Founders’ Return Has CPK Cookin’ Again
California Pizza Kitchen Inc. founders Rick Rosenfield and Larry Flax are rolling in dough again.
Since they regained the helm of the Westchester-based chain of pizza restaurants a year ago, profit has climbed. Now the duo is preparing to add outlets, test out a new look for the chain’s restaurants and try to draw more late-night diners who might have cocktails rather than sodas with their food.
There’s little doubt the defense attorneys-turned-restaurateurs have a flair for turning out barbecue chicken-studded pizzas. But Wall Street is watching these days to see if they make good on their ambitious plans and rebuild the chain they founded 19 years ago in Beverly Hills.
So far, so good: Sales at eateries open at least a year were up 6.6% in the second quarter, when CPK posted a $5.2-million profit, an 18% year-over-year increase.
Of course, 2003 wasn’t a great year.
After three years of steady improvement, earnings last year dropped sharply because of what Rosenfield has said was a flawed real estate strategy backed by the former management team. CPK opened restaurants in 2002 and 2003 in such far-flung places as Temecula, Fresno and Maple Grove, Minn., and sales have been disappointing.
The two co-founders, who had stepped aside from day-to-day operations in 1998 to develop new restaurant concepts, returned last July to share chief executive duties.
They said they have since devoted much of their energy to figuring out how to turn around the 26 outlets they’ve identified as the most problematic and how to reassure investors that their core concept is still sound.
“This really is a real estate story,” said Rosenfield, 59. The chain’s problems can be boiled down to “site selection and putting stores in wrong locations of malls without typical CPK demographics or putting them in the back of a good mall.”
The answer, said Flax, 61, is to make the problem restaurants successful “either by waiting for the populations to play catch up or by using marketing and research to reach the public faster.”
Skeptics question the duo’s ability to fully reverse the fortunes of the 26 problem restaurants, with one industry expert suggesting it could take years as opposed to quarters for those restaurants to catch up.
“It’s not just a short-term problem,” said Hal Sieling, a Carlsbad, Calif., restaurant consultant.
Though weekly sales averages at CPK restaurants operating before 2002 were up 8.4% in the second quarter, sales for those that opened in 2002 grew at a somewhat slower pace. And sales at those opened in 2003 fell. Said Bryan Elliot, an analyst with Raymond James: “The jury is still out on whether this management team will be able to truly turn this back into a growth vehicle.”
Still, he rates the stock “outperform.”
The stock shows how investors are uncertain. It has been on mostly a sideways trend for the last few years, bouncing around between $17 and $25. Shares of CPK closed up 3 cents Wednesday at $19.93 on Nasdaq.
The co-CEOs’ plans call for California Pizza Kitchen to acquire or open seven to nine stores this year, including a full-service restaurant and a CPK ASAP -- a condensed version of the original CPK -- as part of a deal with shopping center developer Rick Caruso. He recently sold his CPK franchise rights in Ventura County back to the company.
At least 15 restaurants are on the drawing board for 2005, including eight to 10 during the first half of the year. Right now, the chain has 168 restaurants -- 139 of them company-owned and 29 licensed or franchised -- in 27 states, the District of Columbia and five foreign countries.
The new CPK look will be shown off at a remodeled restaurant in Pasadena, set to reopen as early as Saturday, and at a new outlet at Irvine Spectrum Center that will be inaugurated Tuesday. They will feature granite counter tops, travertine floors and modern lighting, a switch from the current black-and-white, ice-cream-parlor style.
Rosenfield and Flax hope the redesign will bring in bigger dinner crowds, people who tend to spend more on that traditional cash cow of restaurants: alcohol. Currently, lunch and dinner business is evenly split at CPK and alcohol accounts for just 7% of sales.
Flax stressed that they would be careful not to alienate their core patrons, families with children, as they court what he referred to as the “milk cup and cosmo crowd.”
But he added: “There’s a lot of room between the hours of 8 and 10 to grow. So the question becomes: How do we grow in these hours? A lot of it is atmosphere.”
And expanded bar menus. One new item will be a grape vodka infused “California Cosmo.”
The Irvine outlet is one of two locations where California Pizza Kitchen is taking over venues vacated by celebrity chef Wolfgang Puck, who has been closing many of his namesake cafes. “It is ironic,” said Flax, who cited Puck as an early inspiration for their move into the premium pizza business.
The pair appear poised to move beyond pizza with LA Food Show, a new concept that opened last summer in Manhattan Beach. Rosenfield and Flax tout LA Food Show, cloaked in shades of red, white and black, as a way of exploring Los Angeles’ cultural melting pot, with such entrees as Thai rotisserie chicken, bangers and mash, and buttermilk-battered fried chicken and waffles.
California Pizza Kitchen currently owns a 25% stake in LA Food Show, which will eventually be folded into CPK, Rosenfield said. The pair expect to open a second LA Food Show next year in West Los Angeles.
Flax hinted that CPK ASAP locations could play an increasing role in the company’s future.
“I love that concept,” Flax said. “Our real estate folks are actively looking for new locations.”
One endeavor neither Rosenfield nor Flax is eager to envision is retirement. Inquiries about when the pair might step down prompt Rosenfield to mention Ely Callaway, the late founder of Callaway Golf Co. who retired as the company’s chief executive at 81, and Flax to cite Warren Buffett, the 73-year-old chief executive of Berkshire Hathaway Inc.
“This is our legacy,” Rosenfield said. Added Fax: “I’m only giving this 30 more years and then I’m going to do something else.”
