California Pizza Kitchen Inc. Business Information, Profile, and History

History of California Pizza Kitchen Inc.

California Pizza Kitchen Inc. is one of the most successful and fastest-growing chain restaurants that began operations in the United States within the last ten years. The company boasts one of the most innovative and distinctive menus of any eating establishment in America, including such items as Barbecue Chicken Pizza, Bacon-Lettuce-Tomato Pizza, and Moo Shu Chicken Calzone Pizza. Although California Pizza Kitchen offers more than just pizza, including pasta, salads, desserts, beer, wine, and soft drinks, it is the pizza that it is famous for. With sales in 1995 rapidly increasing over the 1994 figures, and with 78 restaurants operating in 18 states, the company intends to continue its aggressive expansion policy.

The founders of California Pizza Kitchen are Larry Flax and Rick Rosenfield. Flax, a native of Los Angeles, California, was educated at the University of Southern California Law School and served as an Assistant United States Attorney during the early 1970s. In that capacity, Flax worked as Chief of Civil Rights and as Assistant Chief of the Criminal Division for the United States Department of Justice. Rosenfield, a native of Chicago, worked as an attorney for the U.S. Department of Justice in Washington, D.C., and as Assistant U.S. Attorney for the Central District of California. Having met while pursuing their respective careers as assistant federal prosecutors, the two men struck up a friendship during the early 1970s and decided to form their own law firm. Concentrating on criminal defense cases, in 1984 the two partners found themselves arguing a case before a Superior Court Judge in San Francisco. Flax and Rosenfield strongly believed that the facts of the case were in their favor, but the jury was unable to reach a verdict. Disillusioned by the hung jury, the two young men decided to leave the legal profession to seek a more rewarding career.

During their partnership, Flax and Rosenfield had offered legal services on a national basis, and in the course of their business travels they had sampled restaurants across the country and developed an enthusiasm for good food. Resolving to turn their enthusiasm into a business opportunity, they decided to open a restaurant. The two entrepreneurs took their lead from Wolfgang Puck, the master chef and owner of Spago restaurant in West Hollywood, who was known for creating pizzas with unusual toppings; the pair saw an opportunity to bring innovative pizza like Puck's to the mass market. The first California Pizza Kitchen was opened in Beverly Hills in 1985 and was an immediate success.

The strategy behind California Pizza Kitchen was simple. The owners wanted to provide a casual, upscale, family restaurant, with good food as the cornerstone of the enterprise. Most of the chain's kitchens are out in the open, so customers can watch the cooks preparing their pizzas. The restaurants are decorated with white tile to provide a clean, crisp atmosphere. The pizzas are baked in wood-burning ovens imported from Italy, whose designs had been perfected over a period of a few hundred years. The oven is fired to approximately 800 degrees Fahrenheit, and the pizza is cooked in three minutes in order to sear the ingredients. This results in a tastier--and, according to some cooks, a healthier--pizza. The partners were committed to creating designer pizzas with unusual toppings, such as duck sausage, Tandoori chicken, and goat cheese, an approach that not only attracted customers not normally inclined to eat pizza, but also enabled the company to take advantage of food trends within the industry. When the owners added pasta, salads, soft drinks, liquor, and desserts to the menu, California Pizza Kitchen was on the road to success.

Although the company struggled during its first few years of operation and incurred some debt, sales of its pizza were always increasing. The company's big break came in 1989 when the flamboyant chairman of Golden Nugget casinos, Steve Wynn, struck a deal with Flax and Rosenfield to put a California Pizza Kitchen in the Mirage Hotel and Casino. Located in Las Vegas, the heart of the U.S. gambling industry, the new restaurant garnered $5.5 million in sales during its first year of operation. On weekends, according to the restaurant's manager, tables were turning over between 16 to 25 times within a 13-hour period. Unfortunately for Flax and Rosenfield, they didn't own the restaurant in the Mirage Hotel and Casino. Wynn had arranged an unusual California Pizza Kitchen franchise. Yet the publicity that came from the success of the restaurant in Las Vegas opened doors to new opportunities in other parts of the country. Real estate developers were soon lobbying to place a California Pizza Kitchen in strategic locations for new malls and commercial developments.

In 1992 PepsiCo Inc., located in Purchase, New York, bought a 50 percent interest in California Pizza Kitchen, which it later increased to 67 percent. In addition to its line of soft drink products, PepsiCo owned Pizza Hut, KFC (formerly known as Kentucky Fried Chicken), and Taco Bell. Management at PepsiCo wanted to gain more experience in operating full-service, moderately priced, casual-dining restaurants. The deal was finalized for $97 million, with Flax and Rosenfield receiving $20 million apiece, and PepsiCo assumed two seats out of the four on California Pizza Kitchen's board of directors. Not surprisingly, two of Taco Bell's officers were chosen for the two seats on the board. Flax and Rosenfield remained as co-chairs of the board of directors with 50 percent voting control, and continued to direct the day-to-day operations of the company. The only change PepsiCo required in the agreement was for California Pizza to replace the sale of Coca-Cola products with PepsiCo's line of soft drinks.

The arrangement between PepsiCo and California Pizza Kitchen seemed to be a gift to Flax and Rosenfield. At the time of the deal, California Pizza Kitchen was generating approximately $60 million in annual sales from all its restaurants, with each one averaging a little over $3 million. The number of employees had reached 1,700, the number of operating restaurants had risen to 25, and the ambitious entrepreneurs were pursuing a strategy to open a new unit each month. Although the owners were contemplating a public stock offering in order to continue their expansion program, they decided to accept PepsiCo's offer due to the generous terms of the agreement. Flax and Rosenfield realized that PepsiCo management wanted to learn how to run an operation like theirs, and they were more than willing to teach people at PepsiCo what they knew in exchange for limitless expansion capital. Each new restaurant was costing nearly $1 million to open over an eight-month period, and Flax and Rosenfield did not want to interrupt their aggressive expansion plans.

California Pizza Kitchen was opening restaurants in upscale office buildings and pricey malls and as free-standing units in affluent areas. The company's restaurants were primarily located throughout the greater Los Angeles metropolitan area, but new units were opened on a monthly basis in major cities across the country, including Chicago and Atlanta. Except for two franchises in Las Vegas, and a limited partnership in Chicago, all of the restaurant units were owned by Flax and Rosenfield. Delighted by the chain's success, PepsiCo management was especially intrigued by the part played by the waitstaff in California Pizza Kitchen's achievement. When PepsiCo officials visited a number of California Pizza Kitchen units located in various areas of the country, they discovered an inordinately friendly and helpful staff of waiters and waitresses at each restaurant. Impressed by the process of selection, training, and retainment of employees, PepsiCo was determined to learn how to apply these techniques to its own restaurant operations.

The partnership between PepsiCo and California Pizza Kitchen flourished from the very beginning. By the end of 1993, Flax and Rosenfield were operating 35 restaurants across the country, and were planning an ambitious expansion drive of 50 new units per year in both 1994 and 1995. In 1993 the restaurant industry honored Flax and Rosenfield with the Golden Chain award, one of the plaudits that the partners found most satisfying out of all the accolades they received.

As their successes multiplied, Flax and Rosenfield began to devote even more attention than before to the development of personnel, which included over 3,000 workers, 160 of whom were kitchen managers and general managers. Not only were the two men driving forces behind better service, but through their constant concern with internal coaching and promotion, they enhanced their employees' career opportunities. A former waiter and cook who had joined the company when it was only one month old was promoted to vice-president of back-of-the-house operations; a unit-level assistant manager became front-of-the-house operations vice-president; and the company's first waitress in the Beverly Hills restaurant became vice-president of training. The former lawyers also worked to improve the pay scale and benefits of their workers, securing, for example, a $2.3 million deal in special compensation and bonuses for company executives through negotiations with parent PepsiCo.

Throughout all of these developments, the focus of California Pizza Kitchen remained the food. The company offered 29 different pizza flavors, including duck sausage pizza, Thai chicken pizza, two-sausage pizza, tuna-melt pizza, mixed grill vegetarian pizza, goat cheese pizza, and eggplant Parmesan pizza, with prices ranging from $6.95 to $11.95.

The year 1994 was one of the best to date for the company. California Pizza Kitchen added 28 restaurants to reach a total of 70 units operating in 15 states and the District of Columbia. Sales also shot up to the $120 million milepost, a dramatic increase of 60 percent over the previous year. Surprisingly, only 40 percent of revenues were coming from the company's pizza menu: other items such as corn soup and barbecue chopped chicken salad were selling just as well. Per unit annual sales were still hovering around the $3 million mark.

By the beginning of 1995, California Pizza Kitchen was operating 78 restaurants in 18 states and in the District of Columbia. New food toppings and combinations were continually being added to the pizza menu, as were as a host of new items such as Chicken Tequila Fettucine and Tuscan Bean Soup. Although Larry Flax and Richard Rosenfield remained firmly in control of the day-to-day operations of the restaurant chain, new management personnel from PepsiCo were becoming more and more an integral part of the company's decision-making process.