Growth Strategy: Loop to Loop

The Loop Pizza Grill is betting on a flexible menu and prototype for growth success.

By Margaret Littman, Contributing Editor -- Chain Leader, 5/1/2004

The Loop Pizza Grill owners Mike and Terry Schneider have signed 49 agreements with franchisees across the Southeast.

Bob Hodges knows a good thing when he tastes it. For 15 years he was senior vice president of Krispy Kreme Doughnut Corp., the insanely popular Winston-Salem, N.C.-based chain. After leaving his executive post at the firm, he searched for a restaurant franchise that he could be as enthusiastic about as people are about their hot doughnuts. After traveling the Southeast and tasting his options, he chose The Loop Pizza Grill.

If you were thinking, “Why would someone leave a brand like Krispy Kreme?” or “Never heard of The Loop,” well, it will soon become clear. Twenty-three years after its founding and 12 years after its first franchise opened, The Loop is in expansion mode. Many say the Jacksonville Fla.-based chain is poised to best Panera Bread and other better-known brands as the fastest-growing fast-casual chain around.

“I think it is safe to say that in 10 years everyone will know The Loop,” Hodges says.

He and his partner, Bobby Hulslander, have an agreement to open 20 Loop restaurants in North Carolina, from Charlotte to Raleigh, with the first in Greensboro this month. Those agreements—which call for a $30,000 franchise fee per unit—are just a fraction of the 49 agreements currently signed with franchisees across the Southeast.

“There is truly a passion for this brand that I did not see in other brands,” says Hodges, who, of course, came from a brand that people are passionate about. “[Husband and wife founders Mike and Terry Schneider] just bring a lot of energy to the system. There is an energy I have not seen with other companies. I had a lot of nervousness leaving a brand as strong as Krispy Kreme, but after meeting Bobby and Mike and Terry, I breathed a huge sigh of relief.”

Humble Beginnings
The Schneiders opened The Loop Pizza Grill—named after the financial district in Terry Schneider’s hometown of Chicago—in Jacksonville, Fla., in 1981 after the expansion of their restaurant and nightclub, Applejacks, failed. Instead of selling the kitchen equipment, they decided to try another way to avoid filing for bankruptcy.

In 1981 there were few other fast-casual restaurants, so much so that the idea of ordering at a counter but having your food served on china, instead of plastic or paper, was a novelty. Four months into their last-ditch financial gamble, the Jacksonville paper chose The Loop’s pizza as the best in town. From that point on, says Schneider, The Loop had positive cash flow. It finished the first year with $500,000 in sales.

Schneider, who has a degree in mass communications and several years managing the nightclub, worked the counter at that original The Loop for the next six years, with Terry Schneider overseeing every evolutionary detail, from laying mosaic tile on the floor to expanding the menu.

Pizza accounts for just 5 percent of sales at Loop Pizza Grill.

For a while, the Schneiders considerably slowed down their pace. For the first six years, they simply learned the business, paid off their debts from their earlier restaurant closure and devised ways to improve the concept. Over the next few years, the couple opened a restaurant a year. The slow growth was what they could manage and still keep the concept consistent.

By 1990 the couple decided franchising was the only way to expand and keep sane. And now the pace has picked up again. They hired Tom Feltenstein, CEO of the West Palm Beach, Fla.-based consulting firm Neighborhood Marketing Institute, to help create a franchise plan.

“The neatest thing about them in those days was that you went up and ordered from a counter and then you sat in these cushy booths with beautiful colors that felt like you were in a casual-dining restaurant,” Feltenstein says. Even today, he adds, The Loop is one of the few chains where diners can get cooked-to-order burgers, chicken and pizza.

Feltenstein helped the Schneiders create a training program for franchisees and helped them use Terry Schneider’s background as an artist to develop new units with an appropriate combination of chain uniformity and local flavor.

She typically spends three weeks working with franchisees and architects, recommending decor based on the individual floor plan. The design uses fabrics and lighting to create a consistent corporate image without making it cookie cutter.

A Burger Without the Bun
The menu has been similarly flexible. A bacon cheeseburger without the bun is popular with Atkins dieters, but the sandwiches and salads help provide the balance most diners want. The focus on fresh appeals to diverse groups. In recent years, the chain has added more salmon, tuna and healthier entrees to the menu. Mike Schneider says some regulars dine at the restaurant as often as four or five times a week because of the menu diversity.

The Loop's retooled prototype increases the average store size from 2,500 square feet to 4,400 square feet.

“We have a loyal clientele in each of our neighborhoods,” Schneider says. “Even subtle changes [to the menu] create tidal waves. My telephone starts ringing, and people are saying, ‘Don’t change my coffee.’ They really feel a part of The Loop.”

At least half of the volume at a typical restaurant is at lunch; 30 to 35 percent of business is carryout. Sales from alcohol are just 2 percent of totals.

“There does appear to be insatiable appetite for pizza-type restaurants,” says Ron Paul, president of Chicago-based Technomic Inc. Having a sandwich menu only boosts The Loop’s viability, he adds, as long as the company doesn’t try to move into Chicago, which already has more than its share of pizza chains and an association with the phrase, “the Loop.”

In the Loop
With 22 current units in Florida, North Carolina and Georgia, the expansion plans do not immediately call for Chicago. But when they do move into the Windy City, Schneider predicts success because just 5 percent of sales are pizza orders. Until then, the company will concentrate on expansion in Texas and east, capitalizing on the chain’s name recognition in the Southeast. “I think that expansion alone could be a lifetime of work,” he says.

But before the chain could expand anywhere, the team retooled its prototype restaurant, increasing from a 2,500-square-foot footprint to an average store size of 4,400 square feet. The bigger stores have an average unit volume of $1.5 million vs. the $1.2 million of the older restaurants.

Schneider realizes that moves he made decades ago, like using real chinaware and flatware and serving Caesar salads on a cart, mixed at the table, are no longer groundbreaking for chains trying to be more casual than QSR. “We have a lot of competition now,” Schneider concedes.

“We think that we can continue to evolve the concept so that it can be forward-thinking and maneuver it so that it meets the needs of the public. That’s our goal rather than growth itself,” he adds.

One thing that won’t change: The pizza sauce recipes are a closely guarded secret. Guy Leroy, a friend and business associate of Wolfgang Puck, helped The Loop develop some of the menu specialties.

When the company retooled its business plan to include expansion by franchising, Schneider’s goal was not to open as many units as possible and then be acquired or take the firm public. “That is not attractive to us. We like the relationships with our guests and franchisees,” he says. “We like the idea of creating something and nurturing it.”

Last year The Loop filmed the first television commercials in the chain’s history, offered free to franchisees and designed to help support expansion. Schneider says such big-chain moves are necessary as they move forward, but he vows not to lose sight of their original vision of a neighborhood eatery that would save he and his young wife from bankruptcy.

“They deserve to be getting the notoriety,” consultant Feltenstein says. “I get about 20 calls a week about every chain in America. The Loop is one of the highlights.” Of their likelihood for expansion success he adds: “I know they have the chutzpa to pull it off.”