Sbarro Looks Beyond Food Courts in Post-Bankruptcy Comeback Bid

Sbarro Stand-Alone Location

Sbarro's updated look. Source: Sbarro

  • CEO is trying to freshen the brand with stand-alone locations
  • Restaurant chain emerged from its second Chapter 11 last year

Sbarro, the pizza chain synonymous with shopping-center food courts, is venturing outside the mall.

After filing for bankruptcy twice in the past five years, Sbarro is staking a comeback on becoming a more traditional pizza chain -- complete with stand-alone locations and delivery guys -- putting it in closer competition with Pizza Hut, Domino’s and Papa John’s.

Long known for selling pizza by the slice in cafeteria-style eateries, Sbarro is now focusing on “off-mall locations,” the first four of which will open next month around Columbus, Ohio. These new restaurants will be out in the open, beckoning to customers with an updated logo.

A new stand-alone Sbarro restaurant. Source: Sbarro
A new stand-alone Sbarro restaurant. Source: Sbarro

Gone from the menu are a host of pasta dishes and other Italian entrees that weren’t selling well. The company is betting that a tighter focus on its sometimes-maligned pizza will drive a turnaround after nearly a decade of declining guest traffic.

“There’s a great deal of loyalty and support for the pizza,” David Karam, Sbarro’s chief executive officer since 2013, said in an interview. “It was obvious to our team that what we needed to do was really tighten the brand.”

Brooklyn Roots

Sbarro, founded in Brooklyn in 1956 by Italian immigrants, emerged from its second bankruptcy a little over a year ago. Karam said the first Chapter 11 filing, in 2011, was “flawed,” leaving the company with too much debt and too many poorly performing restaurants. In the second go-round, Sbarro closed about 200 company-owned restaurants and eliminated nearly all of its debt. The chain has now been profitable for five consecutive quarters, Karam said.

As it stands, Sbarro has roughly 800 restaurants, roughly half of which are in North America. The company is remodeling its existing locations, which are mostly in airports and mall food courts. The company won’t abandon those restaurants, but malls don’t attract as many as shoppers as they used to. Sbarro’s customer traffic declined every year for almost 10 years, though the company has seen a 3 percent rise so far in 2015, Karam said.

Sbarro will end this year having opened about 40 net new stores, most of them overseas. Going forward, Karam wants to add between 100 and 200 new locations per year, with about half of those in the U.S. The company is owned by Apollo Global Management, Guggenheim Investments and Karam himself, who combined hold about 75 percent of the outstanding shares. Karam’s family has owned Wendy’s restaurants for decades, and he previously served as president of the burger chain.

Image Problem

Sbarro is going to great pains to emphasize the quality of its pizza, which it says is made with whole-milk mozzarella that is shredded each day in restaurants and dough that’s hand-tossed. To hear the company tell it, Sbarro’s pizza was never the problem. The perception of the chain’s food suffered because it had pasta, eggplant parmigiana and other Italian dishes sitting out on steam tables.

Sbarro had lost focus on its pizza and became a “vague Italian eatery,” said Anne Pritz, Sbarro’s chief marketing officer.

“It caused a lot of confusion and led to Sbarro losing its way for a little while,” she said in an interview. “We owe it to the consumer to focus on what our brand has done well for nearly 60 years -- that’s the ingredient and quality story. We haven’t done a good enough job explaining that.”

Chipotle-Style Chain

In addition to creating stand-alone Sbarro locations, the company is also developing a more upscale pizza-and-pasta chain called Cucinova Urban Italian. That business is focused on the fast-casual market, a segment of the food industry epitomized by Chipotle and Panera Bread. Sbarro debuted the chain in late 2013 and currently has three locations, joining at least 20 other companies that are battling to become the so-called Chipotle of Pizza.

Sbarro faces an uphill battle in changing the perception of its brand, which is strongly tied to food courts, according to Darren Tristano, an executive vice president at the research firm Technomic. That business model was rooted in having a captive audience of diners who had limited options when shopping or traveling.

Now, as Sbarro ventures into stand-alone locations, the competition is much stiffer. Sbarro is going up against chains that are already adept at taking online orders and delivering pizza efficiently.

“Even if they improve everything, they still have to get consumers to recognize that they’re doing something different,” Tristano said. “The consumer identifies Sbarro with the food court. They have to be very careful recognizing who they are and what they do well.”

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