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McDonald's to Buy Chain of Pizza Restaurants

Fast food: Burger giant will acquire Donatos' 143 eateries. More dinner traffic is goal, analysts say.

May 06, 1999|GREG HERNANDEZ | TIMES STAFF WRITER

McDonald's Corp. said Tuesday that it agreed to purchase Donatos Pizza Inc., a Midwestern chain of 143 restaurants--a move analysts viewed as an effort by McDonald's to grab a bigger bite of the dinner market.

Financial terms of the deal, expected to be completed by July, were not disclosed.

The pizza chain, based in Columbus, Ohio, had sales of about $120 million last year and is best known for offering pizzas that have toppings all the way to the edge of the pie. It was founded in 1963 by Jim Grote and will continue to be run as a stand-alone business by his family.

McDonald's Chief Executive Jack Greenberg said in a statement Tuesday that the deal "represents a great opportunity over the long term to learn more about another quick-service market segment."

The purchase of Donatos comes less than a year after McDonald's bought a minority stake in the 16-unit, Denver-based Chipotle Mexican Grill chain. That was the firm's first-ever equity investment in another restaurant concept. Then, last month, McDonald's bought Aroma Ltd., a British chain of cafes that specialize in coffee and sandwiches.

But the purchase of the larger Donatos chain, which owns and franchises restaurants, appears to be McDonald's largest foray outside of hamburgers. It's a move that some experts say is a smart one.

"Many fast-food chains that aren't in the pizza or chicken category are looking for ways to build their dinner business," said Robert L. Sandleman, a restaurant industry analyst based in Brea. "Pizza and chicken are stronger at dinner than lunch, so it makes sense for a burger chain to try and figure out how they can fill more seats."

Sandleman points to Tricon Corp., owner of Taco Bell, Pizza Hut and KFC, as a company that has found a way to stake out both the lunch and dinner crowds by having different strengths.

Oak Brook, Ill.-based McDonald's is the world's dominant restaurant chain with more than 12,000 domestic locations with almost as many locations overseas. The restaurants account for about 7% of the nation's $244 billion in annual restaurant sales.

"McDonald's continues to be the undisputed king," Sandleman said. "They have the most locations, and convenience is still a very important aspect in terms of where people are going to go. McDonald's is also far and away the largest breakfast player, which gives customers another reason to visit them."

Still, McDonald's attempts at building market share have fallen flat in recent years. One example was the recent failure of its Arch Deluxe sandwich, which cost an estimated $100 million to develop and market.

Last year, McDonald's began rolling out new kitchens and phasing out the familiar warming tins that held batches of burgers for up to 10 minutes. The new kitchens feature bun warmers, high-tech holding bays to keep cooked meats hot and moist and a computer system that will help crew members more accurately predict what customers will order.

Also in 1998, McDonald's announced its first-ever corporate staff cuts and dispatched top executives to five regional headquarters--including Irvine--in response to complaints from franchisees that executives had grown increasingly isolated.

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