MOD Pizza—A Dynamic Up & Comer
Roger is an investment professional with decades of experience specializing in chain restaurants and retailers, as well as macro-economic monetary developments. He turns his background, as restaurant operator and board member of growing brands, into strategic counsel for operators and perspective for investors.
An archive of his past articles can be found at RogerLipton.com.
MOD Pizza, based in Bellevue, Washington was founded in 2008 by Scott and Ally Svenson,. The Svensons had built two successful food service companies while living in England. The first, Seattle Coffee Company, was sold to Starbucks in 1998, and Scott stayed on as President of Starbucks Europe. The Svensons were also involved with the founding of Carluccio’s Ltd, a chain of Italian restaurants, which went public in the UK in 2005 and grew to 35 locations by 2008.
After returning home to Seattle with their four children, the Svensons foresaw the emergence of “fast casual” pizza, a segment which didn’t previously exist. To our knowledge, MOD was the “first mover” in this regard. The Svensons started MOD pizza with the intention of making a positive social impact in the communities it serves, and a “people first” culture. The MOD experience provides customers the opportunity to create and customize their own pie for one price as they move through the ordering line choosing their ingredients. The pies are rapidly cooked in a 700-degree oven and served super-fast in about 8 minutes, including both preparation and cook time.
Rapid Store Growth Accompanied by Substantial Capital Infusions
The first location opened in downtown Seattle in 2008. The second location opened in early 2010 and there were five locations, in a variety of settings by late 2011. With about $7 million of expansion capital provided by the Svensons and other early stage investors over the 2012 and 2013 fiscal years, expansion took the chain to 14 locations by year-end 2013. MOD raised an additional $14 million in March of 2014, and by year-end 2014 there were 31 stores in AZ, CA, CO, OR, TX, and WA, all but one (franchised in CO) were company operated.
During calendar 2015, MOD closed an additional funding round of $45 million and grew to a total of 92 locations—80 company operated and 12 franchised ones, having signed a small group of experienced multi-unit operator franchisees. During calendar 2016, $77 million of additional capital was raised and 100 net new locations were opened, bringing the total to 192. During calendar 2017, $33 million of additional equity was raised, led by previous investors, bringing the total equity raised to about $179 million, and a $40 million credit facility was also established. Net new openings in 2017 totaled 110 systemwide, building on its prior year base by an impressive 57%. During calendar 2018, 102 net new units were opened (on a base of 302), 77 by the company, 21 by franchisees, and four by their UK joint venture partner. Just announced in May of 2019, MOD raised an additional $160 million in equity funding led by Clayton, Dubilier & Rice, a private equity firm, bringing the total equity raised to $339 million.
Within the 404 total units at the end of 2018, the Company operated 302 locations with franchised partners operating 93 and their UK joint venture partner operating nine. MOD is now represented in 28 states and the U.K., after entering one new state (AL) during 2018.
System-wide sales were $398 million in 2018 (a year-over-year increase of 45%), netting MOD $312 million (a year-over-year increase of 42%) from company store revenues plus initial franchise fees and ongoing royalties. Domestic system-wide same-store sales were a positive 3.1% in 2018, bringing its two-year same store sales growth to 8.2%. The Company expects to continue its strong store growth in 2019 and beyond, with targeted unit growth of approximately 100 stores per year over the next five years, which would approach 1,000 units in total, with the majority of the openings expected to be company operated.
Highly Qualified Management Team
The Company has been dedicated to building a strong corporate operating team, prepared to make the necessary investment in people. In terms of executive talent, Paul Twohig serves as President of MOD and was the former President of Dunkin Donuts US and Canada. John Maguire is the COO and was previously President and Chief Executive Officer of FIC Restaurants Inc. (Friendly’s restaurants) and Johnny Rockets Group. Prior to that he was COO of Panera Bread. Mark Shambura is the CMO and previously led the marketing team at Chipotle Mexican Grill, and Bob Barton, CFO, was formerly the CFO & VP of Operations of the publicly traded drugstore.com.
Scott Svenson (CEO) and Ally Svenson (Chief Purpose Officer) have built and inspire an operating team focused on making a positive social impact and a people first culture. “Spreading MODness,” the idea of using the business as a platform for positive social change, was demonstrated in 2018 by, among other things, a contribution of over $1.8 million to support local communities and Squad members in need. These contributions, achieved with the help of MOD franchisees, included the delivery of nearly 450,000 meals as part of a continued effort to address childhood hunger in partnership with Generosity Feeds. MOD’s strong connection and social impact with Squad members, consumers, and the community at large continue to be reflected by various awards during 2018. It is noteworthy, and consistent with the corporate culture, that the first loyalty program and mobile app, introduced in 2019, has a points to dollar structure that also gives customers the option to donate their points to charity.
MOD, the fastest growing restaurant chain in the United States for the past four years according to the Technomic Top 500 Restaurant Report 2015-2018, with a dynamic leadership team, supported by deep pocketed financial backers, has built an admirable company to this point, and provides every indication of continued success.