A bigger slice of the pie: Boston Pizza has experienced impressive growth over the past 10 years. With a strong franchise model, public investment and plans for more expansion in eastern Canada and the U.S., the future looks friendly too.

The first time Mark Pacinda saw a Boston Pizza restaurant, it was a cold day in Edmonton. At that time, he hadn't yet joined the company and all he could think about was a common misperception--"why would an American chain open up out here when they're not even in Toronto?"

Pacinda could be forgiven for the confusion. In fact, Boston Pizza International Inc. first opened its doors 41 years ago in Edmonton, founded by Greek immigrant Gus Agioritis. The company has come a long way since then: two changes in ownership and the growth of a franchise that is now a significant player in the casual dining market across Canada. Pacinda is now the president of the chain, works out of an office in Mississauga, Ont., and oversees the growth of the brand across Canada.

[ILLUSTRATION OMITTED]

It took Boston Pizza 32 years to open its first 100 locations but only eight years to grow its next 100 units. With 40 restaurants already opened in Ontario and 60 more franchises sold and waiting for good real estate, this growth should continue apace. At the same time, the company has plans for expansion in the U.S., where it currently has 17 restaurants. What makes Boston Pizza unique?

[ILLUSTRATION OMITTED]

Franchisee focus

Boston Pizza International (BPI) is something of an anomaly in the casual dining market in Canada. In the past, this mid-market niche was mostly filled with regional players--Earls out west, East Side Marios and Jack Astors in the east, St. Hubert in Quebec. BPI, meanwhile, has successfully tackled the west, and now has offices in Mississauga, Ont., and Laval, Que., to support the development in these markets.

One of the restaurant's main draws is its design--a 120-seat dining room, and an 80-seat sports bar. The combination draws young crowds and young families for a reasonably priced meal and drinks. The two sides of the business bring in similar revenue streams and, combined, serve more than 25 million customers annually in Canada.

Pacinda believes BPI's success comes from focusing specifically on the franchising business. "There are restaurants and there are restaurant companies--the two clearly involve different skill sets," he says. "You can grow a business as a corporation or by franchising. We believe that, if you have a franchisee in London, Ontario, he will do a better job running his own restaurant and driving sales because there's no substitute for the pride of ownership. McDonalds and other franchisers often have a 70-30 split of franchised and corporate operations. We only have two corporate restaurants--one in Richmond, B.C., and one in Oakville, Ont. This gives us a singular focus. If we didn't have this focus, there's little doubt that we would end up spending more time on the operations we owned. This makes the arrangement a little simpler."

This singular focus on the franchisee is something that the co-chairmen and owners of BPI, Jim Treliving and George Melville, have taken to heart since they first bought the business in 1983. Treliving and Melville were franchisees themselves. Treliving opened his first franchise in 1968 and formed a partnership with Melville in 1973. Before buying the company, the two operated 16 BPI franchises. They try to view the business from the franchisees' perspective, giving them what they would want as franchisees themselves.

When Pacinda talks, he constantly stresses this service ideal.

"We opened the Mississauga office seven years ago, before opening any restaurants around the city, to plan our expansion in the region," he says. "You can't support a franchise without an office reasonably close by, with support staff available. That's why we've also opened an office in Laval--to serve the unique needs of franchisees in the Quebec market."

The company did their homework before entering the Quebec market as well, setting up the office in Laval last year with Wayne Shanahan in charge as executive vice-president. A Quebec native, Shanahan was responsible for bringing Jack Astor's to Quebec in the 1990s, so he's clearly up for the task. Thus far, there are two restaurants planned to open in Quebec in 2005.

[ILLUSTRATION OMITTED]

Lure of the launch

The two corporate restaurants BPI owns are used as training and testing grounds. Any new recipes the franchise intends to launch are first tested in these locations. New general managers of franchises, along with their assistant manager and kitchen manager, are also brought to either the Richmond, B.C. or the Oakville, Ont., restaurant for an eight week training session prior to the launch of a new franchise.

Once the managerial staff of a new franchise have their basic training, a training team is sent out from head office to train new staff. This happens two and a half weeks before the new franchise opens, to make sure that the grand opening goes off without a hitch.

"It's hard to recover from a bad launch," says Pacinda. "It could take you a year before a dissatisfied customer comes back, once they've heard good things about the restaurant from other people. An opening has to be strong." The training staff then stays on site for another week and a half to make sure that operations continue to run smoothly.

"We believe that you go into business for yourself, not by yourself," says Pacinda. "People buy franchises for the brand and the system. Our training shows owners how to effectively open their restaurants, how to pay their bills, how to hire their staff, menu knowledge, how to provide Boston Pizza's standard of guest service, how to control food and labour costs--it takes a load off them."

The company also has field service managers that support the franchisees in any areas they find they're having problems. "For instance, if a franchisee has an issue with his food costs, the field service manager will sit down with them to work out how the problem can be solved."

Brand boost

But the franchising process starts long before the training starts. Once BPI has someone interested in a franchise, the company's real estate department scouts for a good location, hires an architectural firm to set the requirements for the particular location, then the construction department works with the franchisee to make sure the location is built to spec. The franchisees then work with the regional marketing department to make sure news of the new restaurant gets out to the public.

"It takes approximately a year to get a franchise up and running once a site is found," says Pacinda. "That's a reasonable expectation." The key is that the franchisee is given a helping hand every step of the way.

This commitment isn't a one-way street, of course. BPI corporate office expects that franchisees will maintain service levels and the look of the brand to serve the interests of all involved. Part of the franchising agreement puts that commitment in very specific terms. Every BPI franchisee must renovate their restaurant completely--interior and exterior--every seven years to keep the look of the brand fresh. Not only does this stop restaurants from looking tatty, Pacinda believes it boosts their bottom line.

"We believe that when a restaurant is renovated, we increase sales by 10-15%, so renovations actually represent 1-2% of our growth each year," he says. "We have a renovation team that gets involved to make sure the work meets our current standard. Of course, the process takes time--as much as two months to replace the carpet, the paint, the seating. But this creates a buzz. People in the community want to see what you've done to it."

Future expansion

BPI has been preparing for its push eastward for some time now, as Pacinda explains. With that push has come changes at head office--the hiring of Mark Powell, CMA, as CFO in January 2001, the appointment of Mike Cordoba (who'd been with the company since 1993) as CEO and Pacinda as president in January 2004.

The company that they're running is changing and growing all of the time as well. In fact, it's currently the largest casual sit-down dining chain in the country. Along with the substantial growth in Ontario, as of this month, there are five locations in the Maritimes and about 20 franchises sold in the west that will fill in the gaps in that market.

What hasn't changed is the type of market in which the brand has found the most favour--small town or suburban markets where the sit down dining choices for young families aren't necessarily vast. In 2004, for instance, the brand did particularly well in the Maritimes and southwestern Ontario--places like Sarnia, Cambridge, and London. The chain's combination of casual dining restaurant and sports bar allow it to grab more market share than it would as simply a dining room in such centres.

And though some of that success has come from the launch of new restaurants, same store sales growth has also remained impressive. This is important, considering the company went public in July 2002 through Boston Pizza Royalties Income Fund. With the income trust structure, unitholders look for same store sales growth to continue to grow, adding to their returns. Considering growth has averaged 6.3% compared to the industry average of 2.2% over the past 10 years, it's not surprising that Boston Pizza is attracting the attention of the investment community. While Pacinda accepts that maintaining growth can be a challenge, he's confident in Boston Pizza's ability to perform.

"In retail, one of the easiest targets is trial," says Pacinda. "The hard part is getting the repeat business. Our franchisees have done a great job at getting that repeat business." And with the right support from head office, Pacinda expects to see this trend continue.

Robert Colman is editor-in-chief of CMA Management.