In this FDD Talk post, you’ll learn the following:
- Section I – Background information on the MOD Pizza franchise opportunity, including relevant news updates
- Section II – Estimated initial investment for a MOD 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 MOD Pizza franchise, based on Items 5 and 6 of the company’s 2019 FDD
- Section IV – Number of franchised and company-owned MOD 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 MOD Pizza’s financial performance representations, based on Item 19 of the company’s 2019 FDD, including information on the:
- 2018 average, median, high, and low weekly net sales for the 220 affiliate-owned and 71 franchisee-owned MOD Pizza restaurants operated at traditional locations for all 12 months/52 fiscal weeks during the period from January 1, 2018 through December 30, 2018 (“Covered Restaurants”)
- 2018 average, median, high, and low weekly net sales for the 151 affiliate-owned and 31 franchisee-owned Covered Restaurants that were open at least 2 years as of December 31, 2018 (the “2-Year Covered Restaurants”)
- 2018 average, median, high, and low weekly net sales for the 77 affiliate-owned and 12 franchisee-owned Covered Restaurants that were open at least 3 years as of December 31, 2018 (the “3-Year Covered Restaurants”)
Section I – Background Information
20 Things You Need to Know About the MOD Pizza Franchise
Plans to Use $160 Million Investment to Reach 1,000 Locations
1. In late May 2019, MOD Pizza announced that Clayton, Dubilier & Rice acquired a significant stake in the company. In a financing round led by CD&R, MOD Pizza landed more than $160 million and now plans to effectively double in size, hitting 1,000 locations over the next five years.
2. Scott Svenson, co-founder and CEO of MOD Pizza, said, “This strategic partnership with CD&R is further validation of our belief that profit and positive social impact can co-exist. We are incredibly energized by the opportunity to work with CD&R to scale the MOD brand, while continuing to build our people-first, purpose-driven culture.”
3. MOD Pizza, which has raised a total of $335 million, opened 100-plus restaurants in each of the last three years. It debuted 102 stores – an increase of 34 percent – in 2018 and increased systemwide sales to $398 million, up 45 percent year-over-year. The company plans to sustain that growth rate, opening roughly 100 stores per year, to reach the four-digit mark. MOD Pizza said it expects to create more than 14,000 jobs along the way.
4. According to Ken Giuriceo, a partner at CD&R, “We could not be happier with our new MOD partnership and we look forward to working closely with management on strategies and operational initiatives to ensure that the company profitably achieves its ambitious growth plans. The MOD team has created an exciting, market-leading business with a truly special culture and purpose.”
5. In the same press release, MOD also announced that Giuriceo and Paul Pressler – the former CEO of Gap Inc. and senior Disney executive – will join the MOD board of directors. Pressler said the investment will help MOD Pizza innovate as well as grow. He added, “MOD has made important investments in online and mobile app ordering, innovative digital marketing strategies and customer loyalty programs and leads its competition in virtually all relevant customer satisfaction scores. We are especially excited about the new store opening opportunity ahead of the company, which will create an even more valuable enterprise.”
Unveils New Loyalty Program
6. In early March 2019, MOD Pizza unveiled MOD Rewards, its new customer loyalty program powered by the MOD app. MOD Rewards allows customers to earn points toward free menu items. In addition, through a collaboration with Generosity Feeds, customers can instead pay their reward forward and MOD Pizza will make a donation to Generosity Feeds to help provide meals to children struggling with food insecurity.
7. MOD Rewards is the company’s first loyalty program and is supported by a new CRM system that enables more personalization and frequency. Here are the benefits of the MOD Rewards program:
- Every dollar spent at MOD Pizza on eligible purchases is good for one point towards a reward;
- A free item is earned at 150 points;
- Exclusive offers for MOD Rewards members;
- Easy to reorder favorite menu items;
- Customers will receive 75 points for downloading and signing up for an account through the MOD app.
7. Kevin Flaherty, vice president of digital for MOD Pizza, said, “Customers are doing more with their phones, and our new app will make MOD Pizza more accessible to our guests, while allowing us to reward them for their loyalty. With just a few taps, it’s easy to build a customized pizza or salad, select a convenient pick-up time and make a payment. The app enables customers to order ahead easily by keeping track of their favorites, and rewards can be earned across platforms including the app, online orders or by scanning a store receipt.”
8. To further MOD Pizza’s commitment to being a people-first brand and a force for positive change in the communities it serves, MOD Rewards includes a key feature that allows customers to donate rewards to Generosity Feeds, a non-profit committed to addressing childhood hunger. Customers can simply choose to “pay it forward,” and MOD will redeem the customer’s reward and make a $2 donation to Generosity Feeds.
9. This dynamic integration extends the company’s and its various franchisees’ ongoing collaboration with Generosity Feeds, which to date has provided nearly half a million meals to children in MOD communities – with the goal to help create one million meals by the end of 2019. At nationwide community meal-packing events, MOD brings together hundreds of volunteers to create nutritious and compact meals designed to be sent home in children’s backpacks.
10. Ally Svenson, co-founder and chief purpose officer of MOD Pizza, said, “When concepting MOD Rewards, we saw the opportunity to invite our customers to join us in tackling the critical issue of food insecurity. If we can help even a small percentage of these children, then we’re accomplishing our real goal at MOD – to use the business as a platform to make a positive impact in the communities we serve.”
Appoints New Chief Marketing Officer
11. In January 2019, MOD Pizza announced the appointment of Mark Shambura as its chief marketing officer. Shambura will lead the company’s overall brand and marketing strategy for its 400-plus systemwide locations across the U.S. and U.K., with a focus on building awareness of the MOD brand while deepening MOD’s relationship with its customers.
12. Shambura joins MOD after five years with Chipotle Mexican Grill, where he was executive director of marketing, overseeing most of the key marketing functions supporting Chipotle’s 2,400-plus restaurants. Originally hired to create and manage Chipotle’s first brand team, his responsibilities expanded to include overall brand strategy, advertising, digital, social, events/sponsorships, promotions, and field marketing. In 2016, Shambura served as interim head of marketing for Chipotle, overseeing global efforts for the organization’s full portfolio of concepts.
13. Prior to Chipotle, Shambura spent eight years at Creative Artists Agency where he helped launch Chipotle’s award-winning “Back to the Start” campaign, hailed by Advertising Age as one of the “Top Campaigns of the Century,” as well as developed marketing strategies for Starbucks, Coca-Cola, and eBay. Shambura also served as head of brand marketing, senior director at One Kings Lane, the home décor e-commerce platform.
14. Scott Svenson, co-founder and CEO of MOD Pizza, said, “Mark is an intuitive and collaborative leader with deep expertise in complex national and local marketing operations. He will add tremendous value to MOD’s executive team at a critical stage in our growth as we extend our leadership in the fast casual pizza category and double-down on our commitment to making a positive social impact. During his time with Chipotle – one of the most iconic brands in the fast casual space – Mark helped shepherd their marketing function through periods of both sustained growth and transition. His experience and leadership will be invaluable as we continue to build our brand, deepen our connections in the markets we serve, and drive awareness of MOD’s purpose beyond pizza.”
15. Shambura added, “MOD’s special culture and purpose is truly unique in our industry. I’m thrilled to join a team that is not only dedicated to growing a world class brand, but that is also deeply committed to being a force for good. It’s rare to find a company where these values complement each other, and I look forward to contributing to MOD’s continued success as a leading people-first brand.”
16. MOD Pizza was founded in 2008 by husband and wife team Scott and Ally Svenson in Seattle, Washington. The Svensons previously founded Seattle Coffee Company, a successful UK-based coffee company that was sold to Starbucks in 1998. Also, the Svensons helped found Carluccio’s Ltd., an Italian restaurant in the UK.
17. After moving back to their hometown of Bellevue, Washington, the Svensons were unable to find fast, affordable healthy meals for their four sons and decided they would open a high-quality yet affordable pizza restaurant. James Markham, who had previously started pizza parlors in San Diego, California and Shanghai, China, was also a part of the founding team and helped developed the house recipes used by MOD.
17. Following the success of the first MOD Pizza restaurant, the Svensons opened additional locations around the Seattle area. In 2010, Markham left the company over disputes with the Svensons, and went on to start rival DIY pizza chain Pieology.
18. MOD Pizza took its growth slowly and by 2014, there were 31 locations in Washington, Oregon, California, Arizona, Colorado, and Texas. Following several rounds of funding, MOD Pizza has picked up its expansion efforts and in early 2017, the brand opened its 200th store. A year earlier, MOD Pizza opened its first international location in the United Kingdom.
19. In May 2019, MOD Pizza raised $160 million in a funding round and plans to expand to 1,000 stores within the next five years.
Entrepreneur’s Franchise 500
20. MOD Pizza did not rank on Entrepreneur’s 2019 Franchise 500 list.
Section II – Estimated Costs
- Please click here for detailed estimates of MOD 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 MOD 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: 12
- Outlets at the End of the Year: 32
- Net Change: +20
- Outlets at the Start of the Year: 32
- Outlets at the End of the Year: 72
- Net Change: +40
- Outlets at the Start of the Year: 72
- Outlets at the End of the Year: 93
- Net Change: +21
- Outlets at the Start of the Year: 80
- Outlets at the End of the Year: 155
- Net Change: +75
- Outlets at the Start of the Year: 155
- Outlets at the End of the Year: 225
- Net Change: +70
- Outlets at the Start of the Year: 225
- Outlets at the End of the Year: 302
- Net Change: +77
Section V – Financial Performance Representations (Item 19, 2019 FDD) and Analysis
- As of December 31, 2018, there were 395 MOD Pizza Restaurants operating in the United States, and a total of 72 franchised MOD Pizza Restaurants.
- 291 of these MOD Pizza Restaurants operated at traditional locations for all 12 months/52 fiscal weeks during the period from January 1, 2018 through December 30, 2018 (the “Reporting Period”).
- The franchisor calls these 291 MOD Pizza Restaurants “Covered Restaurants.” The franchisor’s affiliates owned 220 of the Covered Restaurants and franchisees owned the other 71.
- The franchisor excluded from the group of Covered Restaurants 3 affiliate-owned MOD Pizza Restaurants and 1 franchised MOD Pizza Restaurant because they closed during 2018. All of those restaurants had operated for 12 months before they closed.
- The franchisor also excluded from the Covered Restaurants the 3 MOD Pizza Restaurants that operate in non-traditional locations.
- All of the financial performance representations (“FPRs”) in this Item 19 describe the Average Weekly Sales (defined below) during the Reporting Period for some or all of the Covered Restaurants.
- “Average Weekly Sales” means the total dollar sales for each Covered Restaurant less sales, use, or gross receipts taxes, gift card sales, and the one-time sale of any Furniture, Fixtures & Equipment or inventory items, for the entire period divided by 52 weeks.
- The franchisor provides 3 Financial Performance Representations (FPRs) in the table below. The first FPR covers the Average Weekly Sales during the Reporting Period for all of the 71 franchisee-owned Covered Restaurants and 220 affiliate-owned Covered Restaurants.
- The second FPR covers the Average Weekly Sales during the Reporting Period for only those Covered Restaurants that were open at least 2 years as of December 31, 2018 (the “2-Year Covered Restaurants”). Franchisees owned 31 of the 2-Year Covered Restaurants and the franchisor’s affiliates owned the other 151.
- The third FPR covers the Average Weekly Sales during the Reporting Period for only those Covered Restaurants that were open at least 3 years as of December 31, 2018 (the “3-Year Covered Restaurants”). Franchisees owned 12 of the 3-Year Covered Restaurants and the franchisor’s affiliates owned the other 77.
- For each FPR, the franchisor separates the franchisee-owned restaurants and the affiliate-owned restaurants into the top third, middle third, and bottom third by Average Weekly Sales.
- The number of restaurants appearing in the table reflects the number of restaurants in each category (top third, middle third, and bottom third) for each of the FPRs.
Part 1 – 2018 Average Weekly Sales for Covered Restaurants Open At Least One Year
Franchisee-Owned Covered Restaurants (71 Restaurants)
Top Third (24 Restaurants)