Things were finally looking up for Sbarro in 2019. Five years after the company emerged from a very public bankruptcy filing, the venerable pizza chain was showing some results in terms of sales.
The pandemic hit the next year. For a brand that almost fully depended on malls, it was devastating. “We really weren’t sure we were going to be effective at making it through,” CEO David Karam said.
The brand did make it through. And four years later, it’s almost as if the pandemic never happened. Sbarro’s system sales grew 21% last year, according to Restaurant Business sister company Technomic. The chain said it just opened its 700th restaurant last year.
The company expects to open as many as 120 new locations this year. And same-store sales are up 20%, Karam said.
“It looks like it’s sustainable,” he said.
Sbarro has done this, Karam said, by not trying to be something it isn’t. This is a concept that serves New York-style pizza by the slice to people who are traveling or shopping. And there is plenty of growth in that.
“We accepted the limitations of the brand,” Karam said. “What we’re known for is New York-style pizza by the slice and items that complement that, like stromboli. It’s the essence of the brand.”
Sbarro was founded in 1956 by Italian immigrants Gennaro and Carmela Sbarro, who opened an Italian grocery store in Brooklyn. It opened more locations in New York City. The couple opened in the Kings Plaza Shopping Center in Brooklyn in the 1970s, and the brand evolved to become synonymous with the shopping mall, a food court mainstay alongside such brands as Orange Julius and Cinnabon.
The chain grew to more than 1,000 locations and was sold to a private equity firm in 2007, just before the brand was hit with a combination of recession, high food costs and declining traffic at shopping malls. That pushed the company into bankruptcy in 2011.
Sbarro has found some success in universities such as Penn State.
Karam came on board the next year after a career in the Wendy’s system, most of it as a franchisee with Cedar Enterprises. “It was a brand struggling with an enormous amount of debt,” he said. “The first thing we did, we prevailed upon the owners at the time, which were some of the larger private equity firms, to take it through a second restructuring.”
Bankruptcy filings can be difficult to recover from, at least in part because of what it does to a brand’s reputation. Many consumers think it equates to going out of business. “It damages your reputation,” Karam said. “It damages your reputation with franchisees, vendors, landlords, etc.”
But it also gives companies an opportunity to cull underperforming locations and reduce or eliminate debt, which can provide a brand with financial freedom. As long as the owners make the right decisions and the right investment, a concept can grow coming out of it.
Sbarro had some strategies to reinvigorate growth, but many of them “really just didn’t work,” Karam said. “It was a moment that we really had to step back,” he said. “That led to a redrafting of the whole brand position. That was a real catalyst.”
That catalyst was to simply accept what Sbarro is: An impulse purchase of pizza. There is value in that. Consumers love pizza, even if they shift how they buy that pizza on occasion. It’s not like consumers stop loving pizza when they’re out and about. “We’re not selling sushi,” Karam said. “We’re selling a mainstream cuisine.”
The company needed to honor its operating procedures, Karam said. It needed to ensure its ingredients were “best in class,” while Sbarro continued to make its dough fresh every morning and shred its own cheese. And it needed to put its pizzas and strombolis out to show off to those passers-by and create that impulse. “When we stepped away and took a look at it, we realized this was the essence of the brand,” Karam said.
The problem went back to those malls. “To be a vibrant brand, we had to be more than just a mall food court operator,” Karam said.
Sbarro is also finding success in travel centers.
Indeed, there is a bigger potential for the brand outside of malls but keeping with its strategy as an impulse purchase: Travel centers, convenience stores, colleges and universities, casinos, airports and tourist sites.
Once the company embraced what it was, “we worked to identify the venues we can grow in,” Karam said. And that led the chain to other non-traditional locations.
Sbarro also embraced third-party delivery early in its history, Karam said. While sales were initially modest, he felt it was important to break the brand into the mainstream.
“With third-party delivery, that neutralized the historic disadvantage Sbarro had against the entrenched players,” Karam said. “We could go after that business. People love our pizza. If they can get it delivered at home without us having to incorporate a costly infrastructure, that was a strategy we needed to embrace.”
Delivery has since grown into a “significant piece of the business,” with some malls generating as much as 8% of their sales through delivery. Locations in more convenience real estate can generate as much as 25% of their sales through delivery. “It’s all incremental,” Karam said. “These are not transactions we would have ever seen.”
Sbarro was making progress on all this before the pandemic hit, which led to the widespread closure of malls and other such places where people gather. But Karam said that the company returned to its offices quickly and worked hard to get its locations open. And then the brand returned to aggressive unit growth in 2022. “Other than this mild pandemic we went through, it’s been a nice run for the last five years,” he said.
These days, the company is targeting international growth aggressively. International growth makes a lot of sense for the brand, given the flexibility and general popularity of pizza. The chain is now in 30 countries, Karam said, and recently opened in Panama, Denmark and Colombia. It will open in Chile later this year.
“It’s popular everywhere,” Karam said. “You just have to change the toppings.”
The brand is also not letting go of its first love, the mall. There are plenty of growth opportunities in the shopping mall left for Sbarro, especially now. And about 20% to 25% of its global growth is in the mall. “There are 1,000 malls in the United States,” Karam said. “We’re in about 250 of them.”
So, Sbarro may be coming back to a mall near you.