” Sacco says. “When you bring up Happy Joe’s to any Tom, Dick, or Harry in the Upper Midwest, it creates an emotional reaction. And that fascinated me.”
Sacco compares the reaction to In-N-Out Burger on the West Coast. Dr. Pepper before it went national. Coors east of the Mississippi before the beer giant exploded mainstream.
Experiences people take with them when they cross state lines, and must-stops in the visitor’s guide.
“To me, that’s where I saw this huge upside in the company,” Sacco says.
Before getting into what came next for Sacco, here’s what he believes the future could hold for 52-unit Happy Joe’s. A 10-year goal of 1,000-plus restaurants.
Six quick-service pizza chains eclipse the four-digit domestic mark—Domino’s (6,126), Pizza Hut (7,306), Little Caesars (4,237), Papa John’s (3,142), Papa Murphy’s (1,329), and Marco’s, which opened its 1,000th location in October.
“I’m looking forward to sharing it with thousands and thousands of families and hundreds and hundreds of thousands of guests around this country in the years to come,” Sacco says.
Since Sacco took over, the brand opened two new franchise units in Urbandale and Cascade, Iowa. An existing franchisee in St. Louis signed on to add another, with a fresh location coming to St. Peters, Missouri, in June. Additionally, a corporate location—in Fond du Lac, Wisconsin, is slated for July.
The four openings are more than Happy Joe’s opened in the past five years combined.
To generate interest, Sacco decided to waive Happy Joe’s initial franchise fee, reduce royalties to 2 percent during the first year of operation and 4 percent for the second. In other words, full royalty does not kick in until the 25th month of operation.
Additionally, Sacco hopes to help operators who struggled or shuttered during COVID-19 convert existing spaces into Happy Joe’s. These franchisees, he says, take on a lower build-out cost and get a quicker turnaround versus ground-up build-outs. In a lot of cases, the conversion costs are offset by Happy Joe’s franchise investment incentives, he says.
“We’ll go anywhere,” Sacco says. “But I would like to open some restaurants in the South.”
The Happy Joe’s story, however, wasn’t always made-for-TV material. “Happy Joe” Whitty passed away at the age of 82 in October 2019, and the company stumbled a bit in recent years. It sold a majority stake to DRH, a newly formed holdings group, two years prior to Whitty’s death. AAVIN Equity Advisors served as a financial partner in the deal, terms of which were not disclosed.
Sacco says a disconnect between the brand’s new ownership and franchisees was festering. “There was just a lot of things aligning in ways that created some anxiety, created some animosity. Created hostility between the franchise community and the parent company,” he says.
One example, which Sacco refers to as “a boiling point,” was the company’s proprietary supply. It was making franchisees pay a surplus for the products that differentiate the brand, he says. And it was getting it given back in the form of a rebate.
So not only were operators paying a franchisee fee, paying into an advertisement fund, but they were also paying for the right to use Happy Joe’s trademarked product.
“My head nearly exploded,” Sacco says.
He adds Happy Joe’s wasn’t doing anything dishonest or illegal—the company disclosed the agreement. It was in the FDD.
“However, from a practical, ethical, business relationship standpoint, that’s toxic,” Sacco says. “Particularly at a time like now when everyone is struggling to stay afloat.”
Coupled with pandemic realities, it was “like rubbing salt in an open wound,” he adds.
Sacco started as CEO, in earnest, at the beginning of October. By the second week of January, “all that s*** was cleaned up,” he says.
“I stopped it all,” Sacco explains. “I told all these vendors, ‘we’re not going to do that. If that’s a problem with you, then I’m going to replace you. We’re not going to do that. That’s not the way Happy Joe’s is going to conduct business.’ Our franchisees are our business partners. If we can’t make a great living off the royalty that we charge, then we’re in the wrong business.”
“We don’t need to also charge them money for the groceries that we make them buy,” he continues. “That’s just philosophically wrong, and I’ve been doing this for 30-plus years.”
Clearly, the point struck a nerve for Sacco. He says Happy Joe’s had to adopt a long-term mindset, especially if it wanted to grow. They were trying to squeeze as much blood out of the rock as they could.
“I only operate the business like it’s my family business. … Is this the way I’d treat my family? The answer is hell no,” Sacco says. “And I think the franchisees respect that.”
After speaking with every franchisee face-to-face, Sacco put together a six-month action plan and got after it. He hit the mark on April 5. Why he’s hopeful and able to toss 1,000 restaurants goals into conversation is because he reached all those metrics, including returning Happy Joe’s to growth and cleaning up its franchisee-franchisor sore spots.
He’s at a much more enviable stage now—finding ways to get the word out.
And on that note, Sacco isn’t any less fiery.
The brand, he says, got in his veins the moment he saw it in person. He promises the same will be true of new guests and potential franchisees.
What he often calls, Happy Joe’s “fairy dust.”
“It’s got all these positive, magical memories that have been created in this brand over the years. But nobody outside of six Midwestern states has a clue as to who they were,” he says.
Sacco says Happy Joe’s is a “family utopia where wonderful, magical memories can be created.” Is it Chuck E. Cheese? No, although there are some games. Is it Farrell’s Ice Cream Parlour. No, even though there’s a dedicated ice cream section. California Pizza Kitchen? BJ’s? Pizza Hut? “We’re not like anybody because nobody does what we do, and if they do some of the things we do, they don’t do them as well as we do them,” Sacco says. “And that’s the difference.”
“To do the things that we do, across all the communities that we’re in, it isn’t because we had one restaurant that got lucky. It isn’t because we had one franchisee that had a servant’s heart. The brand has been designed and has evolved to create these emotional connections with families. Particularly with the children in the family,” Sacco says.
Happy Joe’s pizza is its hero, he adds. There are 80 slices on the pepperoni option, to offer some perspective. “The product itself would weather the test of time anywhere in the U.S.,” Sacco says. “We’ve known the core competency that we have, which is a high-quality pizza product that would do well against our competition anywhere in the U.S.A.”
Again, though, it comes back to the “fairy dust.” There are a lot of pizza chains in the U.S. making great pizza. Before COVID, it was the only major segment still majority run by independents (52 percent). The largest player—Domino’s (by sales)—appreciated only 20 percent share of the market.
So, generally, this meant you competed on price and convenience, or you competed on quality. Happy Joe’s is a brand that makes it mark in emotional connections, too, Sacco says.
“To do the things that we do, across all the communities that we’re in, it isn’t because we had one restaurant that got lucky. It isn’t because we had one franchisee that had a servant’s heart. The brand has been designed and has evolved to create these emotional connections with families. Particularly with the children in the family,” he says.
It’s the large-scale train that goes around the restaurant. It stops randomly and sometimes lands on a sign for “free ice cream” or a “free Little Joe’s Pizza.” There’s a giant horn employees will come out honking for birthdays, and a siren and flashing fire-engine red lights.
“I’ve worked for some really good companies, and there are greater companies out there than the ones I worked for, but I would ask you, in your mind, think to yourself, ‘what is the one restaurant company that you want to take your kids to and have that be part of their life?’ Part of their magical memories in life? I can’t tell you a one,” Sacco says. “Most restaurants you don’t make an emotional connection with. It’s functional. It might be practical. It may be value driven. It could be convenience driven. But very rarely, is it emotionally driven.”
Sacco has seen this effect span generations. People take their children to Happy Joe’s and it becomes a part of their DNA. He tells the story of a group of 30 or so older women who show up every Monday to play cards. Happy Joe’s serves them coffee and lunch.
“So when those women have their grandchildren in town, guess where they take the grand children?” he says.
He calls Happy Joe’s, “Normal Rockwell-ish.” Americana at its restaurant finest.
And this is something he thinks the sector needs. Families mired in quarantine life want to reconnect. And not everybody can go to Disney World or their local theme park.
But they can head to Happy Joe’s after a soccer game. “You’re going to walk away, and we’re going to have created a magical moment for people,” he says.
Happy Joe’s serves dessert pizzas. Breakfast pizzas (three options). Four different types of locally revered Mexican Pizzas, complete with taco chips and Spicey Joe’s taco sauce. The ice cream selection runs the gamut from root beer floats to malts to caramel fudge pecan sundaes. There’s also pasta, soups, salads, paninis, sandwiches, and wings.
Happy Joe’s also offers buffet service (it calls it “a smorgasbord”) mid-day to get people in and out in 30 minutes, and rival the drive-thru, as well as Sunday brunch and catering.
These different elements of “fairy dust” are something franchisees always bought into, Sacco says. Just eight of the 52 stores are corporate.
Sacco says many of the operators are small-town America folks. People who grew up with the brand. But they don’t have a Taco Bell or Applebee’s on the side and are looking to diversify their portfolio.
They’re franchisees with a singular focus, he says.
The new ownership group, though, saw Happy Joe’s as one in a potential suite of other regional pizza concepts they would acquire. And then it would ask all of its brands to purchase from its distribution company. “It wasn’t really a pizza-growing experience,” Sacco says. “It was more of a distribution play. And the franchisees were put off by that.”
“… They weren’t committed to growing each brand to make it the best in class that it could be,” he says. “They were focused more on how do we get them to buy cheese from our startup distribution company, and our tomato sauce and our vegetables. And that created problems, because all of sudden, food costs and prices got out of wack.” More of a functional food factory than an experience-driven brand.
Sacco pulled Happy Joe’s back to its core. The operators involved in the ownership switch have left. The investors, Sacco says, wanted a franchise-experienced restaurant leader with a background in growth.
They found that in Sacco, who, in return, connected with a chain as emotionally charged as he is.
Lately, as the franchise incentive program proves, he’s looked into ways to bring people into the fold. Experienced and new, from veterans to minorities to former business executives, and more.
For full-size Happy Joe’s, top-quartile restaurants (six) averaged between $1,064,772– $1,503,892 in gross sales in 2020. In 2019, pre-pandemic, it was $1,145,092–$1,534,671, according to a recent FDD. The high middle quartile was $786,294–$975,768 this past year, while the low middle quartile was $510,089–$674,642. The bottom end, of which five units counted in, was $314,846–$466,776 in 2020.
There are also DELCO units, which topped out in the $691,265–$2.338 million range last year.
COVID, Sacco says, opened some opportunities. He’s heard from restaurateurs and landlords alike. People who have space to fill or want to convert other locations into Happy Joe’s.
Sacco is all-in, he says, on renegotiating leases and finding places to put operators. He’s already hired a franchisee to run a Wisconsin restaurant for a few months before he’s ready to take over.
Sacco offers an example of a Main and Main restaurant that was paying $22,500 in monthly rent pre-virus. After it shuttered, he was able to get a Happy Joe’s signed in at $5,000, with a 1 percent increase per year.
“How can you not make money on a concept when your rent is that low?” he says. “… I can tell you these kinds of stories. I’ve got hundreds of these real estate opportunities across the U.S. I just need people to know who we are.”
“When people say they can help us with the real estate, they have a company that makes good money, we’ve got good margins. And between our food is less than 25 percent, our labor is less than 30 percent, we make good money in this business,” Sacco adds.