Little Caesar Enterprises, Inc. Business Information, Profile, and History

History of Little Caesar Enterprises, Inc.

Little Caesar Enterprises, Inc. owns, operates, and franchises Little Caesars Pizza, a predominately carryout chain of pizza and related food products. Best known for its goofy commercials touting two pizzas for the price of one with the tag line "Pizza! Pizza!," Little Caesar's credo is simple: better pizza, and more of it for every dollar spent. With over 4,800 franchises around the globe, Little Caesar vies with competitors Domino's, Pizza Hut, and Papa John's for its slice of the multibillion-dollar pizza marketplace.

Using the same pizza recipe it started with in 1959, this family-run business has grown to become the third largest pizza chain in the United States. Founded by Michael and Marian Ilitch, Little Caesar's interests include its pizza franchises and Blue Line Distributing, a full-service distributor for all units as well as to Kmart's KCafes, which serve Little Caesar products. The Ilitches, well-known sports fans, also own the Detroit Red Wings hockey team, the Detroit Tigers Baseball Club, several sports arenas, the historic Fox Theater in Detroit, and other restaurants. The primary business, a chain of carryout pizza restaurants, has been built on the concept of "two pizzas for the price of one" and other innovative production and marketing techniques. Little Caesar has over 4,825 franchise units in the United States, Canada, Ecuador, Guam, Honduras, Puerto Rico, the Philippines, the Dominican Republic, the Czech Republic, Slovakia, Turkey, and South Korea--and sells over four million pizzas per week.

In the Beginning, 1959-79

The business was established in 1959 in Garden City, Michigan, by Michael and Marian Ilitch. Born during the Great Depression, Michael served in the U.S. Marine Corps from 1947 to 1951 and played on the Detroit Tigers baseball club's farm team from 1951 to 1955; a leg injury cut his professional sports career short. Ilitch sold awnings for the next four years, then founded Little Caesars in 1959.

At the time, the restaurant offered spaghetti, fried chicken, and french fries, as well as pizza. In their first week, the Ilitches sold 296 pizzas and soon realized they had found a niche by offering quality at low prices; they opened a second restaurant in just two years. In 1962 the first franchise was opened in the Detroit metropolitan area. By the end of the 1960s, Little Caesar had built or franchised over 50 restaurants, including one in Canada. During that decade, delivery was a service of most Little Caesars restaurants, but in 1971 the chain moved to carryout only. The restaurant set itself apart from many competitors by using only natural ingredients, including high-gluten flour in the pizza dough, specially grown California tomatoes, and grade A cheese. Little Caesar still prides itself on the use of all-natural spices, as opposed to the synthetic flavorings used throughout the pizza industry.

The 1970s were years of innovation and phenomenal growth for Little Caesar. In 1971 the company began its two-for-one "Pizza! Pizza! Two Great Pizzas! One Low Price!" concept and made it a permanent feature of the company's marketing campaigns in 1975. The marketing strategy has forced competitors in some heavily saturated areas to mimic the two-for-one offer. In 1977 Little Caesar also introduced drive-through windows at its quick-serve locations, and in 1979 developed a pizza conveyor oven that sped up the production of pizza and other baked items.

Building an Empire, the 1980s

During the 1980s Ilitch continued Little Caesar's rapid growth and marketing innovation. In 1980 the chain had 226 units with sales of $63.6 million. By mid-decade annual sales had grown more than fivefold to $340 million. The company achieved successful expansion through an emphasis on several simple concepts: market saturation, two pizzas for the price of one, and carryout only. Approximately 98 percent of Little Caesar units were 1,200- to 1,800-square-foot units offering takeout only--overhead and maintenance on these shops was considerably lower than that of competitors who offered sit-down or even delivery-only service, because the restaurants did not require waiters, waitresses, busboys, dishwashers, or delivery personnel.

In 1984 the company built its 500th restaurant, then saw the 1,000th Little Caesars just two years later. By that time, the company was not only well-established in 38 states and parts of Canada, but had also built an outpost in Great Britain. Marketing innovations included the first college campus restaurant, at the University of Oklahoma, and the first hospital restaurant, in Detroit at Mt. Carmel Mercy Hospital.

The Ilitches also began to develop peripheral interests in the 1980s. They purchased the Detroit Red Wings hockey club in 1982. Then in a slump, the Red Wings club improved markedly after its acquisition by the Ilitch family. The team later captured the Norris Division Championship in the 1986-87, 1987-88, and 1991-92 seasons. In 1992 Financial World magazine even reported that the Red Wings were the most valuable franchise in the National Hockey League (NHL). The percent of capacity attendance at Joe Louis Arena (the Red Wings' home ice) was among the highest in the NHL.

The Ilitches also owned the Red Wings' farm team, the Adirondack Red Wings of Glens Falls, New York. The family's sports/entertainment holdings were augmented in 1988 with the purchase of the Detroit Drive arena football team. The team won three out of four Arena Football League championships between 1989 and 1992. The family acquired the Red Wings' home ice as well in 1982. Olympia Arenas, Inc., the management company for Joe Louis, Cobo, and Glens Falls arenas, and Detroit's Fox Theatre have been successful business ventures for the family. In the 1980s Olympia established itself as a trendsetter among arenas when it brought in Little Caesar and Everything Yogurt concessions and separated beer service from all other concessions for speedier service. In 1992 the Meadow Brook Music Festival, an outdoor entertainment center at Oakland University in Rochester Hills, Michigan, was added to the Olympia Arenas group.

The Fox Theatre was a special project of the Ilitch family, who purchased the 5,000-seat historic theater in 1987 and invested $50 million in its restoration. The theater was reopened in November 1988 and was ranked as the nation's top grossing theater--in sales and attendance--by Performance magazine that year. The theater's schedule included a variety of concerts, the annual Variety Broadway series, and restored classic films. The Fox was expected to reach the four-million-patron mark during the 1992-93 season. The theater's success was also measured by the other businesses its restoration drew to the formerly declining area of Detroit in which it is located.

Little Caesar moved its corporate headquarters to the Fox Office Centre, adjacent to the Theatre, in 1989. The 10-story office building housed over 500 employees, a child development center, a gift shop, a small convenience shop, and two restaurants. Both restaurants were opened in 1990. America's Pizza Cafe, created by Michael Ilitch, featured thin-crust pizzas baked in a wood-fired oven, gourmet pastas, and desserts. Trés Vite, a bistro-style restaurant, was conceived by Ilitch and nationally known chef Jimmy Schmidt. Ilitch and Schmidt also collaborated on Cocina del Sol, with a Southwestern menu, and Buster's Bay, a seafood restaurant, both in the Detroit metropolitan area. Their fourth restaurant, a northern-Italian eatery called Stelline, was also planned.

Joint Ventures and Advertising, the 1990s

Marketing and promotion efforts for Little Caesar focused on value ("Pizza! Pizza! Two Great Pizzas! One Low Price!") and quality ("When you make pizza this good, one just isn't enough"). According to Rona Gindin in Restaurant Business, the company invested a minimum of five percent of its sales on advertising, and franchises (which constituted 75 percent of all units) spent a comparable percentage on local and corporate promotions. Back in 1986 the company awarded its advertising account to Saatchi & Saatchi's Cliff Freeman & Partners. Freeman had already made a name for himself with Wendy's "Where's the Beef?" ads. Freeman's seven 30-second spots constituted the company's first network television campaign. The ads featured comical situations that became the hallmark of Little Caesar promotions.

A spot called "Yes, But" employed a carload of non-English-speaking characters who learned the phrase "Yes, but" by discovering the hidden costs behind the competition's two-pizza deal. Ads in the early 1990s used outrageously long, rubbery "cheese pulls" (melted cheese that stretched between two pieces of pizza) to accentuate the quality and quantity of cheese on a Little Caesar pizza. In one ad, when "big brother" hands his high-chair-bound little sister a piece of Little Caesar "Cheeser! Cheeser!" pizza that was stretched to its limit, she is yanked from the room, down the hall, around the kitchen table, and out the door into the waiting arms of her grandparents. The ads were credited with doubling Little Caesar sales from 1988 to 1991, to $1.7 billion. Other promotional programs included community services sponsored by the company (the award-winning Little Caesar's Love Kitchen Foundation, two mobile restaurants that served pizza to the needy, had been established in 1985); Ilitch himself volunteered time to such organizations as the Easter Seal Telethon, the Michigan Special Olympics, the NAACP, and a variety of organized children's sports.

Little Caesar also began experimenting with the basic carryout, two-for-one pizza concept. Variations included restaurants with limited seating, drive-through units, and arena concessions. In a joint venture with Kmart Corporation, Little Caesar built over 400 Pizza Stations in Kmart stores and the resulting self-serve restaurants (featuring pasta and vegetable salads, soups, fresh fruits, and the standard pizza, sandwich, and hot pasta) constituted almost half of Little Caesar's 1992 unit growth. The company also introduced such new items as Crazy Bread, Chocolate! Chocolate!, Ravioli! Ravioli!, and Baby Pan! Pan! lunch pizzas. Also during this time, the Ilitches became the sole owners of the Detroit Tigers Baseball Club, the fulfillment of "a lifelong dream."

The Little Caesar empire was always a strong family act--Ilitch's wife, Marian, and several of the children were involved with the family business. The Ilitches contended all seven of their children have had a role in the success of the company; and ties extended beyond the immediate family with an estimated 85 percent of Little Caesar franchisees as relatives, with as many as three generations involved in the business. Ilitch also claimed over half of the company's corporate vice-presidents started out at work in the restaurants, crediting this close-knit network with the company's rapid growth.

In the early 1990s, Little Caesar's sales outpaced the industry's growth by 24 percent; yet the company remained locked in a closely fought battle with its two largest competitors, Pizza Hut and Domino's. Moreover, though Little Caesar was named the "Best Value in America" by Restaurants & Institutions magazine for the third year running in 1992, trouble was on the horizon as the "Big Three"pizza chains--Domino's, Pizza Hut, and Little Caesar--found themselves in a reluctant expansion to the "Big Four." The new competition came from the rapidly emerging Papa John's chain, gaining ground at every turn. Errors in judgment, like Pizza Hut's disastrous "Triple Decker" pizza, now had more profound repercussions, and Little Caesar suffered its own problems after its nationwide delivery service was not nearly as successful as planned when introduced in the summer of 1995. Yet 1995 was still a decent year for Little Caesar, with the introduction of the enormously popular stuffed crust pizza and revenues of over $1.1 billion.

For Little Caesar, the next few years brought trouble. After leaving the delivery question in the hands of individual franchisees, the company was faced with a series of calamities, large and small, not the least of which was Papa John's lightning-fast growth. Tough times required tough measures and Little Caesar initiated several to bolster its bottom line. Among the trimming was the national advertising budget, slashed by nearly 23 percent from 1994 to 1996, and the layoff of 27 managers at its headquarters in Detroit. The jobs represented one percent of its corporate workforce, and rumors linked the purge to Harsha Agadi's appointment as COO and the company's eight percent decline in domestic sales in 1996. In addition, according to Nation's Restaurant News, Little Caesar's market share fell from 14.5 to 13.4 percent for the year, and 184 units closed for a total unit count of 4,004. Meanwhile, over at Papa John's, same-store sales grew by 10 percent and units mushroomed by 32.1 percent to 1,160.

On the positive side, Little Caesar broadened its marketing efforts substantially with three major moves. The first was a joint venture with Holiday Inn in Florida, to put pizza kiosks in two of the chain's biggest-draw hotels. Both hotels were near the state's largest tourist attraction, Walt Disney World, with one in neighboring Kissimmee, and the other located in Disney's Lake Buena Vista resort area. Each location had both a poolside pizza kiosk, another in the lobby, and Little Caesars was also available from room service. The second was the unveiling of a bold new strategy to call attention to its longheld creed--value--with more pizza for every dollar. In a risky move, Little Caesar proudly proclaimed "Bigger is Better" with pizzas 80 percent larger (or four inches in diameter per pie) at the same price. The new, larger pizzas were promoted through Little Caesar's trademark quirky commercials, replacing the "Pizza! Pizza!" with "Bigger! Bigger!" and using a dwarfed Pizza Hut box to show how much bigger the new pizzas actually were. Third, the company's venture with Kmart stores was not only going well, but was expanded into 1,500 of the chain's over 2,000 stores in 1997. There was one slight catch: the stations were renamed KCafe and carried food items from other companies as well--yet Kmart still retained a host of items from Little Caesar and also continued to use the company's Blue Line distribution division.

Outside the pizza business, the Ilitch family was thrilled when the Detroit Red Wings won the Stanley Cup in 1997 and 1998. Yet family ties interfered with business when Little Caesar was sued by a Hollywood movie studio, New Line Cinema, over an endorsement tie-in for the new Lost in Space movie. The "deal" was initiated by Mike Ilitch, Jr., who had originally sold the movie rights to New Line and discussed the tie-in with Little Caesar products; however, Ilitch, Sr., and others said Mike Ilitch, Jr., had no power to act on behalf of the Little Caesar organization. The suit also brought Little Caesar's solvency into question, with New Line intimating that the company's cash flow problems were profound and the real reason Little Caesar backed out of the proposed $20.5 million agreement.

In the late 1990s, Little Caesar was still battling its old foes Domino's and Pizza Hut, but Papa John's relentless growth had become a serious threat. According to the Wall Street Journal, Papa John's same-store sales were up 12 percent and profits up 66 percent in 1997, and the chain planned to open dozens of new stores each month during 1998. To counter its slipping market share, Little Caesar introduced the use of American Express credit cards at its locations in Utah, and offered pizza at 39 cents a slice on May 7, 1998&mdashø mark its 39th anniversary.

As Little Caesar approached the 21st century, its competition had increased but so had its millions of consumers and admirers. Not only was Little Caesar named the "Best Pizza Value in America" for the 11th year in a row by Restaurants & Institutions magazine (Papa John's, however, was chosen as "Best Pizza Chain"), but began opening locations in yet another international venue. Ecuador was the latest to join the ranks, along with locations in Puerto Rico, Guam, Honduras, the Philippines, Korea, the Dominican Republic, the Czech Republic, Slovakia, Turkey, and, of course, the United States and Canada. Although there have been a spate of new products over the years, the company's mission has remained the same&mdash′ovide more pizza for every dollar than any competitor. With pizza consumption still on the rise in the United States, Little Caesar's niche was a sure thing.

Principal Subsidiaries: Blue Line Distributing.