How Roman's Pizza Got A Great Big Slice of Success (Over R1 Billion Of It)
When John Nicolakakis took over the reins of Roman's Pizza from his father, he had only one goal: To create the biggest pizza brand in South Africa. R1 billion in system-wide sales into this journey, and the company's aggressive expansion plans have never wavered. In fact, if ever there was a poster child for the mantra 'go big or go home', Nicolakakis would be it.
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- Player: John Nicolakakis
- Company: Roman's Pizza
- Turnover: Over R1 billion in system-wide sales
- Accolades: Young Business Leader of the Year – Southern Africa, 2015 All Africa Business Leaders Awards (AABLA) Brand Builder of the Year 2016, Franchise Association of South Africa (FASA) 2016 Awards Nominated for EY 2015, EY Entrepreneur of the Year, Exceptional category
- Visit: www.romanspizza.co.za
The first Roman's Pizza franchise John Nicolakakis ever sold was to a complete fraud. He was 23 years old, and it was his first deal since joining his father in the family business.
"I was so excited when he handed over the cheque for his joining fee. I didn't realise it was the last cash we'd see from him. He couldn't even cover his set-up costs. We had to step up and help him get the business up and running. We basically loaned him the money to buy a franchise from us. And we had to do it. The brand was more important than my mistake."
Nicolakakis' father hadn't liked the prospective franchisee, but he'd gone through with the deal anyway, against his father's wishes. It was a lesson the young businessmen took to heart.
"On the one hand, I was 23 with a 30-year-old's experience. My dad had spent my whole life talking about the restaurant business. He always explained every decision he made to me, and would ask me questions. "John, this is a good site. Can you tell me why?' Sites, restaurants, customers, I was always learning, which is why by the time I agreed to join him in the business, I had a solid concept of a good site — but I was very short on people skills.
"From that moment on I became far more discerning, and a lot less eager. The agreement that my father and I had when I joined the business was that we would embark on an aggressive expansion plan. That was my condition. My father had grown a strong brand with 28 stores and a distribution centre, but he loved the resturant business and serving customers. That's what made him happy. I wanted to grow a brand that would be a household name. But I was realising that there's a right way to grow, and a wrong way. Every decision I made from then on had to take the sustainability of the brand into consideration."
Arthur Nicolakakis' goal was to run the busiest pizzeria in South Africa. Serving people was his first love, and the fact that many of the 25 stores in 2001 were franchised was simply because Arthur had agreed to let a few friends purchase franchises if they could find a good site. "That was my dad," says Nicolakakis.
"His philosophy was "If I know you, trust you and you have my number, we can chat about a franchise.' That's as formal as the process got. When I joined the business in 2001 there was an entire filing cabinet filled with little slips of paper: Franchise enquiries that my dad's secretary didn't know what to do with, so they all ended up in drawers."
But Nicolakakis Senior must have understood his son and what it would take for him to join the business, because even though it's never been discussed between the two, he had quietly laid the foundations that Nicolakakis would need to build the business into a formidable brand.
"The distribution centre was started when the brand had less than 25 stores and didn't need it yet," says Nicolakakis. "But it's much easier putting these systems in place when you're small than when you have hundreds of stores. My dad had incredible foresight for what the business could become, even though that wasn't his personal goal. These foundations allowed us to scale and keep costs down for our franchisees. Back-end infrastructure is crucial if you plan to grow. You have to start small, but think big. What will need to be in place as you hit certain milestones? The better your infrastructure, the smoother and more successful your growth.
"In hindsight it's possible my dad played me," laughs Nicolakakis. "I had always been adamant that I was going to be a stock trader in New York, and yet here was this business with all the right foundations, ready for someone with completely different growth objectives to take over and run with."
Nicolakakis had some conditions though. First, all profits had to be reinvested into the company. Profits couldn't be saved so that one day the family could move back to Greece, as so many of Arthur's contemporaries were doing. "If we did this, we were going to grow aggressively," says Nicolakakis. "That was my main objective."
Arthur was ecstatic to have his son on board, and happy to let Nicolakakis run with any growth plans he had. He was supportive, but he didn't interfere with his son's strategic decisions. This was why the young franchisor had a lot of hard lessons ahead of him.
Missteps are common for all businesses, particularly in start-up and growth phases. What's important is not that they happen, but that lessons are learnt and systems, processes and strategies are adjusted as a result.
This is an area where Nicolakakis has been particularly vigilant. "Mistakes happen. I know, I've made my fair share of them," he laughs. "But I've had one goal since joining the business, and it was only strengthened when I took over the helm from my father in 2004. I want to be the biggest pizza brand in South Africa. Nothing less will do."
To achieve this ambitious goal, Nicolakakis has focused on three core areas of the business: The business model, marketing, and franchisee selection and support.
1. A business model that delivers on key objectives
When Nicolakakis joined the business, Roman's Pizza was a strong brand in a localised area of Pretoria. His first step was to sell franchises — he wanted to grow the company's footprint as quickly as possible, increasing its reach on a national level. But he also knew that while the pizza business had been a fledgling industry when his dad had first bought a struggling pizzeria in 1993, the landscape was far more competitive in 2001.
If Roman's Pizza was going to be the largest pizza brand in the country, he needed to give consumers a compelling reason to choose Roman's over a myriad of other pizza brands and take-away options.
That reason was a high quality product at a low price point. Now he just had to figure out how to deliver on that brand promise. High quality at a high price point is easy. Similarly, it's relatively simple to price low if you aren't concerned about quality and service delivery. High quality, low price is much harder to achieve — and maintain.
The distribution centre was an important first step that was already in place. It allowed the brand to purchase in bulk, and pass those savings onto its franchisees. It also meant Nicolakakis could control the quality of the product. All calamata olives, anchovies and pizza sauce are imported from Europe. Seeman's is the company's meat supplier, and only the highest quality mozzarella is used.
To offset the costs of quality, Nicolakakis needed some smart cost-cutting strategies. The first involved the operation of the head-office and distribution centre. This is a lean, mean operation. Offices are functional and above the distribution centre. There's no plush furniture or frivolous expenses.
"We strip out all unnecessary expenses. The aim is to keep costs down, and other than our ingredients, every buying decision is made through that lens."
Next, Nicolakakis turned his attention to the customer experience. With the exception of independent brands, most of his competitors — from pizza takeaways to burgers or fish — offer a free delivery service.
"This was the area in which we could really make a difference on our bottom line," he says. "I don't believe the South African market suits a delivery model. Urban areas are congested with traffic, and suburban living means that a delivery radius needs to be quite large. It's expensive to offer; even if it's marketed as "free,' that service has to be built into the product's price point. It's also difficult to deliver a hot product that's as good when it reaches its destination as it was when it left the store, and there will always be incorrect orders."
As a result, Nicolakakis made the bold decision to be a call and collect business. It was flying in the face of traditional customer expectations, but the price point he was able to offer as a result also broke conventional norms. As a Roman's customer you can purchase a high-quality pizza for less money than anywhere else — as long as you're happy to pick up your order yourself.
As it turned out, most people are perfectly willing to do just that, and the model has been a runaway success. "We are the leaders in terms of value, and this is why — we can't afford to deliver without raising our prices to cover those costs. Yes, we lose out on people who will only order deliveries. That's okay, we've chosen our model and it's working."
2. Aggressive marketing and discounting tactics
Roman's Pizza operates some of the busiest pizzerias in South Africa, and aggressive marketing campaigns and crazy discounting deals play a large role in that success.
"We're in unprecedented times," says Nicolakakis. "For the first time in 15 years the consumer sector is facing a proper downturn. How will we weather this recession? The consumer is stretched beyond belief, which means as a brand you need to give a reason why people should buy from you.
"It's accepted that quality is important, but in this sector, so is price. Our stock-standard menu pricing is 10% to 35% cheaper than our competitors, so we're already better value for money. Our whole model is built on discounted prices. But it's important to remind consumers who you are. Never stop marketing, particularly in a crowded market. We've learnt that you need to get a little bit crazy." Roman's Pizza markets 365 days a year, but ad campaigns switch between generic campaigns and discount campaigns.
"We see an effect with our generic branding campaigns, and they're important, but the real response comes from our promotional campaigns. The problem is that there's a fine line you need to walk when you're offering discounts to that degree.
"Gross profits (GP) collapse when we do this, which means volumes have to make up the losses. A GP of 40% instead of 50% is fine as long as volumes make up the difference, and then you carry your increased customer base through a generic marketing period. It's a balance and it takes constant work."
To make the large-scale discounting campaigns work, head office takes on the risk. "If the growth in turnover does not ensure that the franchisee maintains the rand value of his GP, we will subsidise the loss through a rebate or royalty discounts. We're a debt free family-owned business, which means we have no partners and shareholders to report in to. It gives us an enormous amount of freedom."
Well-marketed discount campaigns mean a sudden influx of customers, and this needs to be carefully managed as well.
"We've been doing it for so long we now know how to prepare for our discount campaigns," says Nicolakakis. "In the early days we had some specials where the wheels fell off, but today we're prepared for those volumes. Our stores are built for high volume, low margins.
"Our first above-the-line advertising was a R750 000-radio campaign. A few months later we followed up with our first TV campaign, offering incredible discounts. Volumes skyrocketed by 40%. It was chaos. As the distributor, it's up to us to ensure that our franchisees receive the stock they need. We needed extra trucks to deliver the volumes. It was all hands on deck, working around the clock.
"The trick with discounting is to drive the volumes, and then be able to deliver. In-store the franchisees and their staff need to be equipped to handle high volumes, but our support is crucial. It's a team effort."
3. Finding and supporting the right franchisees
Nicolakakis's growth strategy has always been a franchise model. Currently the brand has 25 company-owned stores, 30 joint ventures and 140 franchised stores.
As so much of the brand's success rests with its franchisees, the company has also fine-tuned its franchisee selection process since Nicolakakis' early (and over-eager) mistakes.
"Our first step is to verify financial records and vet all financial criteria," says Nicolakakis. "We learnt the hard way that you can't just take someone's word at face value. We conduct personal interviews and do psychometric testing as well." As a general rule, Roman's Pizza franchisees should be owner-operators, and before any documents are signed or money exchanges hands, each prospective franchisee spends one full week in a store, from open to close.
According to Nicolakakis, many prospective franchisees drop out of the process at this point. "This business is a lifestyle choice. You either love it, or it's not for you. But it's important to know which before we embark on a relationship together. Protecting the brand is far more important than selling another franchise. We want our franchisees to love what they do and what Roman's Pizza stands for."
Given how seriously Nicolakakis takes service delivery, it's an important distinction. Franchisee cell phone numbers must be prominently displayed in-store, and customers must be able to contact you, no matter the day or hour. Nicolakakis' own number is readily available for all customers as well.
"We have a lot of loyalty towards our franchisees, and we will always go the extra mile for them, which is why our first franchisees are still with us, 20 years later. But we expect excellence from them as well — and will be completely transparent if something isn't operating according to our expectations.
"Great franchisees are irreplaceable. This is why we spend so much time vetting new candidates; it's why we will always give first option of a new site to an existing franchisee, and it's why we are so focused on maintaining an open and transparent relationship with our franchisees.
"Our worst store is a corporate store, our best is a JV. Corporate stores tend to trade on average. They'll trade better than a bad franchisee — bad franchisees take shortcuts, buy inferior products, and will destroy your brand, no corporate store will ever do that — but they also lack the passion of an exceptional franchisee.
"We've also found that it's incredibly important to have corporate stores from an overall business perspective. We're able to test new procedures, systems and standards at our corporate stores before rolling them out, and it keeps our finger on the pulse of the market.
"For example, we insist that franchisees spend a minimum of 1% of sales on local marketing, but at our corporate stores we spend 2,5%. It's our testing ground. We need to back up our theories at store level before we can expect franchisee implementation.
"We're an aggressive brand. We're hands on, passionate, and value personal relationships. But we're also very straightforward. If you play ball and we make an error, we'll do anything to fix it. But we expect the same from you."
Throughout this expansive growth journey, Roman's Pizza has remained a family business. "My dad is a sounding board. His experience is a vital factor in our growth. But we're also both alpha males, and we've boxed over the years. We're the two people who love this business most, and when we fight it's truly for the business's best interests. We might not always agree on what's best for the business, but we know any argument is coming from a good place."
With that degree of passion behind its name, it's no wonder Roman's Pizza has become a household brand.