CPK Duo Seek to Top Pizza
The men who brought you barbecue chicken pizza will launch a new restaurant concept next spring, aiming to gobble up an even larger slice of the “casual-dining” pie.
Larry Flax and Rick Rosenfield -- former law partners who in 1985 launched California Pizza Kitchen in a Beverly Hills storefront so small that the refrigerator wouldn’t fit -- will break ground next month on a grill and bar restaurant in a Manhattan Beach shopping center.
Called LA Food Show, the $2.1-million restaurant is set to open in mid-May with a 50-item menu including burgers, steaks, pasta and alcohol -- but no pizza. And it will be bankrolled primarily by the two founders, an unusual strategy in the restaurant business. Los Angeles-based California Pizza Kitchen Inc., with nearly 150 units and its own aggressive growth plans, will own a minority share.
Although California Pizza Kitchen has no contractual obligation to eventually buy LA Food Show, it does have the right of first refusal, a spokeswoman said. And it will be the only investor outside of the two founders.
“It is our vision that the companies would one day unite,” said Flax, 60.
The two men, who in November each sold 340,000 shares of CPK stock at about $24 each to help finance the new eatery, said the financing scheme should help keep California Pizza Kitchen focused on its own growth trajectory. The company, which reported record revenue of nearly $250 million last year, has announced plans to add at least 22 stores in 2003.
“No one wants to see CPK distracted from developing CPK,” said Rosenfield, 57. “At the same time, Larry and I want to let our creative senses flow again.”
Added Flax: “There’s no question that to become a multibillion- or billion-dollar company we are going to need other concepts. Since we’re going to have to bring in new concepts eventually, we might as well go out and start it instead of buying it.”
Yet that’s an unusual tactic in the restaurant business, where established chains nationwide are scrambling to cook up new brands in the “casual-dining” segment -- a niche just south of fine dining but still north of the local burger joint.
In fact, in most cases, acquisition is the route that companies take as they branch out. Dallas-based Brinker International Inc., for example, began life as Chili’s Grill & Bar and within half a dozen years had purchased the On the Border and Corner Bakery Cafe chains.
“Most chains are buyers,” said John M. Hamburger, president of the firm that publishes the Restaurant Finance Monitor. “It’s easier to see something work and buy it.”
A significant exception is Orlando, Fla.-based Darden Restaurants Inc. -- the largest casual-dining restaurant company in the world, with $4 billion in sales. Darden, which runs the Red Lobster and Olive Garden chains, launches nearly all new concepts internally after months of study, analysts said. Darden recently announced plans to debut its own bar and grill, called Seasons 52.
Michael Shepardson, president of Orlando-based CNL Advisory Services, an investment bank that specializes in the restaurant sector, praised Flax and Rosenfield’s plan for getting LA Food Show up and running.
“In today’s environment, where you have one minor misstep and the market slams you,” Shepardson said, “this appears to be a prudent way to approach the development of a new brand without putting shareholders at risk.”
Flax and Rosenfield describe their new production as a dinner house with a display kitchen, where the setting is more marble than linoleum and where the bar is more waiting area than destination. The average check is expected to be about $15 per person -- some $4 more than at California Pizza Kitchen.
The duo, no longer active in the daily management of the pizza chain, insist there will be no head-on competition with their firstborn. “We crafted the new concept to be complementary,” Rosenfield said. “We’re going to give you what you’re not in the mood for at CPK.”
The first of what is hoped will be a chain of Food Shows will cost about 10 times the $200,000 the two borrowed in 1984 to launch Pizza Kitchen. That store, with about 1,800 square feet, was so small that the owners used refrigeration trucks parked in the back to keep food cold until they found a way to shoehorn refrigeration units into the back.
LA Food Show will be about 7,000 square feet, 40% larger than the typical California Pizza Kitchen.
In advance of the Pizza Kitchen launch, Rosenfield and Flax scrambled to find outside investors as costs soared. The company went public in August 2000, netting more than $60 million.
Since its initial $15 bow on Wall Street, the share price has nearly doubled. The stock lost $1.08 on Friday to $25.32 on Nasdaq, down from its 52-week high of $28.03 on Oct. 28 but up 42% from its 52-week low of $17.85.
For 2001, the company posted net income of $13.2 million, or 71 cents a share. Net income for the third quarter ended Sept. 29 was $3 million, or 16 cents a share, down from $3.4 million, or 18 cents, in the year-earlier period, partly because of the closure of two restaurants.
Craig T. Weichmann, who heads a Memphis, Tenn.-based financial advisory firm, likened the Food Show rollout to a “test kitchen” and said he expects others in the industry to follow suit.
“Large companies are now trying to figure out how they can be involved in the launch stage to take a little bit of money and earmark it toward development to gain a future benefit,” he said.
Rosenfield has his own analogy. “We’re like producers,” he said. “We want to see if there’s another hit in us.”
