NPC International Inc

Nation's Restaurant News, Jan, 1998 by Mark Hamstra

Gene Bicknell paid $75 a month rent for the first Pizza hut he opened in 1962, and he probably thought the price was a little too high.

Ever the bargain hunter, Bicknell -- who is chairman and chief executive of NPC International Inc. -- has built the largest Pizza Hut franchise in the world by purchasing discount-priced restaurants and whipping them into fiscal fitness.

"They can buy Pizza Huts really cheaply because they are underperforming, and, with a minimum investment, they can turn mediocre-performing restaurants into good-performing restaurants," explains Stephen Spence, an analyst with Southwest Securities Inc., Dallas.

That skill has proved valuable to Pizza Hut parent Tricon Global Restaurants Inc. -- and PepsiCo before it -- as those companies have attempted to pare down their own operations by selling off or closing corporate units.

During the past two years, NPC's acquisitions have included a 126-unit group of restaurants from Pizza Hut Inc., a 100-unit group from Lone Star Steak-house Chairman Jamie Coulter, another 52 units from corporate and 31 units from a North Carolina-based franchisee.

I have been in markets where they have taken over stores, and I have been very impressed with the job they've done," says Mikes, senior vice president of concept development and franchising at Dallas-based Pizza Hut. "NPC is a big company, but you don't get the feeling that you're working for a big company at their restaurants -- you always feel that you're part of an entrepreneurial company."

That aspect of NPC's corporate culture is dictated by Bicknell, who stresses that costs be kept to a minimum in order to maximize profitability.

"That's because I'm old-fashioned and set in my ways and conservative, and I work hard to keep it that way," says Bicknell, who owns about 63 percent of the public company's stock and keeps his headquarters in Pittsburg, Kan., where he opened his first restaurant. "We have to be as expedient and conservative as we can be to maximize returns for our shareholders."

Those who work in NPC's austere headquarters share his philosophy.

We've always kind of maintained a small-company mentality," says James Schwartz, a seven-year NPC veteran who has been president since 1995. "We don't spend any dollar here frivolously. We all try and act like owners."

Troy Cook, the chief financial officer, says the penny-pinching approach extends only to what the company considers unnecessary expenditures, such as expensive hotel rooms for corporate executives on the road.

"We stay at the absolute lowest-price hotel that is reasonably comfortable whenever we travel," he says. "We always look for the $40- to $60-per night hotels, and that comes from Gene all the way down."

NPC's penchant for efficiency has helped it become popular among analysts, most of whom continue to recommend the stock as a "buy" despite recent reductions in earnings forecasts.

"One of the keys for NPC has been that they have a very strong operational with says Steven L. Toomey, an analyst with George K. Baum & Co., Kansas City, Mo. "They are highly focused on their restaurants being profitable."

NPC, in addition to its 685-unit Pizza Hut empire, also is the parent of the 185-unit Tony Roma's casual-themed chain, which it acquired as another growth vehicle in 1993. The company operates about 40 of the Tony Roma's and franchises the rest.

Most of NPC's Pizza Huts are in small towns, where "it's the place you go with your prom date," Schwartz says. About 150 of its restaurants are delivery-and-carry-out only.

NPC also has been testing some smaller prototype restaurants for markets with as few as 1,500 people.

Although NPC has been largely successful incorporating its acquired Pizza Hut restaurants, a previous acquisition, the Skipper's Seafood & Chowder chain, was a bust.

"Skipper's is easy to explain," Bicknell says. "In the first month we owned it, the price of fish went up 40 percent. And, we made some mistakes -- we tried some cost-saving factors that didn't work."

NPC sold the concept to a group of Seattle investors in March 1996, about a year after Schwartz took over as president.

"You have to, every now and then, take a look back and decide where you want to focus your energies," Schwartz says. "Our strategy currently is to focus on growth inside the Pizza Hut system."

Analysts credit Schwartz with engineering the company's growth during the past few years.

"I think more and more you're seeing the influence of Jim Schwartz and his team, with the divestiture of Skipper's and the acceleration of the Pizza Hut acquisitions," says Spence of Southwest Securities.

Schwartz himself attributes the success of NPC in part to the company's systematic approach to running its restaurants.

"We are a very strict follower of standards," he says. "We have standards by which all of our products are made, and we expect every one of our stores to follow those standards to the `t'."

Also key to the company's growth has been its ability to maintain a strong relationship with the franchisor.