In this FDD Talk post, you’ll learn the following:
- Section I – Background information on the Marco’s Pizza franchise opportunity, including relevant news updates
- Section II – Estimated initial investment for a Marco’s Pizza franchise, based on Item 7 of the company’s 2019 FDD
- Section III – Initial franchise fee, royalty fee, marketing fee, and other fees for a Marco’s Pizza franchise, based on Items 5 and 6 of the company’s 2019 FDD
- Section IV – Number of franchised and company-owned Marco’s Pizza outlets at the start of the year and the end of the year for 2016, 2017, and 2018, based on Item 20 of the company’s 2019 FDD
- Section V – Presentation and analysis of Marco’s Pizza’s financial performance representations, based on Item 19 of the company’s 2019 FDD, including information on the:
- 2018 net royalty sales for the 662 System-wide Stores that were open for business for 52 weeks in Marco’s Pizza’s 2018 fiscal year ended December 30, 2018, by sales range
- 2018 average, median, high, and low net royalty sales for the 662 System-wide Stores (44 Company-Owned Stores, 20 Founder Stores, and 598 Traditional Franchised Stores) that were open for business for 52 weeks in Marco’s Pizza’s 2018 fiscal year ended December 30, 2018
- 2014-2018 average net royalty sales for the System-wide, Franchised, and Company-Owned Stores in operation for at least 1 full year as of the end of each fiscal year listed
- 2018 average, median, high, and low net royalty sales for the top 50%, bottom 50%, and all 598 Traditional Franchised Stores that were open for business for 52 weeks in Marco’s Pizza’s 2018 fiscal year ended December 30, 2018.
- change in average net royalty sales for the last 5 years (dollar amount and percent of change from the prior year listed, and dollar amount and percent of change over the results of 2013)
- number of Franchised (including Founder Stores) and Company-Owned Stores with net royalty sales over $1,000,000, by year, for the last 5 fiscal years
- 2018 average net royalty sales, direct costs (food, paper, direct labor, management salary), indirect labor, operating expenses, fixed expenses (including rent), advertising expenses, and store level income before owner’s compensation, taxes, depreciation, interest, and administration for the 44 Company-Owned Stores that were open and managed by Marco’s Pizza’s affiliates during the entire 52-week period ending December 30, 2018
Section I – Background Information
22 Things You Need to Know About the Marco’s Pizza Franchise
Aims to Become Fourth-Largest Pizza Chain in America
1. At the end of February 2019, Marco’s Pizza discussed its goals for 2019 and beyond. The brand’s biggest goal is to become the fourth-largest pizza chain in America. As of last year, that spot belonged to Papa John’s and its 3,337 domestic locations. Little Caesars is roughly 1,000 locations ahead in third, while Pizza Hut (7,522) and Domino’s (5,876) sit No. 1 and 2, respectively, by a wide margin. Also in front of Marco’s is Papa Murphy’s with 1,400 or so restaurants.
2. Marco’s is not too far behind Papa Murphy’s and the brand is still going strong. In 2019, it expects to debut a new restaurant every three or four days. The major milestone up first is 1,000 locations, a mark the chain believes it can hit by summer. And when late 2020 arrives, Marco’s said there will be 1,500 of its restaurants nationwide. This represents an impressively quick march to the front lines of the pizza wars.
3. When current CEO Jack Butorac came on board as a consultant in the early 2000s, Marco’s had 126 stores across three states and was the 26th largest pizza chain in the U.S. Last year, it opened 95 restaurants and had 911 total as of January 21, 2019. Marco’s wants to double that yearly growth rate in 2019.
4. As expansion progresses, Marco’s is looking at a couple of key igniters. Late last year, Marco’s announced the promotion of Ron Stilwell to chief development officer. The 35-year industry veteran, who clocked time at Taco Bell, Kahala Corp., Peter Piper Pizza, and Red Robin, was an area representative and franchisee at Marco’s, and a consultant with the company before that. He built six locations over the past two years and saw the chain’s growth prospects first-hand.
5. Under Stilwell’s leadership, Marco’s is looking for multi-unit, multi-brand franchisees to fuel growth. People who might own other concepts but are struggling, or not growing. Or perhaps operators locked out of territories seeking additional runway with a different brand.
6. In the past, Marco’s growth mostly came from a single-vehicle growth model, which was expansion through its area-development community. Marco’s recently instituted a four-pronged model for growth that’s new for 2019. One is still expanding through those area developers. Currently, there are 50 developing in 50 territories around the country.
7. Another step Marco’s is taking to reach its big goal is to amp up its growth efforts through a more traditional franchise model, which Marco’s hasn’t done before. This involves selling franchise territories in areas where it doesn’t have area representatives. Marco’s has a vice president of non-area representative restaurants, Keith Sizemore, whose official title is vice president of new territory development.
8. Additionally, Marco’s is targeting international growth. Marco’s has 17 stores in Puerto Rico, six in the Bahamas, and three in India. Over the coming year, it plans to build 23 new restaurants in Puerto Rico and “several” in the Bahamas. Its sights are set on Mexico, too.
9. Lastly, Marco’s is looking to increase its points of distribution around the country, Stilwell says. To date, there are traditional units and some non-traditional outlets. The latter option is ready for take off, he says. Marco’s has an arena location in Colorado at the Pepsi Center. More are coming. The chain recently opened in a couple of hotels and is working toward setting up agreements with Aramark and Sodexo so it can target campus expansion.
10. Stilwell added, “The reality is we’re not saturated yet. So if people are interested in getting with a well-established, 40-year-old brand – not something that’s new and unproven, we’ve got lots of territory available for them to grow in.”
11. Specifically in California, Marco’s is developing the central part of the state and starting to open in Southern California. It’s just now breaking into L.A., Stilwell adds. Idaho was a new market last year and is a major target. Marco’s is also eyeing Georgia, Oklahoma, Louisiana, and Texas. The brand plans to fill out the Southwest region in the near future.
Plans 30 More Locations by 2020
12. In early October 2018, Marco’s Pizza announced its new growth initiative to expand in strategic DMAs across the country, introducing 30 new locations by 2020. The brand is offering a viable opportunity for multi-unit franchisee development in small markets – Lubbock/Longview/Tyler, Texas; Savannah, Georgia; Tulsa, Oklahoma; Shreveport, Louisiana; Boise, Idaho; Reno, Nevada; Albuquerque, New Mexico – for experienced local operators to join the growing brand.
13. With each market requiring no more than 2-4 restaurants to be developed, new franchisees can truly own and dominate the market. Marco’s Pizza is actively seeking qualified franchise partners in Texas, Georgia, Oklahoma, Louisiana, Idaho, Nevada, and New Mexico.
14. Tony Libardi, president of Marco’s Pizza, said, “Expanding our presence throughout these key DMAs is an exciting chapter for our growth story as we break into untapped markets with new franchise partners. Our development team is poised for success and our initial locations in these areas will no doubt bring success to enthusiastic entrepreneurs. Marco’s Pizza is hands-down the best quality and our customer service outmatches the competition – all of which has created a loyal customer following directly contributing to our $725K average unit volume.”
Hires Restaurant Industry Veteran to Bolster New Era of Franchise Growth
15. In early May 2019, Marco’s Pizza announced Jeffery Rager as chief financial officer. The announcement comes at an essential time as Marco’s Pizza ramps up development efforts to rapidly expand across the nation. Rager will take up the essential responsibility of overseeing the financial strategy and capital planning for all Marco’s Pizza locations.
16. Prior to joining Marco’s Pizza, Rager spent the last 25 years in leading roles in financial management and in helping companies identify and execute profitable growth strategies. His deep restaurant and retail brand experience includes KFC, Mast Industries Inc., Ignite Restaurant Inc., and Granite City Food & Brewery. Now as Marco’s Pizza grows to new heights, Rager will help improve the profitability, operational efficiency, and financial performance of the brand.
17. According to Rager, “The care and passion everyone in the Marco’s Pizza family has towards one another and the business is amazing. Marco’s Pizza has unlimited potential when it comes to growth. After 25 years of leading brands toward a path of financial productivity, I am confident that our team will be able to support the growth vision of Marco’s Pizza.”
18. Tony Libardi, president and COO of Marco’s Pizza, said, “Jeffery’s vast experience in creating financial strategies will make him an essential component in achieving our business and growth objectives. As an expert in long-term planning and management, Jeffery has an uncanny ability to roll out new ideas that financially support everyone from the executive level to local staff and franchisees. Jeffery offers the perspective and leadership we need as Marco’s continues to expand its nationwide footprint.”
19. Marco’s Pizza was founded in 1978 by Pasquale “Pat” Giammarco in Oregon, Ohio. Giammarco was an Italian immigrant who grew up working in his family’s pizzeria. With help from his father, Giammarco developed the sauce recipe that is still used in all Marco’s Pizza locations today. Giammarco slowly grew Marco’s Pizza over the next few decades and by the early 2000s, there were over 100 restaurants.
20. In 2002, restaurant industry veteran Jack Butorac analyzed Marco’s Pizza and recognized that it had the potential for major growth. Giammarco initially hired Butorac as a consultant, but not long after, Butorac acquired the franchising rights to Marco’s Pizza.
21. Butorac assumed leadership of the company in January 2004 and initiated plans for national expansion. After gathering a strong leadership team, Butorac began rapidly expanding the Marco’s Pizza franchise across the United States, Puerto Rico, the Bahamas, and India.
Entrepreneur’s Franchise 500
22. Marco’s Pizza ranked No. 83 on Entrepreneur’s 2019 Franchise 500 list.
Section II – Estimated Costs
- Please click here for detailed estimates of Marco’s Pizza franchise costs, based on Item 7 of the company’s 2019 FDD.
Section III – Initial Franchise Fee, Royalty Fee, Marketing Fee, and Other Fees
- Please click here for detailed information on Marco’s Pizza’s initial franchise fee, royalty fee, marketing fee, and other fees, based on Items 5 and 6 of the company’s 2019 FDD.
Section IV – Number of Franchised and Company-Owned Outlets
- Outlets at the Start of the Year: 634
- Outlets at the End of the Year: 734
- Net Change: +100
- Outlets at the Start of the Year: 734
- Outlets at the End of the Year: 825
- Net Change: +91
- Outlets at the Start of the Year: 825
- Outlets at the End of the Year: 844
- Net Change: +19
- Outlets at the Start of the Year: 33
- Outlets at the End of the Year: 36
- Net Change: +3
- Outlets at the Start of the Year: 36
- Outlets at the End of the Year: 42
- Net Change: +6
- Outlets at the Start of the Year: 42
- Outlets at the End of the Year: 39
- Net Change: -3
Section V – Financial Performance Representations (Item 19, 2019 FDD) and Analysis
- Marco’s Pizza has prepared this financial performance representation to reflect the historical data of the Net Royalty Sales of 618 Marco’s Pizza Franchised Stores (as defined below), and 44 Company-Owned Stores (as defined below), that were open during the entire 52 weeks of the fiscal year ending December 30, 2018.
- This information does not include the performance of (i) 105 new Stores that were not open for the entire 52-week period in 2018, (ii) special venue locations, and (iii) locations developed and operated by Hoogland Foods, LLC, dba Family Video.
- The operating results include results for 373 Limited Seating Stores and 289 Expanded Seating Stores.
- Information concerning the 44 Company-Owned Stores was sourced from internally-prepared accounting statements.
- “Company-Owned Stores” include all Stores owned by Cleveland Marco’s, LLC and all other Stores that Cleveland Marco’s, LLC manages for a fee that are owned by Marco’s Pizza’s affiliated entities including Authentic Pizza, LLC, Marco’s Indiana, LLC, Orlando Marco’s, LLC, and 45 Pizza, LLC (collectively, “Company-Managed Stores”).
- Cleveland Marco’s, LLC has an equity ownership interest in Authentic Pizza, LLC, and both Cleveland Marco’s, LLC and Marco’s Pizza’s CEO has an equity interest in Marco’s Indiana, LLC and 45 Pizza, LLC.
- “Founder Stores” include the Stores operated by Marco’s Pizza’s Founder, the longest operating independently-owned franchisee with 20 Stores.
- “Franchised Stores” include Traditional Franchised Stores and Founder Stores.
- “System-wide Stores” include Traditional Franchised Stores, Founder Stores, and Company-Owned Stores.
- “Traditional Franchised Stores” include all Stores except Company-Owned Stores and Founder Stores.
Part 1 – Net Royalty Sales of System-wide Stores by Ranges (2018)
- The following chart provides the ranges of the Net Royalty Sales for the 662 System-wide Stores which were open for business for 52 weeks in Marco’s Pizza’s 2018 fiscal year ended December 30, 2018.
- The categories are separated by those Stores earning less than $500,000, those between $500,000 and the system average of $721,994, and those Stores above the system average.