NEW ADS ALREADY UNDER FIRE AT LITTLE CAESARS: FRANCHISEES RAP STRATEGY SHIFTS, MANY HOLD BACK NATIONAL AD FEES

For years, franchisees of Little Caesar Enterprises wanted the company to ditch its humorous ad approach and focus on the pizza. The new national TV campaign from Bozell Worldwide, Southfield, Mich., does just that. The new creative shows pizzas "talking" about how good another looks and features long, panoramic shots of the product. But you still won't see many franchisees jumping for joy. INCONSISTENT MARKETING Many say they've been hurt by years of declining sales and high equipment costs in part because of the company's inconsistent marketing strategies. Some are suspicious of the "quality" campaign and wonder how long it will last. "I don't have a lot of confidence that this is going to turn it around," said Jeff Welsh, a former franchisee who filed for Chapter 11 bankruptcy protection this year and dropped the Little Caesars name from his nine stores in the state of Washington. He remains president of the Independent Organization of Little Caesars Franchisees, a group created in November to improve ties with company management. It's made up of franchisees that are not involved in an ongoing class action lawsuit against the company. "The customer doesn't know who Little Caesar is anymore," Mr. Welsh said. "You had the short emphasis on delivery, the Italian Kitchen [a store with a varied Italian menu] and the Big! Big! They have not had a good, consistent message." He favors TV spots that focus on value, since that's been the company's emphasis for years. Mr. Welsh said any message marketed on TV and in print advertising has to last longer than six months. "You have to try something for a year or so and stick with it," he said. DECLINING SALES Little Caesar's sales have been stagnant or in decline each year since 1994, according to estimates by Technomic, a restaurant consultancy that tracks the fast-food industry. Little Caesar is still the nation's No. 3 pizza chain, with $1.8 billion in 1997 U.S. systemwide sales, but market share was 8.4% in 1997, down from 8.5% a year earlier, according to Technomic. The number of franchised stores has dropped from 3,483 in 1994 to 3,288 in 1996, according to Little Caesar's 1997 franchise offering circular. Company-owned stores also declined from 1,023 in 1994 to 657 in 1996. Same-store sales have suffered also, franchisees said. One who owns three stores on the East Coast said his weekly sales used to average $9,000. Now he said sales don't reach $6,000. "Part of the problem is how corporate has made 180-degree turns," said the franchisee, who requested his name not be used. "We got into spaghetti and dumped that. They told us to dump fountain service and get rid of the equipment, then told us to bring it back, and they abandoned the Italian Kitchen. Meanwhile, our competition keeps getting more and more fierce." INDUSTRYWIDE SLUMP Michael Ilitch Sr., chairman of Little Caesar Enterprises, has said in the past that pizza sales are declining industrywide. "When the sales are there, everything is fine," Mr. Ilitch said publicly in March. "They go bad, and it's my fault." Pizza sales have slowed compared to other fast-food businesses. Pizza showed only a 2.8% sales growth from 1996 to 1997, according to Technomic. Meanwhile, fast-food chicken sales grew 5.5%, sandwiches 5.4%, hamburgers 3.9% and Mexican food 3.8%. Franchisees pay 4% of their gross to the company's national advertising campaign. But Gary Smith, a franchisee in Orange Park, Fla., who is leading a class action lawsuit against the company, said at least 25% of franchisees have not paid the fee. He bases that on communications he's had with other store owners as president of the Association for Little Caesar Franchisees, founded in 1991. Every franchisee interviewed by Crain's Detroit Business said they knew many colleagues who were not paying the fee. Mr. Welsh said most stopped paying simply because they couldn't afford it. He also said many stopped out of anger that they had to pay the 4% fee in addition to the regular 5% royalty when Little Caesars was not on national TV for much of 1998. The company cut ad spending from $53 million in 1996 to $34.6 million in 1997, according to Competitive Media Reporting. FEE `INEFFECTIVE' "It's hard for franchisees to make money when you put 4% of your gross into an ad campaign that doesn't bring in one-third of what it should bring in," Mr. Welsh said. The advertising fee program "has been ineffective for years. I don't think this campaign is going to have enough gross rating points." Whether the campaign can revive Little Caesar's sales depends on how much the company is willing to spend on the ads and on the product, said Don Boroian, chairman of Francorp, an Olympia Fields, Ill.-based franchise consultancy. "It's a matter of ad dollars and being able to deliver on what they're saying," he said. "The ads bring the customer in once. The ability to deliver on your promise will bring them back. But those ads have to run frequently. They're competing with Pizza Hut and Domino's, both of whom outnumber them in ad spending." Pizza Hut spent $147 million in advertising in 1997, according to CMR. Domino's will spend about $120 million in 1998, according to Advertising Age. FOLLOWING UP ON AD CLAIM Some franchisees said the company is backing up the advertising by changing pizza specifications. A Midwest franchisee said the company recommends putting 2 more ounces of cheese on pizza. "The good thing is that this ad campaign is being followed up," he said. "If they stay consistent and if they stay on TV, that will help. It's a step in the right direction, and they have to start somewhere." Mr. Kosdrosky is a reporter for Crain's Detroit Business.

NEW ADS ALREADY UNDER FIRE AT LITTLE CAESARS: FRANCHISEES RAP STRATEGY SHIFTS, MANY HOLD BACK NATIONAL AD FEES

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