CPK to roll out smaller units for urban markets

Nation's Restaurant News, August 3, 1998 by Milford Prewitt

One of the numerous dinner-house siblings put up for adoption by PepsiCo's exit from foodservice, CPK has put on hold plans to franchise in preference for a company-only backfilling strategy in dense urban markets.

Known for its gourmet pizzas decked with an assortment of nontraditional pizza toppings and flavor enhancements, CPK is one of the few national chains insulated from the standard look and marketing tactics of the dinner-house segment by occupying its own unique niche with unusual flavor profiles.

Thirteen-year-old CPK didn't introduce a traditional tomato-and-cheese-based pizza - the margherita style - until just a few months ago.

Detailing his plans for growth and operations in his first exclusive interview since being named president and chief executive of the 75-unit chain, Fred Hipp said CPK plans no new market penetrations in the next three to four years.

Hipp, who headed Houlihan's for 17 years as president, was lured away by CPK's new parent, Bruckman, Rosser, Sherril & Co. in January. Hipp said the chain is going to concentrate on existing urban markets where it is well known.

"We think our fresh approach, healthful approach and style of food is ideal for an urban environment," he said. "We are going to expand in urban markets, backfilling for the next three years to make the concept more convenient to customers who we know already love the brand."

After completing the construction of four units this year that were already in the pipeline when Hi p p arrived in January, CPK will grow at the rate of 12 to 15 stores a year for the next few years.

New York City, Detroit, Miami, Atlanta and Chicago are some markets where CPK expects to add more dots.

The strategy will be to fill in existing markets with a 3,000- to 3,200-square-foot prototype. That's about 2,000 square feet smaller than the units the company opened during its most aggressive year in 1994.

Hipp said more units in the same market mean more convenience for customers and better sales ratios.

"Our customer is primarily within a three-mile radius," he noted. "For lunch they are either walk-ins or a one-mile drive away. Dinner they might drive three miles."

Pointing out units that epitomize the kind of growth he has in mind, Hipp said one 3,700-square-foot unit in Brent-wood did $3 million last year, about $1,000 a square foot.

In another example showing the benefits of small stores, Hipp said the company is about to open an ASAP unit, its 600square-foot quick-service prototype, on the ninth floor of an office tower that has a full-service CPK outlet in the same building on the ground floor.

"One of the things we know is that competition is not going to get any less as we go forward," he said. "So we have to make sure that we have an investment profile that makes sense as we go forward. We look at our investment costs, and we have a certain rate of return we need to hit to be competitive, just like everybody does.

"But I would rather do more smaller restaurants in a market than I would fewer larger ones because I believe convenience is something that our customers really cherish, and they don't have time to drive all the time."

After a flat comp-store sales average for the year ending 1997, first-quarter same-store sales were up 3.9 percent, second-quarter comps rose 7.1 percent and for the first week of the company's third quarter, comps were hitting 8 percent, he said.

Although the company instituted a 2-percent price hike to offset the impact of last year's minimum-wage increase, he said, at an $11 check average, CPK is still a value leader, just 40 cents more expensive than Applebee's, Hipp boasted.

In the NRN Top 200, the privately held chain reported sales of $176.4 million. About 15 units are the ASAP outlets, licensed through Host Marriott, primarily at airports. It's about the closest the company intends to come to franchising in the near term.

Restaurant Associates in New York, whose p resident, Nick Valenti, headed CPK during an interim basis, reportedly was going to franchise CPK. But those plans were canceled after Hipp arrived.

"We're not going to franchise," he said ma do it later, but right now we need to focus 100 percent on our internal expansion, which is aggressive, considering that we had no expansion to speak of.

"Franchising takes a lot of resources, and to make sure it is done right, should we ever do it, we want to focus on quality and preparing the best pizza possible and attack the dinner business more aggressively."

Hipp insisted that trying to fill markets for the sake of media efficiencies is not the goal of the back-filling strategy.

He said even in the Los Angeles area, where the company has close to two-dozen restaurants, CPK has yet to run its first television commercial. Although the exorbitant television rates in Los Angeles are a major consideration, Hipp said CPK has proved it can do more with in-house promotion and the word-of-mouth kudos of existing customers.

While CPK recently drew some flak for a series of billboard promotions in California, Hipp said there are more promotions on the way.