California Pizza Kitchen: Bouncing Back From Bankruptcy

Food & Drink

When Jeff Warne was named CEO of California Pizza Kitchen on December 2, 2022, his task was pretty clear: extricate it from bankruptcy, which it declared in July 2020 and develop a new plan of action to turn it around and boost revenue. Declining sales due to the pandemic drove it to bankruptcy.

After its bankruptcy, it is now owned by a consortium of investors who were debt holders prior to the restructuring.

Warne has the requisite CEO background having served as CEO of Burger Republic in Nashville for over a decade and having been a long-time multiple franchisee of Nothing Bundt Cakes.

California Pizza Kitchen, which is based in Costa Mesa, Calif., currently has 184 locations globally, with 155 of them in the U.S., and of that number 140 are company-owned and only 15 are franchised. Internationally, it has 29 locations.

Warne has developed a multi-pronged turnaround approach to get California Pizza Kitchen back in gear that includes: 1) Appealing to loyal customers rather than the more costly approach of attracting new guests, 2) Using data driven performance media, national traffic programs and loyalty programs to generate guests, 3) Partnering with multiple franchisees to drive expansion and open new locations.

Bouncing back from bankruptcy, California Pizza Kitchen is looking to retain loyal customers, encourage current franchisees to open more outlets, and reach new customers via a stepped-up marketing strategy.

It launched in Beverly Hills, Calif. in 1985 and has had several owners. It once had 250 locations in the U.S. and had outlets in 10 countries. In 1992, PepsiCo
PEP
acquired 67% of it for almost $100 million, but that failed to work out, and in 1997 a private equity firm bought Pepsi’s stake and that too didn’t end well.

In 2020, due to Covid, it closed 31 restaurants. But now it’s expanding outside of the U.S. by opening its first location in Canada, two locations in India, one in Chile, one in Costa Rica, and two new ones in California, at LAX airport and in Laguna Niguel.

Separating the brand from its balance sheet

Despite its setbacks, Warne still sees its enduring strengths. “You have to divorce the strong brand and its balance sheet. We are a great brand with a bad balance sheet. It was overleveraged,” he noted.

Still it specializes in people coming in and dining at the restaurant. Its revenue stems 68% from on premise sales and 32% from off-premises.

Its recent growth has centered on overseas since it opened two new stores in Costa Rica and in 2023 is looking to expand in the Guam and Hong Kong. It opened only two new locations in the U.S. thus year.

Why it’s appealing to loyal customers

Warne said the focus of its strategy to bounce back revolves around its new marketing strategy of “awareness media, to really activate and get guests we know have an affinity with our brand to create incremental business. It takes less money to reach them than find new business.”

For example, 318,000 customers received thank you sweepstakes cards, which offered rewards such as 10% off their next purchase, or winners who got prizes from $500 to $50,000. Of that number, 11% returned for a follow-up purchase. Since its data revealed that about 75% of its customers visit California Pizza Kitchen once a year, Warne was encouraged by the response.

It’s also reaching out to multiple franchisees to entice them to expand their portfolio. While it is still committed to company-owned eateries, mostly in Southern California, it wants to expand its footprint in other areas.

Once a franchisee has opened one location successfully, “you have the access, tools and the processes, it’s so much easier to open a second, third or fourth,” he said.

Producing Consumer Packaged Goods Is Another Revenue Stream

It also produces some lines of consuming packaged goods with partners such as Nestle and Litehouse. But Warne pointed out that the bulk of its revenue still stems from its restaurants, not packaged goods. They are, Warne noted, “a fantastic way to get our brand name out there.”

“Going forward, we anticipate increasing our licensing revenue considerably through category expansion—salad dressing, salad kits and pasta sauces,” he asserted.

Warne is also trying to boost off-premises revenue by expanding delivery options and improving its online presence.

On its menu, it also offers healthy items such as its seasonal California field salad that comes with watermelons and strawberries and its crispy shrimp offering. Salads have always been part of its heritage, Warne reminded us.

Customer reaction on Yelp ranged from very satisfied to dissatisfied because the pizza was too small. But John from San Diego said he hadn’t visited a California Pizza Kitchen for years and found the pizza “perfect. I love thin crust pizzas and liked the Sicilian flavor.”

Martha from Los Angeles said her favorite salad is gone from the menu but liked the fact that she could customize her pizza with her own ingredients.

A year from today, Warne expects that “We will have refranchised several markets with alacrity on development plans and continue to drive same store sales and guest counts.”

He described the three keys to its future success as: 1) Executing inside our four walls by our menu of innovative food; 2) Emphasizing our customer service, 3) Seeking new growth opportunities.

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