Strategic Merger Aims to Save the Pizza Franchise From Potential Bankruptcy
Elite Restaurant Group has acquired MOD Pizza, the 500-plus-unit fast-casual franchise specializing in pizzas ordered cafeteria-style, with customers choosing from among 40 toppings. The merger gives Elite Restaurant Group 100% equity in MOD Pizza, the franchise disclosed to the news media. Rumors circulated recently that MOD was considering bankruptcy, although last week CNN had quoted brand spokesman Rick Van Warner as saying the franchise was regrouping toward salvation.
MOD Pizza has struggled in the wake of declining traffic, a sad turn from the mid-to-late 2010s when it was a top performer among restaurant chains. In April 2016, for example, Technomic pegged its cumulative year-over-year sales growth at 220%. In February 2020, just before the Covid pandemic began its rampage, MOD reported system-side sales of $493 million for 2019, a year-over-year increase of 24%. MOD Pizza had year-over-year sales growth of 44.7% in 2018 and 80% year-over-year growth in 2017, according to Nation’s Restaurant News.
MOD Sidesteps Bankruptcy
The MOD Pizza franchise opened 21 stores last year, for a total of 552 sites in the United States and Canada, a Franchise Times article said. But on July 3, MOD disclosed that it had shut down 44 restaurants. The Los Angeles Times article said it was not known whether the brand will close additional sites. The investment required to open a MOD location ranges from $1 to $1.3 million, Franchise Times said.
CNN’s report noted that the merger with Elite Restaurant Group helped MOD Pizza avoid the plight of some other fast-casual restaurant chains, most notably Red Lobster, which filed for Chapter 11 bankruptcy in May. At that time Red Lobster had reported debts exceeding $1 billion and just $30 million in cash on hand. It listed 99 closures in 28 states, according to a May article by USA Today.
About Elite Restaurant Group
There isn’t a lot known about Elite Restaurant Group. The Los Angeles Times reported that Elite also owns Patxi’s Pizza, Daphne’s California Greek, and the Slaters 50/50 burger chain. Restaurant Business, in an article about the MOD merger, said Elite also owns family-dining chain Marie Callender’s. In terms of unit count, it’s the biggest known deal so far for Elite, Restaurant Business also stated.
A USA Today report quoted a statement from Michael Nakhleh, leader of Elite Restaurant Group, as saying: “MOD has an outstanding culture and passionate, loyal guests and employees. We recognize the inherent value this represents and look forward to helping MOD write the next chapter in its history.”
In her comments about the merger, MOD Pizza CEO Beth Scott said, “MOD is a beloved brand with a strong following. We’re excited to work with Elite Restaurant Group to strengthen MOD’s future.” Scott was named CEO of the pizza chain in January of this year.
What Caused MOD’s Downfall?
Two key causes appear to be responsible for MOD Pizza’s heading down a slippery financial slope. In its article about the merger, Restaurant Business said some industry analysts blamed overly fast expansion for causing the problems.
But Jim Salera, a restaurant industry analyst at Stephens, told the Los Angeles Times that the restaurant industry as a whole has experienced a dent in demand, and that modestly priced restaurants such as MOD Pizza, are among the hardest-hit. “The consumer, especially the lower-end consumer, is facing a lot of headwinds in the economy,” Salera said. “They need to make decisions on how they allocate their budget and they’re tightening their belt.”
