Califonia Pizza Kitchen Case

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Date Submitted: 09/21/2012 11:40 AM

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California Pizza Kitchen

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Inspired by the gourmet pizza offerings at Wolfgang Puck’s celebrity-filled restaurant, Spago, and eager to flee their careers as white-collar criminal defense attorneys, Larry Flax and Rick Rosenfield created the first California Pizza Kitchen in 1985 in Beverly Hills, California. Known for its hearth-baked barbecue-chicken pizza, the “designer pizza at off-the-rack prices” concept flourished. Expansion across the state, country, and globe followed in the subsequent two decades. At the end of the second quarter of 2007, the company had 213 locations in 28 states and 6 foreign countries. While still very California-centric (approximately 41% of the U.S. stores were in California), the casual dining model had done well throughout all U.S. regions with its family-friendly surroundings, excellent ingredients, and inventive offerings.

California Pizza Kitchen derived its revenues from three sources: sales at company- owned restaurants, royalties from franchised restaurants, and royalties from a partnership with Kraft Foods to sell CPK-branded frozen pizzas in grocery stores. While the company had expanded beyond its original concept with two other restaurant brands, its main focus remained on operating company-owned full-service CPK restaurants, of which there were 170 units.

Analysts conservatively estimated the potential for full-service company-owned CPK units at 500. Both the investment community and management were less certain about the potential for the company’s chief attempt at brand extension, its ASAP restaurant concept. In 1996, the company first developed the ASAP concept in a franchise agreement with HMSHost. The franchised ASAPs were located in airports and featured a limited selection of pizzas and “grab-n-go” salads and sandwiches. While not a huge revenue source, management was pleased with the success of the airport ASAP locations, which currently numbered 16. In early 2007, HMSHost and CPK agreed to...