Sbarro Seeks New Life Outside the Mall

Chain bets on new stand-alone pizzerias as it aims to reduce reliance on declining mall traffic

Sbarro LLC is trying to go beyond the mall.

The chain of Italian eateries, which emerged from its second bankruptcy last year, is betting that it can build a comeback by opening stand-alone pizzerias and reducing its reliance on declining mall traffic, which it blames for its Chapter 11 filings.

The goal is to return the 59-year-old brand to its roots as a maker of New York-style pizza, said Sbarro Chief Executive David Karam, positioning it to compete with much larger pizza chains such as Domino’s Pizza Inc. and Yum Brands Inc.’s Pizza Hut.

The company plans to open the first four neighborhood pizza shops in the next few weeks in its home town of Columbus, Ohio. It plans possibly an additional hundred stand-alone Sbarros elsewhere in the next year or two, Mr. Karam said. The neighborhood shops will offer delivery and take-out in addition to dine-in seating. They will feature new menus that are similar to the ones that already have been rolled out at existing mall locations, which are now free of the lasagna, chicken parmesan and vegetable dishes executives say distracted from Sbarro’s pizza heritage.

“The idea of offering a broad line of Italian foods held in steamed tables became dated,” said Mr. Karam, a restaurant-industry veteran who became CEO two years ago and steered Sbarro through its second, prepackaged bankruptcy. “The essence of this brand is pizza. It’s what consumers buy from Sbarro and how they view Sbarro.”

Sbarro, whose owners include Mr. Karam and private-equity firms Apollo Global Management LLC and Guggenheim Investment Management LLC, currently has about 800 global outlets, down from a prebankruptcy level of 1,000. In early 2013, under previous management, Sbarro had plans to open stand-alone locations, but that was before the company went through its second restructuring.

Mr. Karam, a former Wendy’s Co. executive and franchisee who owns 200 Wendy’s, said there’s still room for Sbarro to grow in food courts. “There are 900 malls in the U.S. with food courts and we’re in a third of them,” he said. “But instead of them representing 90% of our sites, I’d like them to represent less than half.”

ENLARGE

Many of Sbarro’s mall-based shops have been remodeled with sleek designs, better lighting and simplified menu boards emphasizing the freshness of the food. PHOTO: SBARRO

Sbarro’s shift comes as major pizza delivery chains such as Domino’s, Pizza Hut and Papa John’s International Inc. have used mobile-ordering and other technology to gain market share from smaller pizzerias and regional chains that lack technology and marketing resources.

At the same time, upstarts focused on gourmet pizza that is assembled while customers watch, such as Mod Pizza LLC, Pieology Pizzeria and PizzaRev, have grown quickly. Sbarro has entered that market with a separate concept called Pizza Cucinova, of which there are currently three, in Columbus and Cincinnati.

“The advantage they have is that people who knew them and liked them as a mall brand will now see that they have distribution outside the mall. Also, Sbarro is more of an East Coast pizza which has its following,” said Dennis Lombardi, president of restaurant advisory firm Insight Dynamics LLC. “The hard part for them is it’s a highly crowded market and you better have a point of difference to carve out your niche within that market.”

Mr. Karam said he recognizes that Sbarro’s online and mobile ordering initially won’t be as advanced as Domino’s, which lets people tweet their orders. He said he believes Sbarro’s name recognition and its focus on high-quality ingredients will set it apart. He boasts that Sbarro uses sauce made from San Marzano tomatoes and shreds its whole-milk mozzarella daily in the restaurants—and that it added 20% more cheese last year despite high prices.

Many of Sbarro’s mall-based shops have been remodeled with sleek designs, better lighting and simplified menu boards emphasizing the freshness of the food. Mr. Karam said same-store sales at Sbarro’s U.S. company-owned restaurants are up 3% so far this year and that overall global sales have increased by 3% to around $500 million. More than half of the restaurants are outside the U.S.

Mr. Karam said the company is now debt-free and has strong cash flow and solid profitability that has been achieved, in part, by relocating the corporate offices to Columbus from Melville, N.Y., and halving the number of menu items, which has helped reduce food costs.

“I’m quite optimistic about our prospects,” Mr. Karam said. “But time will tell.”

Source:WSJ