Expanding from one neighborhood pizzeria in 1963, to a chain of 143 restaurants in the late 1990s, Donatos Pizza faced steady growth. But the Columbus, Ohio-based chain was small fries compared to burger giant McDonald's, which decided to purchase it and turn up the heat on expansion plans.
McDonald's surprised the industry last year with its acquisition of Donatos, which had expanded into seven states since owner and founder Jim Grote started the business 35 years earlier. This year alone, plans are to open between 50 and 60 new stores, says Kevin King, vice president of business development for Donatos. More than 100 new stores are slated to open in 2001. That pace will mean the current number of stores will double in just two years.
"We're looking at a lot of new markets and new states as well as continuing to build stores in markets we're already in," King says. The 148 existing stores are located in Ohio, Indiana, Michigan, Tennessee, Georgia, Kentucky and Alabama.
The Donatos legacy began when Grote was a high school student working at a local pizzeria. Unable to shake the pizza sauce from his veins, he convinced his dad (who thought pizza was just a fad) to loan him $1,300 to buy the neighborhood Donatos while he was a college sophomore.
Grote's father, a butcher, created a special sausage recipe, and his mother made the dough. The pizza dough is still made from the original family recipe, using milk and eggs.
For a decade, Grote worked on perfecting an operating system to produce a consistent quality and the exact same product at each location. He opened his second store in Columbus in 1974. When he began franchising in late 1991, there were 24 Donatos stores.
The layout is similar to a deli, where customers place their orders at the counter and then are seated and served. The casual decor of red, blue and browns strives for a light and comfortable atmosphere.
The menu items - pizza, subs and salads - have not changed much over the years. Still, Grote has introduced several innovations for producing a consistent quality, such as a bag-in-the-box system that dispenses the exact amount of sauce for each of the four sizes of pizza, and a specially designed warming cabinet which lets the yeast rise properly in a temperature- and humidity-controlled environment.
Donatos sees its niche as the quality pizza segment, and doesn't spare expense in ingredients, touting its "edge to edge" toppings and use of more expensive provolone cheese rather than mozzarella.
Donatos' consistent quality was what appealed to McDonald's, which looked at 61 pizza businesses before deciding which to purchase, according to restaurant trade publications.
Customers will not see changes resulting from the McDonald's purchase, but the business will benefit from McDonald's "tremendous expertise," according to King. Company headquarters will remain in Columbus, with Grote acting as chairman and Bill Rose, a former senior vice president for McDonald's, as the CEO.
In selecting locations, Donatos looks for suburban areas with families, kids, a good density of people, medium to high incomes and shopping such as grocery and video stores. "We tend to start out in the suburbs, establish ourselves, and then work our way in."
As the company re-evaluates its franchise program, it will open company-owned stores this year, concentrated in Florida, Pennsylvania, North and South Carolina and Tennessee, according to King. The next phase calls for development west of the Mississippi River, into New England, and then overseas.
"While this year and a good part of next year, the new stores will substantially be company-owned, franchising will be an important part of our future," says King, who anticipates that 50% of new stores after next year will be franchised. When McDonald's purchased Donatos last year, about 40% were owned by franchisees.
Because Donatos features a drive-thru pick-up window, new stores will be predominantly freestanding, though an endcap on a strip center also is an option if it allows for a drive-through, according to King. Grote's first Donatos had no seating, and delivery and carry-out have remained an important component.
The freestanding stores are nearly 2,600 sq. ft., including 1,100 sq. ft. for kitchen and storage. About 20% to 25% of Donatos' business is dine-in; the new stores have seating for 70 as well as a party room. Online ordering was introduced in 1998.
Donatos currently has 25 franchise entities owning 60 stores, so most franchisees tend to be small entrepreneurs, says Tom Santor, vice president of marketing. Details of the revised franchising program will be available by mid-year.