The casual-dining chain is expanding its grocery store presence to realize incremental sales and increased brand awareness for franchisees looking to grow in new markets.
California Pizza Kitchen is no stranger to the grocery licensing business.
The chain launched frozen pizzas with Kraft in the late '90s and transitioned to Nestlé in 2010. Today, the segment is valued at north of $230 million, according to IRI, a market research firm with expertise in CPG.
"It is a significant business and something we're very proud of. And particularly proud of a partnership with Nestlé and how they've helped us grow that business," says CPK CMO Scott Hargrove.
In 2020, CPK leadership took a harder look at expansion into new retail categories. It had been laser-focused on the core business and nurturing its relationship with Nestlé, but Hargrove admits the company wasn't fully appreciating the power of the brand. So CPK moved to align its retail strategy with menu mix, which means salad dressings, pasta sauces, salad kits, and more. The restaurant approached a broker to facilitate a new retail partnership, and the brand eventually went with Litehouse, the No. 1 player in refrigerated salad dressings.
Earlier this year, CPK launched seven new salad dressings across the U.S.: Thai, Caesar, Ranch, Italian, BBQ Ranch, Sriracha Ranch, and Citrus Poppy Seed. The products are in all major retailers (Walmart, Kroger, Albertsons, Safeway, Food Lion, HEB, and others at a starting retail price of $4.49) except Target. Thus far, the salad dressings are exceeding performance goals. The frozen pizza business is too, for that matter, with a record second quarter.
It's a favorable turnaround for a brand that was in bankruptcy proceedings for most of 2020 due to the pandemic's overwhelming impacts.
"Our culinary team worked hand-in-hand with [Litehouse's] culinary team," Hargrove says. "We did start with our CPK philosophy of creative collisions and taking the spirit of our menu. But ultimately we wanted to make sure that what we were delivering at retail was right for that guest, which is a little different. They tend to lean more heavily into traditional ranch, traditional Caesar, and Italian. So we wanted to deliver on those core take-home dressing categories while at the same time delivering on the restaurant."
CPK went with Litehouse for two reasons, Hargrove explains. First, it was because of the company's experience. The pizza chain didn't have any presence in the retail salad dressings market, so it wanted an organization that brought "gravitas" to the table. And although Litehouse sits atop the refrigerated dressings market, it had a clear vision around taking CPK's dressings into the shelf-stable category, which is a much bigger space.
What really pushed CPK to the finish line was its shared philosophy with Litehouse around innovation, the consumer, and fostering a winning culture.
"I mean, we couldn't be more different on the surface," Hargrove says. "We're here in Costa Mesa, California. Southern California born and that's who we are. They're up in Sandpoint, Idaho, but they have a very similar culture to ours. They put innovation first. They make decisions thoughtfully and carefully with consumers at the heart of everything. It was just a great culture fit, and you couple that with their business vision, we knew we had a winning partner."
Inside CPK's restaurants, pizza accounts for 30-35 percent of sales, making it a top priority. Salads and pasta each comprise 15 percent and will inspire future innovation. The chain is closely exploring prepackaged salads and pasta sauces. Hargrove says the brand has "good traction with partners and we anticipate sharing some big news shortly."
To the CMO, the most significant benefit of CPK's retail presence is incremental revenue. Secondly, partnerships with companies like Nestlé give the restaurant access to expanded resources. The two sides share innovation pipelines, creative material, and strategy.
"You can imagine combining a restaurant brand with the size of a Nestlé and now the size of a Litehouse and all three of those things begin to grow to a place of a real strategic powerhouse," Hargrove says. "We are so much stronger in partnership across all those things."
A third pro is the increased marketing support that drives awareness in existing markets and provides an entry point into new markets. What underscores this point is CPK's frozen pizza sales, which are strongest near brick-and-mortar strongholds in San Diego, Los Angeles, Washington, D.C., Atlanta, and Florida. However, the No. 1 market is Charlotte, North Carolina, where the closest restaurant is in Durham, North Carolina—more than 150 miles away. South Carolina, Alabama, and Seattle and Tacoma, Washington, are other areas without a major restaurant presence but perform strongly in retail.
It bodes well for CPK's domestic franchising program, which kicked off in December 2021. According to the brand's website, it's focusing on the Northwest, North Central, Northeast, Southeast, and South Central areas of the U.S. while the Southwest region will be dedicated to company growth. The chain finished 2022 with around 160 restaurants in the U.S.
"If I’m a franchisee thinking about the partnerships, I'd be really excited," Hargrove says. "It's strengthening the business and the brand overall. It's strengthening the brand and new markets and creating an opportunity for a new franchisee to launch a new restaurant in a new market with a tailwind of brand awareness and positive brand attributes. They're not starting from scratch."
Hargrove believes there are many best practices to learn from CPK's CPG journey. The most important lesson is quality over quantity. When the chain began the process to expand its grocery store presence, it received a lot of inbounds for a variety of categories, but ones that weren't necessarily true to the brand or its menu.
Several were temping, attractive, and showed promise of big sales and correspondingly big royalties, but CPK remained patient. The company waited for a partner that met its cultural standards, and it was rewarded for it.
"Moving slowly, carefully, and thoughtfully is always going to trump moving fast and chasing that big juicy growth number because these retail partnerships take time and you want to be working with a partner that you trust and is truly on the same page," Hargrove says.
