FDD Talk: Marco’s Pizza Franchise Review (Financial Performance Analysis, Costs, Fees, and More)

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 2020 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 2020 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 2017, 2018, and 2019, based on Item 20 of the company’s 2020 FDD

• Section V – Presentation and analysis of Marco’s Pizza’s financial performance representations, based on Item 19 of the company’s 2020 FDD, including information on the:

• 2019 average, median, lowest, and highest Net Royalty Sales on a category and cumulative basis, for the top 25%, 50%, and 75%, and the bottom 25%, 50%, and 75% of the 676 Franchised Stores that were open for business for 52 weeks in Marco’s Pizza’s 2019 fiscal year

• 2018 average, median, lowest, and highest Net Royalty Sales on a category and cumulative basis, for the top 25%, 50%, and 75%, and the bottom 25%, 50%, and 75% of the 621 Franchised Stores that were open for business for 52 weeks in Marco’s Pizza’s 2018 fiscal year

• number of Franchised Stores with Net Royalty Sales over $1,000,000, by year for the 2018 and 2019 fiscal years

• 2019 average and median food/paper and labor costs, as a percentage of Net Royalty Sales, of the 39 Company-Owned Stores that were open for business for 52 weeks in Marco’s Pizza’s fiscal year ended December 29, 2019

• 2019 average, median, lowest, and highest EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) on a category and cumulative basis, for the top 25%, 50%, and 75%, as well as the bottom 25%, 50%, and 75%, of the 39 Company-Owned Stores that were open for business for 52 weeks in Marco’s Pizza’s fiscal year ended December 29, 2019

Section I – Background Information

21 Things You Need to Know About the Marco’s Pizza Franchise

Appoints 40-Year Pizza Veteran to Executive Team

1.  In mid-January 2020, Marco’s Pizza appointed Tim Brown as its new vice president, chief of operations. The appointment came at an essential time as Marco’s Pizza approached 1,000 locations and ramped up international growth. Brown, a Marco’s Pizza area representative and franchisee for more than a decade, now leads both franchise operations as well as company-managed operations.

2.  Brown began his career in the pizza industry 40 years ago as a delivery driver for Domino’s while attending Ohio State University. He worked his way up the ranks at Domino’s and ultimately became the senior vice president of operations for its largest franchisee, overseeing stores in eight states and two foreign countries. He joined the Marco’s Pizza brand in 2008 and now owns nine stores and serves as an area representative for Marco’s Pizza in Alabama and Middle Tennessee.

3.  Tony Libardi, president and COO of Marco’s Pizza, said, “Tim will be a great addition to the Marco’s Operations and Executive Leadership Teams. We’re excited to add a person with his expertise, proven performance, and commitment to excellence. He knows how to deliver a five-star experience in his stores, and we look for him to help apply those best practices to the rest of the system.”

4.  As chief of operations, Brown will bring his need for speed to the rest of the brand while looking to make immediate improvements to profits and helping stores realize true cost savings. These efforts begin with building a team designed to work with franchisees and area representatives to provide training and enhancements to overall operations systemwide.

5.  According to Brown, “I joined this brand years ago because I believed in the product and our culture of performance. As we approach 1,000 locations, it’s essential we create a great experience for our guests and our employees, which starts with executing operational excellence always. The future is bright for Marco’s Pizza and I’m thrilled to be joining the leadership team at such a pivotal time of growth.”

Launches Crustless Specialty Pizza Bowls

6.  In early March 2020, Marco’s Pizza launched Specialty Pizza Bowls – a crustless pie made to meet consumers’ ever-changing dietary preferences – as part of the brand’s permanent menu. Marco’s Specialty Pizza Bowls allow consumers to enjoy their favorite food while following their higher-protein, lower-carb diets.

7.  The new menu item comes in three varieties: Deluxe, All Meat, and Garden. Each features Marco’s signature cheese blend that is fresh, never frozen, and its original sauce recipe developed by founder Pat Giammarco. The Specialty Pizza Bowls start at the suggested menu price of $8.49. Prices may vary depending on location.

8.  Steve Seyferth, senior vice president, chief experience officer of Marco’s Pizza, said, “The Specialty Pizza Bowl is everything you love about pizza minus the crust. As one of the nation’s fastest-growing pizza brands, adapting to consumer trends is part of our DNA. While others in the QSR space have developed breadless options, this concept is bold and refreshing for our category – it will transform the way people eat and enjoy their pizza.”

9.  As a carb-cutting alternative, the bowl craze grew into a powerful concept in the food and beverage industry. Now, Marco’s brings these crustless sensations to customers as a natural extension of its popular Specialty Pizza line, providing a different way for pizza lovers and families to experience its high-quality, Italian ingredients.

10.  Seyferth added, “Marco’s Pizza will always be committed to high-quality ingredients – this product allows us to do so in a new, innovative, and carb-conscious way. We wanted to give pizza lovers another option to eating their favorite food. No one can match our beloved toppings wrapped together in a delicious baked bowl. Marco’s officially gives you permission to eat pizza with a fork!”

Looking Toward the Future as Sales Are Up 20 Percent

11.  Marco’s Pizza, which did over $600 million in systemwide sales in 2019 at more than 900 locations, has seen its year-over-year sales climb about 20 percent across the whole system, said president and COO Tony Libardi back in May 2020. In some markets, sales were up as much as 40 and even 50 percent.

12.  The pizza industry was way ahead of other restaurant companies in the off-premises game. Pizza chains have mastered delivery for the last 40 years, and most of them – Marco’s included – have very little dine-in space to begin with, so they didn’t lose much when state governments started mandating dining rooms to close back in March.

13.  Libardi says Marco’s owner-operators around the country have already been encouraged to support their communities, providing pizza for everything from schools and Parent Teacher Associations to local businesses, chambers of commerce, and fundraisers. That meant that when the crisis hit, Marco’s already had deeply planted roots to keep the business stable.

14.  Despite Marco’s enjoying a banner sales year, Libardi says he’s not resting on his laurels. In fact, he’s so convinced that the COVID-19 pandemic will permanently change the face of the restaurant industry that he’s already exploring operational changes that can accommodate things like social distancing and contactless service. He lists several possible changes that are likely to become standard practice at restaurants across America, even after the coronavirus is behind us – things like smaller stores, dividers over the counters, masks on employees, maybe even hand-washing stations at the front counter.

15.  Automation will be key to the restaurant industry of the future, Libardi says. That includes behind the counter; Marco’s employees are regularly in close quarters, shoulder to shoulder, making pizzas, he says, and some of their procedures will likely be automated if only to keep as few people in the kitchen as necessary. He said, “We have fortunately been testing an automated kitchen where machines are taking dough and saucing and cheesing them, and even a pepperoni slicer where it’s actually slicing and placing pepperoni on the pizza itself.”

16.  Libardi is even thinking about automated delivery. With third-party services like Grubhub and DoorDash struggling to make money – and restaurant operators increasingly frustrated by the rates those services charge – Libardi thinks robot delivery will be the natural next step to help control costs. Someday soon, he predicts, delivery aggregators will boast fleets of automated vehicles ready to deliver food to guests’ doors.

17.  Recently, the company opened its first ghost-kitchen location in Los Angeles, a 250-square-foot facility in Hollywood with no storefront or signage, just a digital back-end that allows Marco’s to sling pizzas at a minimal investment.

Company History

18.  Marco’s Pizza was founded in 1978 by Pasquale “Pat” Giammarco, an Italian immigrant, in Oregon, Ohio. Giammarco had grown up in the restaurant business as his father had opened his own restaurant after the family moved to the United States. Not only did Giammarco’s father show him how to run a restaurant, his father also created the sauce that is still used on Marco’s pizzas today.

19.  Over the next few decades, Giammarco grew Marco’s Pizza organically. By 2004, Giammarco had opened over 112 restaurants. Around that time, Giammarco met Jack Butorac, a restaurant industry expert who was asked to analyze three restaurant concepts as potential growth opportunities, including Marco’s Pizza. Butorac thought Marco’s Pizza was delicious and saw the potential for growth.

20.  Butorac began working as a consultant with Giammarco and soon began negotiations to purchase the franchising rights to Marco’s Pizza. Butorac assumed leadership of the company with a vision to take Marco’s Pizza national. Under Butorac’s leadership, Marco’s Pizza grew to 900 stores by 2019 and there are now locations all across the United States and internationally.

Entrepreneur’s Franchise 500

21.  Marco’s Pizza ranked No. 83 on Entrepreneur’s 2020 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 2020 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 2020 FDD.

Section IV – Number of Franchised and Company-Owned Outlets

Franchised

2017

• Outlets at the Start of the Year:  734
• Outlets at the End of the Year:  825
• Net Change:  +91

2018

• Outlets at the Start of the Year:  825
• Outlets at the End of the Year:  844
• Net Change:  +19

2019

• Outlets at the Start of the Year:  844
• Outlets at the End of the Year:  875
• Net Change:  +31

Company-Owned

2017

• Outlets at the Start of the Year:  36
• Outlets at the End of the Year:  42
• Net Change:  +6

2018

• Outlets at the Start of the Year:  42
• Outlets at the End of the Year:  39
• Net Change:  -3

2019

• Outlets at the Start of the Year:  39
• Outlets at the End of the Year:  40
• Net Change:  +1

Section V – Financial Performance Representations (Item 19, 2020 FDD) and Analysis

• As of December 29, 2019, there were 875 Marco’s Pizza Franchised Stores and 39 Company-Owned Stores (as defined below). Of the 875 Franchised Stores, 676 Franchised Stores operated for the full 52-week period ending December 29, 2019.

• Marco’s Pizza has prepared this financial performance representation to reflect the historical data of the Net Royalty Sales of 676 Marco’s Pizza Franchised Stores and 39 Company-Owned Stores (as defined below) that were open during 52 weeks of the fiscal year ending December 29, 2019.

• This information does not include the performance of (i) 86 new Stores that were not open for the entire 52-week period in 2019, (ii) special venue locations, and (iii) locations developed and operated by Hoogland Foods, LLC, dba Family Video.

• Information concerning the 39 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 Yellow Jacket, LLC, Airport Pizza, LLC, Authentic Pizza, LLC, Marco’s Indiana, LLC, Orlando Marco’s, LLC, and 45 Pizza, LLC.

• 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 have an equity interest in Marco’s Indiana, LLC and 45 Pizza, LLC.

Part 1 – Net Royalty Sales of Franchised Stores by Category

• The following charts provide the average and median Net Royalty Sales on a category and cumulative basis, for the top 25%, 50%, and 75%, and the bottom 25%, 50%, and 75% of the 676 Franchised Stores which were open for business for 52 weeks in Marco’s Pizza’s 2019 fiscal year and the 621 Franchised Stores which were open for business for 52 weeks in Marco’s Pizza’s 2018 fiscal year.

A.  2019

Top 25% of Franchised Stores

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