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After a strong year, Fazoli’s starts thinking big

The fast-casual Italian chain says its sales have thrived over the past year, thanks to its drive-thrus, setting it up for unit growth for the first time in a decade.
Fazoli's comeback
Photo courtesy of Fazoli's

Carl Howard has been the CEO of the fast-casual chain Fazoli’s for nearly 13 years now. Throughout that time he has been its most eager ambassador, telling anyone who would listen in any forum he could about all of the things his chain was doing.

But nothing could get the job done quite like the pandemic. “What COVID did for us was something I could never afford with this little brand,” Howard said. “I’ve been telling people how great our food is. I’ll go head-to-head with Olive Garden and I’ll blow them out of the water.

“COVID brought in people who had fewer options. Their favorite restaurant was closed or shut down temporarily. We exposed people to our great food and our $8 price point.”

Howard said that the chain’s same-store sales hit double digits last summer and never relented, hitting 20% in January before taking off in March along with along with just about everybody else. The chain generated record sales weeks throughout the month.

Those results have the chain thinking bigger—as in more locations, for the first time in years. The chain has put in place a number of incentives that are getting operators to start building, and Fazoli’s is already on pace to open more units this year than it has in a decade.

Fazoli’s has opened two new locations this year and has 11 locations under construction. It also signed 11 new franchise agreements in the first three months of 2021. “At a minimum we’ll open 14 restaurants this year,” Howard said. It expects to add 25 to 30 locations next year. Whenever it does add more than 20 units, it will be the first time the chain has reached that level in two decades.

“We’ve never done anything like this,” Howard said. “Not in my 12 and a half years as the CEO.”

For a time, Fazoli’s appeared to have all the potential of other fast-casual concepts like Panera Bread and Chipotle. It was created in 1988 by Jerrico Inc., then the owner of Long John Silver’s, as a fast-casual Italian chain that specialized in items like Baked Spaghetti and gave out free breadsticks to customers eating inside.

The chain was quickly sold to Seed Restaurant Group and expanded rapidly, in part through a joint venture with McDonald's for 20-30 stores. McDonald's had an option to buy the brand, but passed, exiting the joint venture after a year.

Fazoli's operated more than 300 locations by the late 1990s and had plans for an initial public offering and further expansion—but neither happened. By 2006 Fazoli’s was struggling and was sold off to Sun Capital Partners. The chain was still in steep decline by 2008 when Howard was brought in. Previous management took odd steps, such as ending its practice of handing out free breadsticks.

In the years since, Fazoli’s under Howard has made a lot of changes to the company’s technology and its menu, and it brought back the free breadsticks. Same-store sales have risen steadily in the years since, but unit count hasn’t followed. The chain was sold in 2015 to Sentinel Capital Partners.

Fazoli’s operates 213 restaurants now, 11 fewer than a decade ago, even though average unit volumes are more than 20% higher, according to data from Restaurant Business sister company Technomic.

Howard, however, believes the pandemic has changed the company’s trajectory. After the chain’s same-store sales plunged after the outset of the dining room closures a year ago, they began to return, hit the teens in the summer and have been accelerating this year. “We’ve been on fire,” he said. “We’re shattering every record.”

“The pandemic has forever changed our AUVs,” he added.

Fazoli’s has been aggressively remodeling its restaurants, even through the pandemic. And with dine-in service curbed or stopped altogether the chain had employees with tablets taking orders in the drive-thru—where it also handed out breadsticks. “We just went car to car to car,” Howard said.

The chain is now aggressively pushing new units—especially conversions. The chain is offering free royalties and franchise fees in the first year of operation for conversions, an incentive that helped generate the new franchise agreements so far this year. It has signed 20 new agreements over the past year, a record number for the brand.

Howard said two franchisees have recently been able to open in converted units, one a former Pizza Hut and another a former Steak n Shake. Both cost $300,000 for the operator to open. “If you have a good year, you can get a return on your investment in year one,” Howard said. “I’m all amped up.”

Howard acknowledges that what happened in March is in part a phenomenon of stimulus payments. But he is confident that the company will come out of this stronger. The chain expects to complete the bulk of its remodel program this year, and the new units will get the company growing again, for the first time in years.

“It’s a completely different brand,” Howard said. “We’re taking a 30-year-old brand and doing a complete remodel. Given its history, that’s a big accomplishment. And now we’re getting the company growing again.”

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