The China Squad: Incredible Pizza looks at China expansion

The Springfield-based company is exploring the Chinese market with an eclectic crew that includes a real estate broker and an architect.

Commercial real estate broker Galen Pellham is spearheading the venture, which could result in an Incredible Pizza restaurant/game room open in China by 2009. Tentative plans call for at least 10 stores there.

Pellham, a former architect and current owner of Pellham Commercial Realtors, established Pellham Commercial International LLC in December to facilitate the expansion of American companies into China, the world’s most populous country.

Incredible Pizza is Pellham’s first crack at the foreign market, proposing the Chinese expansion late last year after he brokered two land deals with Incredible Pizza owner and founder Rick Barsness.

The key to China

While Pellham may be the catalyst for Incredible Pizza’s possible overseas expansion, Hong Tai Li is the key.

Pellham hired Li, an architect from China, 11 years ago when he was a partner in Pellham-Phillips Architects and Engineers. Seven years ago, Pellham moved on to commercial real estate. Last year, Li moved on to architecture firm Butler, Rosenbury & Partners. But Pellham and Li never lost touch.

Li has numerous Chinese business contacts, through which he’s helped Pellham-Phillips and BRP design buildings in China, including Pellham-Phillips’ work in 2003 on Nine Dragons Lake Hotel – a $13 million, 400,000-square-foot resort hotel in Guangzhou, China.

Now, he and Pellham may be able to help Incredible Pizza break into a country with 1.3 billion potential customers.

“The hardest thing in China is communication,” Pellham said. “We have Tai Li, who can be our communicator.”

Research and investors

Pellham’s daughter and employee, Melanie Pellham, traveled in October to China on an exploratory trip.

Joining her were Joyce Buxton, designer and principal in Buxton-Kubik-Dodd Interiors & Architecture, and Stephanie Shadwick, architect at BRP. Buxton and Shadwick, however, traveled on their own behalf.

This fall, Pellham plans to spend 10 days in Beijing, Dong Guan and Shanghai doing research with his daughter, Li and two Incredible Pizza executives: CEO Marc Simon and Director of Franchise Development Scott Axon, who is leading the company’s efforts in China.

The expansion could be a mixture of corporate and franchise restaurants, though that’s one of many aspects that remain undetermined.

Another is the composition of the investor group. Pellham will likely be an investor, though the other investors from southwest Missouri and China are unknown. Company officials have said they are not considering raising capital through a public offering.

To answer their many questions, Axon – also a business broker for The Kingsley Group and Incredible Pizza board member – and other Incredible Pizza brass are seeking outside help.

CEO Simon previously served as vice president for corporate development of McDonald’s Corp., and Axon said they are using his and other connections to meet with and pick the brains of executives who have successfully brought American brands to China.

Axon said research is critical to success. He offered this example: “Wal-Mart … is doing a very good job over there now, but they went over there and fell on their face for a year because they didn’t do their homework. It’s a great (and) interesting case study. Then they figured out, ‘We can’t just drop an American Supercenter in Beijing and have it work.’ You have to tailor it to their culture. We’re not nearly as big as Wal-Mart, and failure is not an option.”

Axon said the food offerings might have to be adapted to appeal fully to Chinese people, although there are pizza restaurants in China already.

Pellham said he’s convinced that Incredible Pizza’s game rooms will be popular in China. He points to the facts that most Chinese people don’t own homes or cars, there is a rising middle class with expendable income, and parents only have one or two children because of government restrictions, allowing them to freely spend money on their children.

Priorities

Axon expects the first Chinese Incredible Pizza restaurant to open in three to four years.

Pellham thinks it could happen as soon as 18 months from now.

Either way, Axon said domestic expansion remains the company’s top priority.

Incredible Pizza has nine stores open now in Missouri, Oklahoma and Texas and about 80 franchises sold.

Controlled growth is their goal, brushing off inquires for opening restaurants in Canada, Europe and the Middle East, according to Axon.

The second priority is supporting Mexican franchisee Gonzalo Barrutieta Losada. Last year, Mexican businessman Barrutieta bought the rights for 20 Incredible Pizza restaurants south of the border. The first is slated to open in May in Monterrey, Mexico.

“Converting our system to the Spanish language and the Spanish culture has been a pretty significant thing for us,” Axon said. “We realize that converting our system to the Chinese language and the Chinese culture is going to be quite a bit bigger than that.”

The third priority is expanding into China.

“We are extremely excited about it,” said founder Barsness.

An Incredible Journey to China: Key Connections

1996 – Pellham-Phillips Architects and Engineers hires Chinese architect Hong Tai Li and the dominoes are set in motion.

2002 – Incredible Pizza opens Springfield flagship store in August.

2003 – The Li effect is felt as Pellham-Phillips begins work on Nine Dragons Lake Hotel in Guangzhou, China.

2004 – Incredible Pizza opens its second location, in Tulsa, Okla., and begins franchising.

2006 – Li joins architecture firm Butler, Rosenbury & Partners, and BRP begins working in China. In September, Pellham-Phillips founder and current real estate broker Galen Pellham buys the first of two properties from Incredible Pizza and proposes Chinese expansion to Incredible Pizza, which already has about 80 domestic franchises sold.

2007 – Pellham and Incredible Pizza executives research China and plan for fall trip to there.

2009 – First Incredible Pizza restaurant in China could open.