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New menu at CPK focuses on wellness

A Heard on the Call report from first-quarter earnings

Hoping to capitalize on the healthful halo that comes with its California roots, California Pizza Kitchen officials said Thursday they are planning a menu overhaul in June that will balance the good-for-you with indulgence.

In announcing results for a first quarter hindered by bad winter weather, the Los Angeles-based casual-dining chain said the past few months have been spent on menu optimization. It trimmed 14 low-performing dishes to focus on higher-margin options, a move that has also helped trim back-of-the-house labor costs, the company said. Another seven items will be cut this summer.

On June 29, the chain is scheduled to roll out a new menu that will introduce nine new items, as well as a new focus on identifying options for better health and wellness, said CPK’s co-chief executive Rick Rosenfield.

The new menu, for example, will identify the chain’s use of natural chicken, turkey, pork and sausage products, as well as a new gluten-free pizza crust option, and salads with fewer than 600 calories for the full serving.

The menu will also include indulgence, noted Rosenfield, including desserts such as a strawberry shortcake made with fresh fruit, which will be introduced early in time for Mother’s Day weekend.

Across the menu, Rosenfield said sodium and calorie levels have also been reduced.

Rosenfield contended the chain’s customers already see CPK as offering more healthful options than most in the casual-dining world in part because of its association with California, which in itself is “a powerful brand.”

He added that CPK plans to “crank on all cylinders to get that word out,” upping its marketing spend by 25 percent to 50 percent this year through various channels.

The new menu in June will also include a price increase of 0.7 percent, the first for the chain in almost two years.

Sue Collyns, CPK’s chief operating officer, chief financial officer and executive vice president, said the price hike is “modest and appropriate,” and will help offset projected commodity cost increases of up to 3.5 percent this year.

Following are more tidbits from the company’s call with securities analysts on Thursday:

Strategic alternatives: CPK officials repeated earlier statements that the company is continuing to look at options to enhance shareholder value, including a possible sale. Rosenfield said no decision has been made, but “it is in our shareholder’s best interests to keep it open.”

Closings: CPK is closing three company-operated restaurants during the second quarter. Among them is the LA Food Show location in Beverly Hills, Calif., which was scheduled to close Thursday, one of two for that brand.

Rosenfield said construction on the street in front of the Beverly Hills LA Food Show prevented that location from gaining traction. The original LA Food Show unit in Manhattan Beach, Calif., on the other hand, is doing well, reporting sales up 7 percent year-to-date, he said.

The other two locations to close in the second quarter include full-service CPK units in California and Illinois.

The company is also eliminating the last four of its California Pizza Kitchen ASAP fast-casual variants. Two will be converted to full-service CPK locations, one will close this year and the fourth will be closed next year.

Rosenfield said the company will continue to prune its portfolio of underperforming locations as leases come up.

CPK operates or franchises 266 restaurants globally.

Growth: Rosenfield said both domestic and international growth will pick up in 2012 as the chain works with developers to find great locations. Five domestic restaurants are expected to open in 2011, including the two converted ASAP units.

Another 10 locations are expected to open internationally in 2011. Three have opened, including two in Mexico and one in India. Later this year, the company will open its second unit in Shanghai.

The newest unit in Mexico is a quick-service version of CPK at the airport in Cancun, which Rosenfield said would be an “interesting compliment” to the full-service franchise option.

The CPK system currently includes 34 international locations in 10 countries.

Loyalty programs: The same-store sales drop in the first quarter of 2.1 percent was mostly on declining traffic and company officials said trends were down 3.1 percent in the beginning of the second quarter. However, that trend is expected to be turned around during the second quarter with the introduction in April of what has become CPK’s annual Thank You Card promotion.

The Thank You Card program is designed to drive returning guests. During the promotion, which runs through June 5, guests receive a card with potential prizes of up to $100,000 that cannot be opened until they come back for another visit.

This year the program has a new social media component allowing Facebook friends and Foursquare users to vote for their favorite “CPK Fanatic.” The winner is eligible to win a trip for two to any CPK location in the world and $10,000.

Expecting as much as a 3 percent same-store sales lift from the Thank You Card program alone, based on past years, officials are projecting same-store sales will be flat to up 1 percent for the second quarter.

California: Locations in economically hard-hit California have seen lower sales over the past three years compared with the rest of the chain, in part because of high unemployment on the West Coast.

However, Rosenfield said California “isn’t deleveraging the company” as badly anymore, and is now in line with the rest of the system.

Retail: Rosenfield said CPK has worked through transitional challenges after its switch from Kraft Foods to Nestle for the production of the brand’s frozen pizza line. The change was a result of Nestle’s acquisition of Kraft’s frozen pizza business in the U.S. and Canada last year.

Rosenfield said CPK is planning to further expand both frozen and non-frozen licensed grocery products, including the recently introduced frozen pizza options packaged as a combo with appetizers.

Contact Lisa Jennings at [email protected].

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