Todd Clayton

Eagle Boys Pizza chief executive Todd Clayton is gearing up for a big year. He’s just opened the franchise chain’s 300th store and is planning to open a total of 50 new stores in 2010, as part of a $20 million expansion.

Eagle Boys, which had revenue of $143.5 million in 2008-09 is now backed by a private equity firm and is intent on growing its business in Sydney, Adelaide and regional centres. Clayton talks to us about the end of the pizza wars, why everyone is going gourmet and why the franchise sector deserves more scrutiny from regulators.

Where was the 300th store?

In Ryde in Sydney.

And I gather Sydney and I think South Australia are really growth markets for you at the moment?

They are. The business over the last 20 years has been regionally based and also predominantly focused on Queensland and Brisbane. That’s basically where the brand grew up. So we’ve taken the opportunity with new management – the business was bought out three years ago – and we’ve just focused on rapid expansion, so Sydney’s an obvious opportunity for us as is Melbourne and South Australia.

Talk about the differences between those markets. I know Brisbane is a market that all franchisors say is very accepting of the franchising model, but what about those other markets?

Look, Melbourne in all honesty is a tougher market to get into from a franchising point of view but Sydney is very accepting. Although we will be last to market we’ve already got a number of stores that are doing very, very well. South Australia being an independent market from a pizza player point of view, we’ve got a number of stores there already and we’re doing very well. So we’re seeing those markets are particularly accepting of our business and our model.

Undertaking a big expansion like you’re doing, I guess two challenges would be franchisees and sites.

Yes, absolutely. Franchisee enquiries for us at the moment is at about 250 to 300 and that’s predominantly because we’ve still got a number of areas that we can grow into, so we’re very attractive to people in Sydney, Melbourne and South Australia. I think that’s because we have been growing a number of stores, the model is much more profitable than what it was and we’ve extended our range. So we’re becoming much more attractive. We’ve also got five different store models, so it’s not just one model that a franchisee has the opportunity to get into. So we can go into a small town model which could be a regional area or a larger model. But yes, sites in Sydney are definitely a challenge for us but given the different sizes in model, we can be reasonably flexible.

Operating different store models is quite different to what a lot of business use. What was the thinking there?

I think as the economy changes we need to adapt to our employees if you like, which were our franchisees. So where we need to be able to continue to grow to get a return on our investment, we need to be able to adapt to go into small towns. So for towns that are 2,000 to 5,000 people or maybe people are looking at this as a second source of income, the trading hours are a little bit different, the capital set up costs are a lot less as well. But then say going into a Sydney or a Brisbane, we can actually present a drive through model, so a much bigger footprint and obviously a lot larger turnover as well.

It’s interesting the focus on regional stores. Is that something franchisors have not done enough in the past?

There’s absolutely no doubt, but I think also too the regional expansion from a population point of view over the years in Australia has really grown quite rapidly. I suppose where we started out some 20 odd years ago, it’s been very successful for us. From bigger regional towns like Toowomba and Rockhampton if you like, into the small regional towns right across the country. And the model has been very well accepted. It’s now our opportunity to bring the model into the metros which is our challenge but at the same time a great opportunity for us because we’re last to market in those towns.

That issue of being last to market, lots of people would see that as a disadvantage, but is it always a negative?

Not at all, we can certainly learn from those markets what’s right and what’s wrong but we also believe that the offering that we’ve got, particularly with our pizza range – we’ve got a new range of pizzas going out at the end of March, 31 new flavours that are more gourmet orientated – we’re really adapting to that market. Where you might find other brands that are well entrenched, well established that can’t really react to the market’s needs that have changed.

So particularly over the last five to 10 years with the food offering we can actually analyse that, we can stand back, we can have a look at it and then we can approach where we can see the gap.

The gourmet shift has been huge in last few years with the franchise chains Pizza Crust and Pizza Capers. Have you learnt from their success?

Yes, not to leave a gap anymore!

There was certainly a gap I think. If you look at the volume players like ourselves and the other two competitors Pizza Hut and Domino’s, we’ve certainly educated people over the last 10 to 20 years to eat pizza. The palette here in Australia has become much more discerning and I think that the Crust and the Capers guys have done a great job and they’ve offered just a much more upmarket and a much more flavoursome and tasteful pizza. That’s also what we’ve been able to do from an Eagle Boys point of view, particularly over the last 12 months with repositioning ourselves into that gourmet marketplace. So a better value for money offering. We’re buying pretty much the same sort of ingredients and being able to offer a much better value for money price.

From a business perspective as well, are there better margins in the gourmet pizza?

Look I think for the Crust and the Capers guys, absolutely. They’re charging $20-plus and I’d certainly love to have those margins, but it certainly puts the pressure on our business. But, at the end of the day we’re trying to give a better value for money offering to the customer, a much more discerning taste. Margins are nowhere near as great for us, there’s no doubt about that, but certainly with the volume that we’ve got right across the country, it can certainly more than make up for that.

You mentioned the sort of competition between you and the other two big players. We were sort of in the pizza wars a few years ago but it seems to have settled down somewhat.

I would like to think that Eagle Boys has been at the forefront of that. I think if you go and map it, three years ago when we took over the running of the business, we deliberately didn’t want to market our business on price, it’s not sustainable, it’s certainly not profitable for the franchisees. And for the customer, at the end of the day, how good can a $5 pizza be? We need to charge a little bit more but actually give the customer a better tasting and a better quality product. So that landscape has changed.

That landscape is nowhere else actually in the world it’s only just been born here in Australia so I think as a change of ownership of these chains evolve, you will see a change in the positioning of those categories.