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Is an IPO in MOD Pizza’s future?

Its latest funding round gives the fast-casual pizza chain plenty of cash to accomplish its goals, with a public offering possible down the line.
Photograph: Courtesy of Mod Pizza

MOD Pizza’s latest funding round, a $160 million investment led by Clayton, Dubilier & Rice (CD&R), does a lot of things for the fast-casual pizza chain.

It will help the company add more units, with plans to get to 1,000 within five years, and it will enable MOD to keep investing in technology that’s becoming more important to the chain’s consumers.

But it will also help the company stop trying to raise growth capital.

“The downside of being successful is, if you get to build more units, you get to fund them,” Scott Svenson, co-founder and CEO of MOD Pizza, said in an interview with Restaurant Business. And that isn’t always easy, he said.

“We have sufficient capital now to last for quite some time. This funding puts us in a position where we control our destiny. How fast we grow, how we fund ourselves going forward. It gets us to where we’re self-sustaining.”

To be sure, MOD has made fundraising look easy. The chain has raised $339 million to date, and its shareholders include highly regarded investment firms PWP Growth Equity and Fidelity Management and Research Co.

And while MOD can go into the future knowing it is on the road to sustainability, those investors will ultimately need to realize their investment, meaning an exit. How that looks remains to be seen, but Svenson indicated that an initial public offering is one of the options.

“We haven’t landed on a plan” for providing a return to shareholders, Svenson said. “We could one day be a public company. But at the moment it’s not on our radar screen. It’s not something we’re committed to.

“We have time. We have the ability to control our destiny from here on out.”

MOD has been one of the fastest-growing restaurant chains in the U.S. in recent years. It finished 2018 with more than 400 locations, and today has 433. System sales rose 45% last year, according to data from Restaurant Business sister company Technomic. And they have grown more than fivefold since 2015.

“We turned 10 years old last November,” Svenson said. “On our 5th birthday, we had 12 stores around Seattle. On our 10th we had 400 stores. Over a five-year period, we grew rapidly and entered a lot of new markets.”

The company believes it can continue to open locations at its current rate, around 100 restaurants per year, and get to the 1,000-unit level in short order.

To get to that point, however, the chain does have to make some changes. That includes more technology.

MOD, like many of its fast-casual rivals, was built for the eat-in business, as customers customized their pizza and either ate inside or took it with them. As digital orders and technology have grown in importance, however, the chain has had to embrace more online ordering, delivery and takeout. Such orders have doubled at the chain over the past year. And the company has plans for more.

“The way I think about it, we are a brand built based on people coming to our stores and experiencing MOD,” Svenson said. “We never delivered pizza. We built our business for on-premise. But when you build a brand people love, customers are going to want it on their terms.”

MOD is “leaning into delivery” and has tested “multiple drive-thrus.” It is also looking for strategies to invest in its mobile app and digital experience. It also has a new loyalty program.  

“We’re not planning to turn MOD into a delivery business exclusively,” Svenson said, noting that he could see a day when 20% to 30% of the business comes through that channel. “That would dilute the magic of the brand.”

The latest funding round gives the company the ability to keep investing in those strategies. But it’s also a confirmation of the chain’s business model, Svenson said. That business model includes a combination of profitability and social impact.

MOD has built a loyal workforce by focusing on employing a diverse set of workers and lowering barriers to employment, such as incarceration and homelessness. It donated $1.8 million to local organizations last year, for instance.

“Three sophisticated institutional investors have looked at our business and unique model and voted with their checkbooks,” Svenson said.

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