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Fazoli’s CEO talks brand turnaround

Fazoli’s CEO talks brand turnaround

Updated menu, decor aim to create “elevated QSR” experience

When Carl Howard took over as CEO of the struggling Fazoli’s in 2008, his biggest challenge was keeping the doors open.

The quick-service Italian food chain, founded in 1988, was in a downward spiral with declining sales and traffic. Everything from the food to the bathrooms needed to be fixed. Dozens of stores were closing. The chain had gone from 319 units in 2006 to 274 when Howard took over.

“The goal when I started was trying to keep the company out of insolvency,” he said.

A decade later, the 220-unit, Lexington, Ky.-based chain is finally turning a corner. Howard is putting the finishing touches on a turnaround plan that involves remodeled restaurants, expansion of online and mobile ordering and improved food quality.

In March, Fazoli’s systemwide same-store sales increased 2.5 percent. And, after years of downsizing, the chain is increasing its footprint in core markets east of the Mississippi.

Last year, the company opened nine restaurants. This year, it’s on pace to open at least six more.

New restaurants, which have adopted the chain’s refreshed decor, are experiencing robust sales. The recently opened Fazoli’s in Hazard, Ky. generated $100,000 in sales in its first week — a record for the 30-year-old company.

“There has truly never been a better time for our brand and it is showing in our record-breaking sales and strong franchise development,” Howard said in a statement.

Howard recently spoke to Nation’s Restaurant News about Fazoli’s top-to-bottom makeover.

Why was the brand struggling before you took over?

The focus on the brand was all wrong. It was on speed and price. The guests were migrating from the business because the food was terrible.

What have you done to change the quality?

We upgraded every menu item. Every sauce. Every flavor.

Can you give an example?

The alfredo sauce was 90 percent water. It was out of control from a quality standpoint. We lifted all that. [We] added more dairy, more parmesan, and asiago cheese.

[For the marinara], it was produced in the cheapest manner – fashioned for longer shelf life. We went to cold pressing the tomatoes to keep the vibrancy of colors, and it keeps nutritional value.

What other menu changes did you make?

We went to work on a line of baked dishes you don’t find at other Italian chains and you can’t replicate at home. Now, 20 percent of our dishes are baked. You can’t find this quality in a grocery store.

How much money did the company invest to upgrade the menu?

Substantial. But I brought on some good people [who’ve kept] commodity costs [in line]. It was probably about $3 million more a year in food quality improvements.

Did you raise menu prices to offset the costs?

We had to wean consumers getting food for $1.99. It just wasn’t sustainable. In order to get a high-quality experience, we had to pass along that price to the consumer. But they started getting an experience they weren’t getting. And, no one in the country can do what we do at $7.

Is that Fazoli’s average check?

Average check in 2018 is about $7 to $7.50.

What was it before?

About $4.

Was the chain really selling a pasta dishes for $1.99 a decade ago?

We were working on a dollar menu [when I started]. It was a $1.99 LTO. I said, “How quickly are you trying to run us out of business?”

Moving forward, you say you’re working on a 3.0 menu. What’s involved?

With this menu we added parmesan cheese service to the table. Now when we bring you your food, we ask the guest if they’d like some.  

How many of your 220 stores offer this service?

About 120 with [the rest adopting] by June.

Can you describe the new format stores?

We have about 30 that have the latest and greatest design. [The changes include] the floor goes from carpet to wood, all new reclaimed wood tables, different chairs, different lighting package, more modern decor, bathrooms gutted and overhauled. Counters have been redone and tailored to add more beverage service.

How have off-premise sales impacted restaurants?

We have about 130 to 140 restaurants that are on the mobile app and online ordering.  All those locations have a separate station at the counter for [guest] pickup. We don’t even talk to them.  

Are these sales cannibalizing dine-in visits?

They’re not cannibalizing. We think 70 to 80 percent of those guests would not have used us if we didn’t provide that service. In the stores that have delivery, we are seeing that 2.7 percent of overall sales are coming from delivery. That’s great news.

Why don’t you like to be referred to as fast casual?

We’re really an elevated QSR concept. They [guests] are using us to break away from their traditional QSR [visits].

Our usage study [shows] that our guests, when not dining at Fazoli’s, are going to Olive Garden, Subway, McDonald’s, Panera, McDonald’s and [sometimes] Taco Bell.

How do you interpret that?

I love it. Consumers use us to trade off the doldrums of their everyday [quick-service] experience. Then, [when they say] ‘I don’t want to spend $11 or $12 at Panera’ [they come to us.]

I have a lot of respect for [Panera]. We modeled our 3.0 [designs] after Panera’s 2.0 [design]. Our guests are value conscious. They want to go to Olive Garden, and when they can’t afford it, they come to us.  

Our best restaurants are right across the street from Olive Garden.

Contact Nancy Luna at [email protected] 

Follow her on Twitter: @FastFoodMaven

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