Pizza Keeps CEO Smiling

By
From the September 2013 issue of Columbus CEO
  • Tom Krouse, President and CEO of Donatos Pizzeria

Tom Krouse knows the family-owned restaurant business. Before joining Donatos Pizzeria 14 years ago as senior vice president of marketing, Krouse honed his branding skills at Wendy’s International during the Dave Thomas advertising era. Though he enjoyed his work, when Donatos recruited the Wendy’s marketing VP in 1999, the offer was too good to resist.

“I made the decision to come to Donatos for the career, but I’m staying with Donatos because of the mission of this company and the culture of this company,” says Krouse.

At the time, McDonald’s Corp. had just purchased Donatos from founder Jim Grote, who launched his first pizza shop in German Village in 1963 for $1,300. After an overreaching expansion resulted in poor financial performance, the Grote family purchased Donatos back from McDonald’s in 2003. With Grote returning as chairman and CEO and daughter Jane Grote Abell as chief operating officer, Krouse stayed on as chief concept and strategy officer. Abell now serves as chairman; her father is retired.

“Jim Grote is certainly a mentor of mine and has always challenged innovative thinking and creative thinking: don’t be comfortable with the status quo,” says Krouse.

That spirit is exhibited in Donatos’ Gahanna headquarters, where Abell and Krouse, a singer/guitarist who performs around Columbus with his bluegrass band Grassinine, often surprise top performers by serenading them in the middle of meetings.

Despite the free-spirited camaraderie, Donatos’ executive team means business. The first year after the repurchase, Krouse says Donatos had a “$10.5 million turnaround.”

Before taking over as president and CEO, Krouse oversaw Donatos’ franchise expansion and development of the retail division, Jane’s Dough Foods, which distributes pizzas and flatbreads to 3,000 locations in 26 states and Japan. Jane’s Dough produces about an eighth of the company’s total revenue.

Today, there are more than 200 Donatos restaurants in seven states. This summer, the company entered two new markets: Virginia Beach, Va., and Raleigh, N.C.

On June 15, Columbus City Council recognized Donatos’ 50th anniversary with a ceremonial resolution praising the company’s success and “outstanding” community contributions.

 

Q: Why is family ownership is a marketing plus?

A: “I think even more so today, customers are pretty demanding, and they want quality and they want value. … I think a family business, you know there’s some credibility behind that that says this isn’t going to be a leadership that comes in and out of Wall Street, sneezes, whatever, there’s a commitment to the business. I think customers, I think they understand that.”

 

Q: As the chief executive, is that part of the culture that appeals to you?

A: “I think there are a lot of positive attributes to publicly owned companies. … I think one of them is a real push for performance and a drive for performance and systems. On a family side, there is not the pressure on a quarterly basis. So the decisions that you can make when you’re a closely held entity is you make decisions that are right for the business for the long term. It may not look like it on a balance sheet in that quarter of that year, but in the long term it’s the right decision. So there’s an amount of freedom that comes with that.

Not all publicly held companies have a strong mission. It might be purely for profit and purely for shareholders. Where a family business, it’s about the people. We have a mission statement to promote goodwill through our products, service, principles and people. I’m not sure you’d see that in a publicly held company. That’s kind of a lofty goal that can be internally driven.

I think the other difference is, for a company like ours, you know, really our associates are on top. You put your associates first, and when you put them first, they serve the customer. … Sometimes in other companies, the shareholders come first and you can make decisions that aren’t maybe the best long-term decisions, let’s put it that way.”

 

Q: Aside from the ownership and leadership changes, what brought Donatos back from the brink?

A: “I would say the company was never in trouble. I think what happened really with McDonald’s … what they did was invested heavily in Donatos to the point where we were showing a loss because we had such a big overhead and we were building, and there was a lot of money that had gone into some assets. … We weren’t in trouble, we were just heavily invested in the strategy change, but we were losing money—a lot of money. And in the first year, we had a $10.5 million turnaround. Some of that was rightsizing the company and getting back focused on the product and our people. That was really, probably, a longwinded answer, but product quality has always been what set us apart, and our culture. I mean, that’s why McDonald’s bought us, was for the product and the culture.

But when you’re growing that fast and you’re doing so many things, you can sometimes lose sight of that. I got this position [in] October 2010, and Jane moved into the chairman role and Jim just maintained founder status and owner. Obviously Jane’s a major owner as well, and what they were interested in with me was kind of a little bit of the combination of really understanding the culture of the company, because I’ve been here 14 years. I’ve been here long enough to understand the value of the culture of the business. But I also brought in some management tools to help us improve our performance. We tripled our profits in 2011. I could talk to you about some of those approaches but it was really just trying to focus on performance.”

 

Q: What were some of the management tools you brought it?

A: “You’ve probably heard the metaphor ‘big rocks.’ You have a barrel, and you’ve got large rocks, you’ve got medium-sized rocks and you’ve got sand. If you pour the sand in and then you put the medium-sized rocks in, you can never fit. The analogy is, do the most important things first. Focus on first things first, second things never. We just needed to get really laser focused on what the important things are. Those are the big rocks.

The second part was just building the right leadership team, and we’ve got, I think, probably the best in the industry.”

 

Q: How’d you recruit that team?

A: “No. 1, people want to be a part of something that’s really good now and can be bigger and better, and I think that just the culture. Kind of an overused term, but it feels like family. Jane always says we used to be a family business, now we’re a business that acts like family.

So we get the team, we get focused on the big rocks, and then we develop plans which are fairly simple: goal, objective, strategic, tactic. This stuff is not sexy, by the way. But it’s amazing that a lot of companies aren’t focused on what’s the plan that you’re trying to accomplish. Then we lay every project out, so were just staying laser-focused on what we said we were going to do.

 

Q: Is it difficult to get everyone aligned with company goals when you have franchise locations?

A: “It is different. … We call them franchise partners, by the way. Other companies call them franchisees who pay royalties, and we use different language. They pay a license fee, and they’re a franchise partner because we’re in this together. We come together. We have a franchise advisory council that we meet every couple of months. We stay very connected with them. Frankly, a lot of times these guys have better ideas than we have anyway.

It takes time. … But you’re stronger when everyone has had their say and are able to be part of the plan and move forward.”

 

Q: What are your ‘big rocks’?

A: “For the year, our big rocks are increasing restaurant transactions, not through price but through actual transactions. For example, we introduced gluten-free because that’s a whole new market. It took us three years to get to this product because when we put a product out, it’s got to be very high quality. Frankly a lot of the products we had been working with weren’t that high quality. We ended up partnering with Udi’s, which is a baker that specializes in gluten-free products. And they’re the best in class by far.        

The second big rock is to increase profitable sales at Jane’s Dough. … That’s through entering new markets. Then the last is to create, I’m calling it, a highly franchise-able model. What we want to do is maximize the cash flow for our franchise partners so that it scales quickly. We brought the investment down. In the McDonald’s days, it cost $1.7 million to build a Donatos. Today it costs $400,000, so the return on the investment is higher. How we enter the market, our branding, we’re continuing to make that better and better.”

 

Q: You led franchise development early in your career with Donatos. What were some of the toughest markets for you to break into?

A: “Some of the tougher ones are in the northeast area. People have an idea about what pizza looks like, and it’s usually in a triangle, it’s usually greasy. But there’s a lot of passion for New York-style pizza, and obviously we’re a different kind of pizza. We were in Philadelphia during the McDonald’s days and we actually did pretty well, but that’s probably one of the toughest markets.

Some of the most opportunistic areas are in the southeast. … We introduced in Virginia Beach. … We just opened in Raleigh.”

 

Q: What are your short- and long-term goals for the company?

A: “We want to be a growing franchise restaurant company that customers love because of the quality and the service, and then it’s supported with systems … world-class systems. That’s kind of a theme for Donatos since Jim started. It’s always been about how do we build a system that delivers consistent quality?

We have ovens [where] each belt is timed, and the temperature is unique to that type of pizza. We use scales to top our pizza to the hundredth of a pound. … It’s always been about creating a consistent system that works. We kind of carry that through, and that’s why Jane’s Dough benefits Donatos, in addition to being a market of its own, because it allows us to have great products for Donatos. It allows the dough to be a higher quality, you have longer runs.

[The Grote Co. is] a major player in slicing and depositing equipment. … They’ve got great expertise on the engineering side. Donatos’ restaurant side understands quality and culture. [The] restaurant side really benefits Jane’s Dough because there’s an understanding, obviously, of how to make great pizza. Grote Co. helps Jane’s Dough because of their expertise on the engineering side. There’s just a lot of great synergies.”

 

Q: How would you describe your leadership style?

A: “I try to keep the organization focused on the things that matter the most and then try to create some enthusiasm and fun behind that. There’s a lot of laughter around here. … I think that makes people want to get involved. It’s not all left-brained stuff. There’s an emotional commitment. … I try to eliminate barriers.”

 

Q: What advice do you live by or would you pass on?

A: “The answer is always ‘yes’ until there’s a reason to say no. Let’s start with ‘yes.’ … If you hit a barrier, you hit a barrier. But if you don’t push forward, you really won’t create any innovation or you won’t do things that a customer wants. … Maybe we’ll find that it doesn’t work, but let’s start with that idea.”

 

Q: It seems like you bring musician-type thinking to your executive work. You kind of noodle a little.

A: “There’s a lot in music that I think you translate into business. There’s a rhythm, there’s momentum and energy. …There’s a bridge. There’s a key change that gets people’s attention. I think when you’re leading people, you want to get a rhythm going. But every now and then you want to say, ‘Hey, we’ve got to do something different here. We’ve got to pay attention.’ Otherwise, you kind of lull yourself into sleep.”

Kitty McConnell is a reporter for Columbus CEO.