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Donatos: How a can’t-miss business plan fell apart

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  • Lessons learned

    Joe Drury’s reflections on the failure of his Donatos pizza franchise, which at one time comprised 25 restaurants:

    Stick with what you know. Drury spent decades in fast food but admits he didn’t know much about the pizza business. That led him to be caught by surprise when competition heated up.

    Stay hands-on. With Donatos growing so quickly, Drury said he wasn’t always able to be involved in the day-to-day activities. That’s a big mistake in a fledgling business, he said.

    Learn to let go. By the end, Drury said he was spending more than 70 percent of his time on the failing Donatos when his other businesses need attention. He also said he paid bills out of his own pocket beyond what he should have. Andrew Dunn

Charlotte fast food veteran Joe Drury and his cadre of investors had an ambitious plan – to bring more than 200 Donatos pizza franchises to the Carolinas over the course of a decade.

It was the largest franchise deal the Ohio-based chain had ever done. And it seemed as though it couldn’t miss: Drury had made a name for himself as a protege of legendary Wendy’s founder Dave Thomas, and had just capped a run as Bojangles’ CEO, during which he revitalized the chain before selling it to an investment group led by Hugh McColl and Jerry Richardson.

But five years later, his plans for Donatos have fallen apart.

After years of losses, Drury has had to all but walk away from his fledgling pizza empire. Drury had built 25 Donatos locations stretching from Hickory to the Triad. They have all since closed. The Donatos in SouthPark is owned by a former business partner.

The millions of dollars Drury made by selling Bojangles’ are all gone. Along the way, he faced lawsuits, eviction proceedings and strained relations with creditors.

Drury now spends much of his time in Johnson City, Tenn., trying to rebuild his finances through the chain that gave him his start, Wendy’s.

“It’s cost me a lot to get to this point, but now everything that I’m involved in is profitable,” Drury told the Observer. “Now it’s a matter of stabilizing. That’s all I’m working on now.”

His experience highlights the competitiveness of the restaurant landscape in Charlotte and the difficulty in launching a franchise, even with a track record of success and big-name investors.

Industry experts say the Donatos pizza chain got caught between two broader trends – mass-market pizza moving toward rock-bottom prices and high-end artisanal pizza shops with elaborate sit-down environments.

“I learned a very costly lesson,” Drury said. “If I could have done it again, I would have never have gone off into pizza. I should have just stayed in fast food.”

Working up the chain

Drury, 61, had already spent decades in the fast-food business when he brought the Donatos name to North Carolina.

He worked through high school at a local Ohio burger joint, and joined Wendy’s when his boss became a franchisee in the 1970s. He began working his way up the organization, and was brought to Charlotte in 1992 from the company’s Dublin, Ohio, headquarters to help manage a set of restaurants a previous franchisee had put into bankruptcy.

Throughout that decade, Drury expanded the Wendy’s franchise through the Carolinas. By 1997, he owned more than 80 Wendy’s stores in the two states.

The next year, he was part of a group that bought the Charlotte-based Bojangles’ chain, which at the time was struggling. He later became CEO, and doubled the number of restaurants in his six years at the helm.

He sold the company in 2007 to a group led by Richardson, the Carolina Panthers owner, and Falfurrias Capital Partners, the private equity firm co-founded by McColl, the retired Bank of America CEO.

It was then he turned his attention to a restaurant empire of his own.

Buying spree

In 2006, Drury had made the first of several business deals with new restaurants.

Along with Charlotte businessmen Cameron Harris and Keith Stoneman, and Charleston businessman Darrell Ferguson, the “Front Four” bought the Just Fresh Bakery Cafe and Market chain for an undisclosed amount. At the time, it had 10 locations in the Charlotte area and Washington, D.C.

They hoped to open 15 more stores in the next three years and compete head-to-head with Panera Bread. “This concept’s got the capability of doing hundreds of stores,” Drury told the Observer then.

Two years later, the Front Four struck an even more ambitious deal with the Cincinnati-based Donatos Pizza chain to bring its signature thin-crust pizza to the Carolinas. Plans called for more than 200 stores by the end of this decade.

By 2010, Drury had opened 25 locations in the Charlotte area with more than 200 employees, a rapid expansion he said was a bid to gain market share and provide the scale to make television commercials effective.

At the time, he acknowledged the competitive pizza landscape in Charlotte, but said there was a market for a more expensive, higher-quality takeout pizza concept in the city. A large Donatos pizza tended to cost about $20, where the traditional take-out place in the city would run you about $12.

“Whoever’s got the best food and the best service, in that order, wins,” he told the Observer in 2010, echoing a sentiment he said he learned from Wendy’s founder Thomas. “Even though it’s a competitive market, it always comes down to the food, and who can out-operate.”

The new restaurant chain made a splash at first, Drury said. Sales were strong, and he began building more stores.

Things fall apart

But the cracks in the business model were soon evident. The financial crisis and recession didn’t help.

Just Fresh closed locations in Huntersville and Matthews and continued to lose money. As the recession deepened, pizza competitors such as Domino’s dropped their prices to lure cash-strapped consumers.

“There was no way I could compete,” Drury said. “If I sold pizzas for $10, there was no way I could survive.”

Drury tried it anyway, losing money on every pizza he sold, to try to get his market share back. But sales began to fall month after month.

He said he began paying the restaurant’s bills, advertising and bank debt out of his own pocket.

That took a toll on his personal finances. He sold an office building he had invested in, land, a house and family farm. Suddenly he found his household on a tight budget, and even his college-age children could feel the stress.

“The big guys didn’t let me get a foothold because they know what I’m capable of doing,” he said. “They just buried me.”

Industry veterans say Donatos was in a difficult spot – caught between the Domino’s of the world who have the scale to lower costs, and the higher-priced chains that aim to sell the atmosphere as much as the food.

“They probably just grew too fast and had larger aspirations than maybe what the market could bear,” said Wendy Dimitri, a Charlotte-based restaurant consultant for the CRB Group.

Eviction proceedings began in a number of the chain’s locations, court records show. Creditors and tax agencies filed dozens of judgments in small claims court. Most of them were ultimately settled. Eric Mower and Associates sued over nearly $200,000 in unpaid advertising bills, court records show.

One by one, the nearly two-dozen Donatos restaurants closed. Drury said he tried to preserve jobs by bringing employees from closed locations into those that were still open.

By mid-2011, Drury realized that the restaurant chain wasn’t going to survive. The roughly 200 people who worked at Donatos at its peak were out of work.

“It was sucking the life out of me. I spent just about everything I had to keep it going,” he said. “At some point in time, you have to say enough is enough. It’s the first time in my life I’ve had to walk away from something.”

Just Fresh was a bit of a different story. Drury said its fortunes have been on the upswing and the restaurants turned a profit last year after years of Drury ponying up to cover losses. Still, the company was sued by NewDominion Bank in October for nonpayment on about $75,000 in loans.

Drury, Harris, Stoneman and Ferguson each sold a portion of their stake in the restaurant chain to Chanticleer Holdings in a deal that closed in November. The holding company known for controlling overseas Hooters restaurants now has control of Just Fresh.

Chanticleer paid $560,000 for the chain, of which more than $430,000 went to pay off debt the company had incurred.

“In life, if you swing the bat, you’re going to hit the ball sometimes and sometimes it’s not going to work out. Joe has proven that he’s been incredibly successful, but some things he did just didn’t work out,” said Mike Pruitt, CEO of Chanticleer. “It has no effect on my decision-making process with Just Fresh.”

What comes next

With other investors, Drury bought a string of Qdoba Mexican Grill restaurants in 2008 and more Wendy’s restaurants in the Johnson City area of Tennessee in 2010. Both of those investments are going well, Drury said. Now, that’s where he’s spending the majority of his time.

Tom Lewison, who served as chief operating officer of Bojangle’s under Drury, runs the Qdoba business.

With Drury’s consent, Harris opened his own Donatos restaurant inside a shopping center his family owns. It remains in operation. Harris said he hasn’t been involved with the management of Just Fresh or the Donatos franchise in several years. He declined further comment. Stoneman could not be reached.

Drury said at this point, he’s moved on from the Donatos experience. You get better by learning through failure, he said.

“I’ve put together 20 companies, and only one didn’t make it. I will come back,” Drury said. “One failure out of 20, that’s not a bad track record. But it was a big one, wasn’t it?”

Dunn: 704-358-5235; Twitter: @andrew_dunn
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