By DANIEL TAUB
Frederick Hipp regularly dined at California Pizza Kitchen restaurants as he traveled throughout the country. He loved the pizzas with offbeat toppings, the large servings of pasta and the low-fat chicken sandwiches all at reasonable prices.
So when Hipp was hired last December as California Pizza Kitchen's president and chief executive after nearly two decades at Kansas City, Mo.-based Houlihan's Restaurant Group, he knew the food was not the problem. Rather, it was the lunch-only image of the popular 13-year-old Los Angeles-based chain, which is probably best known for inventing barbecue chicken pizza.
In his short time at the company, Hipp has launched the chain's first major advertising campaign, started remodeling CPK's older locations, developed a plan for opening new restaurants including two in L.A. this year and did away with the chain's franchising program.
The changes are necessary, he said, because the chain, while still popular, was stagnant under the control of PepsiCo Inc., which purchased a majority interest from co-founders Larry Flax and Rick Rosenfield in 1992. PepsiCo sold its 67.5 percent stake in CPK to New York investment trust Bruckmann, Rosser, Sherrill & Co. last September for nearly $100 million. That group brought in Hipp to shake things up.
"The company was languishing under PepsiCo," Hipp said. "There was a lack of focus. There was no clear direction. There was no leadership. PepsiCo had stopped growth of the concept totally."
Part of the problem, Hipp said, is that customers view CPK as a great place for lunch, but not a place to go for dinner. The harsh lighting, cardboard menus and tile floors discourage lunchtime diners from coming back at night.
To address that, the chain replaced its two-color menus with full-color menus in plastic sleeves as is common at mid-priced restaurants catering to a dinner crowd and is remodeling its restaurants. The Beverly Center location reopened early last week, and CPK's flagship on South Beverly Drive in Beverly Hills was set to reopen late last week both with carpeting that replaces the former white floor tiling and fancier tabletops. Prices have also been increased slightly.
Steve Steinhauser, a director in the consumer businesses group of Deloitte & Touche LLP, said CPK already stands out among L.A. restaurants, but that it needs some sprucing up.
"It's responding to what they believe the customer wants," he said. "You've got so many people out there competing with you. If you keep your concept, you need to tweak it every now and again to keep it fresh. What you want to do is build on that familiarity."
The changes are striking a chord with customers. Jay Jasper, a West Hollywood writer of children's books who eats lunch at the Beverly Center location once or twice a week, said the renovation was long overdue.
"They got rid of what I call the toilet tile of the '80s," he said. "It was pretty harsh. And I think what they've done is, they've warmed it up without making it awesome or intimidating. They've taken away the cafeteria look and made it look like a nice decent place to have lunch."
For the first 20 weeks of the year, the chain's revenues were $60 million flat from the like year-earlier period. But that flatness has been encouraging, said Carey Carrington, CPK's chief financial officer, because it came despite the fact that CPK closed two restaurants this year, one in Florida and one in New Jersey. Same-store sales actually are up more than 5 percent, with only about 1 percent of that coming from price increases.
Increases in same-store sales mean higher profits because overhead and other fixed costs have already been covered by pre-existing sales, Carrington said.
The privately held chain saw an increase in its earnings before interest, taxes, depreciation and amortization during the first 20 weeks of the year. EBITDA, which is often used as a gauge of profitability in the restaurant business, was $5.6 million for the 20-week period this year up from $2 million for like period a year earlier.
Carrington added that he expects the chain this year to match the $160 million in revenues it posted last year, but he expects EBITDA to exceed $15 million, more than twice the chain's $7 million level in 1997.
One of the ways CPK wants to draw in more customers is through its first major advertising campaign, which launched June 4. The chain is spending $300,000 over three months on a series of billboards, primarily concentrated in West L.A. and the San Fernando Valley, where most of the chain's L.A. restaurants are located.
The billboards are situated over other businesses, and their black-on-yellow messages mention individual CPK dishes and poke fun at the businesses below them. For example, a billboard over a dental office reads, "They prefer you lay off the Garlic Chicken Pizza before your appointment."
Steinhauser of Deloitte & Touche said CPK's ad campaign fits in well with the chain's youthful, fun image. "They're doing it in a smart way. They're being clever, and it's appealing to the customer they're trying to attract," he said.
CPK plans to open four new locations this year, including one at the Seventh Street Marketplace in downtown L.A., and one in Westwood. The expansion plans are more ambitious for 1999, when the chain expects to open 12 to 15 new locations, with four or five of those in Los Angeles and Orange counties.
There currently are 66 company-owned restaurants, 15 in L.A. County. In addition, there are 24 franchise locations, including at Los Angeles International Airport and the Mirage Hotel in Las Vegas. Hipp said the company will continue to support those franchises, but will not add any new franchise locations.
"The bottom line here is that we are going to grow totally internally, but we will continue to support the franchises that are already in our system," he said.
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