1300 Nicollet Mall, Suite 5003
Minneapolis, Minnesota 55403
Telephone: (612) 288-2382
Fax: (612) 827-6446
Incorporated: 1994 as Buca di Beppo
Sales: $71.5 million (1999)
Stock Exchanges: NASDAQ
Ticker Symbol: BUCA
NAIC: 722110 Full Service Restaurants
BUCA's mission is to provide a real immigrant, Southern Italian neighborhood-dining experience. Only the freshest high-quality ingredients will be used in our restaurants. Our food will be as expressive as our Italian heritage. We will search for, and retain, only the most sincere and enthusiastic team members. The quality and integrity of our staff will be the catalyst for our commitment to the service of our guests and the profitability of our company. Our teamwork and humor will create tremendous loyalty among our team and guests, making us sought after by each. Our long-term growth strategy is to continue expanding into markets of 400,000 people or more across the U.S. To that end, the company intends to select appropriate restaurant sites, effectively manage development risks, recruit qualified personnel and raise additional capital as necessary.
1993: Buca di Beppo opens its first restaurant in a Minneapolis basement.
1994: Parasole Restaurant Holdings, Inc. acquires Buca di Beppo.
1996: Buca spins off from Parasole through a share dividend of common stock.
1997: Buca launches a period of rapid expansion.
1999: The company completes its initial public offering.
Buca, Inc. is an industry leader in terms of growth in the number of restaurants it oversees. The company owns and operates 51 full service, dinner-only restaurants under the name Buca di Beppo. Its restaurants are located in 18 states as well as the District of Columbia. Buca ranked third in Restaurant Business Magazine's year 2000 ranking of 50 top growth chains and ninth in Corporate Report's performance rankings for 2000. Industry analysts ranked Buca among the ten best restaurant stocks for 2000, and the chain was recognized as one of 17 'best of' designations in a variety of readers' polls across the United States and in numerous restaurant publications, including Bon Appetit. Buca di Beppo (meaning 'Joe's basement') restaurants differentiate from other Italian restaurant chains by providing distinctive oversized Southern Italian family style portions in a casual, festive, humorous, socially interactive atmosphere. Appealing to nostalgic trends, the décor at each of Buca's restaurants irreverently exaggerates the clichés of traditional postwar neighborhood Italian/American restaurants. In terms of scale, Buca thinks big: large food portions, large tables, and large restaurant size with an average seating capacity of 300.
Founding a Concept: 1993
In 1993 Philip A. Roberts and cofounders Don W. Hays and Peter J. Mihajlov launched Buca di Beppo. The following year Parasole Restaurant Holdings, Inc., established following the merger of several privately held restaurant companies that had been cofounded by Roberts and Mihajlov, acquired Buca and took over its operations. Roberts, Hays, and Mihajlov each had extensive industry experience leading up to their collaborative venture. Prior to his involvement in Parasole, Mihajlov served in a variety of marketing and business management positions within the Pillsbury Company. Don Hays had been involved in the restaurant industry since 1964, working as director of operations for Dayton's restaurant division; and Roberts had worked in several privately held restaurant companies since 1977.
The founders agreed to pay homage to the bygone era when waves of immigrants from southern Italy sailed to the United States 'with little more than a rich culinary heritage and a zest for life.' The concept, as envisioned by Phil Roberts, evolved as an attempt to imitate the family-run restaurants established by immigrants in urban centers throughout the country. Roberts, a non-Italian, said he had originally been inspired by a restaurant in Florence, Italy, commenting that he was impressed with its 'communal quality, people laughing and talking, pouring wine, sharing the meal,' according to Nation's Restaurant News. He decided to replicate that type of dining atmosphere.
The first Buca restaurant opened in a crowded Minneapolis basement adorned with mementos of Italian heritage: posters, statues, colorfully painted murals, and photos of Dean Martin, Joe DiMaggio, Sophia Loren, and Frank Sinatra&mdash¯ong scores of others. Despite the difficult-to-find location, Buca's memorable menu, large portions, and colorful ambiance caught on. Crowds withstood Minnesota's sub-freezing temperatures to wait in lines outside the restaurant.
Once inside, customers read from large menus on the walls that included a broad selection of antipasti (appetizers), salads, pizzas, pastas, and entrees that included chicken cacciatore, fried calamari, veal lemone, and eggplant parmigiana. Buca's spaghetti and meatball dish included 2½ pounds of pasta and three baseball-sized meatballs that weighed ½ pound each. Each platter was intended to serve from three to five guests. The desert menu included 'chocolate drenched cannoli, spumoni ice cream, or a quart-sized bowl of rum and espresso-soaked tiramisu.' According to a Minneapolis Star-Tribune article, the Buca concept worked because in addition to offering quantities of flavorful Italian food, it 'feeds an American hunger for community.'
Before long, a second Buca opened in suburban St. Paul. It catered to a different demographic, but proved equally successful. Ivy and bottles of wine hung from ceilings, and a large 'Pope's Table' provided seating for 14 to 18 guests. The Pope's Table featured a centerpiece bust of Pope John Paul II on a lazy susan, an apt symbol for the cultural reverence surrounding food and mealtime--and a provocative conversation piece. By 1995, a third Buca opened in the Twin Cities suburb of Eden Prairie, followed by the first out-of-state Buca, which opened in Milwaukee, Wisconsin. Buca restaurants soon expanded from Minnesota and Wisconsin to Washington, Indiana, California, and Illinois.
1996: Recruiting Proven Leadership
In 1996 Joseph P. Micatrotto, a second-generation Italian immigrant, was hired by Buca to lead the company's national expansion by taking on the positions of chairman, president, and CEO. Micatrotto had spent much of his youth working in his family's Italian restaurant business. He had earned an M.B.A. from Miami University in Ohio, and decided by 1975 that his future would embrace the hospitality industry. Micatrotto began his career with a three-store, 24-hour family restaurant chain, Hall's Waffles, located in the southern Ohio area. Seeking an opportunity for more formalized training, Micatrotto embarked on a new venture as managing partner and general manager for Steak and Ale Restaurants Corporation--then considered the leading 'premier restaurant' chain in the nation. Next, Micatrotto undertook a position as franchise general manager of Chi-Chi's Mexican Restaurants, where he played an instrumental role in the company's expansion from 26 units to a 270-store chain with sales in excess of $500 million. His performance led him to become Chi-Chi's president and CEO, where he remained until accepting a position as president and CEO of Panda Management Company, Inc. in 1995. Micatrotto expanded Panda from 85 to 225 units in 29 states, increasing sales from $85 million to $150 million, making the company the country's largest and fastest growing privately held Chinese foodservice company. Commenting on his move to Buca, Micatrotto said that assuming leadership of Buca di Beppo restaurants 'felt like coming home.'
Under Micatrotto's leadership, Buca began preparations for major expansion. In 1997, Buca surprised analysts by raising $16.3 million in venture capital, the largest investment sum received by a Minnesota company for that year, according to the accounting firm Coopers & Lybrand. Ralph Weinberger, a partner in Coopers & Lybrand who tracked the venture capital industry for the firm, commented, 'If you ask somebody what a venture capitalist invests in, the first words out of their mouth wouldn't be restaurant.' Venture capital firms typically put money into technology, healthcare and communications rather than retail concepts and restaurants. However, the company promised investors that it would initiate rapid growth on a tight schedule. Micatrotto told a City Business writer that 'all the money goes right back into the business,' including excess money generated by the restaurants. Micatrotto reasoned that the newer the company, the 'more susceptible we are to making a mistake,' and that as a private concern, any mistakes will not drive down share prices. Honoring its promise, Buca management was operating 11 restaurants by the end of 1997 and planned to open an additional eight in 1998, scattered from middle America to the Pacific Northwest and southern California.
Buca developed its 'Paisano Partners Program' as part of its marketing strategy, one that revolves around the local partner. It was a way to lure dedicated talent into the enterprise. The program, which includes a training period, stipulates that restaurant general managers purchase Buca stock, receive stock options, and share in the company's profits. According to Micatrotto, 'When you tie in value creators--the general managers--and make them shareholders, that's the definition of capitalism.' Partners are encouraged to make appearances on local morning TV programs or cooking shows in lieu of most other forms of advertising. The chain does only a small amount of print advertising and uses direct mail primarily to establish a presence when it opens a new location.
Micatrotto and Phil Roberts make regular visits to villages south of Rome and sample from mom-and-pop restaurants. Buca's executive chef, Vittorio Renda, a native of Calabria, Italy, has sometimes spent up to two months adapting the recipes for the Buca menu. As a traditional accompaniment to its food offerings, Buca began importing an Italian white wine from Tuscany, a blend of 80 percent chardonnay grapes and 20 percent Malvasia grapes, shipped in basket bottles, under the Buca private label. The first shipments debuted in Buca's restaurants in December 1998. Within a year the company was daily serving more than 1,000 liters of its white wine. By 2000, it sold more Chianti than any other restaurant chain in the country.
Expanding Revenues: 1999
Following Buca's initial public offering in April 1999, the company's stock jumped by more than 50 percent on its first day. New restaurant openings and a 7.3 percent same-store sales increase for the 12-month period ending in July 2000 boosted total revenues 88 percent to $56.52 million, up from $30.01 million (representing a $2.49 million loss) for the comparable period of the previous year. Buca executives named an improvement in operating margins as the major reason for the positive turn in earnings. Operating margins were 16.9 percent for the first half of 2000, compared to 15.3 percent for the same period of the prior year. According to Nation's Restaurant News, Micatrotto explained, 'Our ability to negotiate stronger purchasing contracts in a number of key products has impacted product costs favorably in 2000.' The company showed steady, continuous growth but did not make the mistake of too aggressive expansion, which often encumbered chains. Buca opened 17 restaurants in the year 2000 with plans to open another 17 in 2001, bringing the grand total to 68. The new restaurants averaged $56,000 per week in sales for the year, 25 percent higher than what was projected. Its market strategy following the IPO targeted metropolitan areas with 800,000 or more people that could support multiple Buca restaurants. The plan called for 32 restaurants to open in at least 17 markets by year's end.
Buca's marketing strategy also involved planning so that new sites opened ahead of the lucrative holiday season, since the restaurants were suited to celebratory gatherings. Fourth quarter earnings for the company had consistently been the highest. Most restaurant openings occurred prior to November to enable the company to take full advantage of the holidays. Buca reported strongest startups in markets where it already had a presence and an established reputation. The 49th restaurant opened in Cincinnati, Ohio, and recorded record-breaking sales volume of over $92,000 in its first week.
Buca announced in May 2000 that it was restructuring its real estate organization in order to separate site selection and construction operations. The intent was to allow the real estate function to focus exclusively on finding optimum sites for new Buca restaurants. Micatrotto reported in a press release that tremendous progress had been made in reducing construction costs for new restaurants. He said, 'This management realignment will strengthen the ties between the construction and financial functions and enable us to further reduce our building costs by taking advantage of the economies of scale of multiple construction projects.' In addition to the 17 new restaurants starting up according to schedule in 2000, the company negotiated deals for opening another ten for 2001.
For the long term, the company envisioned at least 450 restaurants spread across the country. Micatrotto said in a Minneapolis-St. Paul City Business interview that he believed that this was a very reasonable, probably even conservative, estimate. Buca planned to maintain control of the company's direction by keeping nearly two-thirds of the stock in the hands of its directors and early investors. John Waley, venture capitalist and partner at Norwest Equity Partners of Minneapolis, remained the largest shareholder with 1.4 million shares, or 14.5 percent of the company. According to Micatrotto, 'When you have a great concept and people have a proprietorship mentality, that is the formula for success.' He added, 'Our vision is to be the dominant immigrant Southern Italian restaurant in the United States.'
Principal Divisions: Midwest; Central; Texas; Northeast; Florida; southern California; West.
Principal Competitors: Brinker International, Inc.; Carlson Restaurants Worldwide Inc.; Darden Restaurants, Inc.; Spaghetti Warehouse, Inc.; Applebee's International Inc.
Berta, Dina, 'Restaurants Focus on Importance of Culture to Recruit and Retain Staff,' Nation's Restaurant News, December 11, 2000, p. 16.
Cebrzynski, Gregg, 'Buca di Beppo: To Grandmother's House We Go,' Nation's Restaurant News, May 11, 1998, pp. 90--92.
Crumm, David, 'Italian Eatery Serves Up Fun, Food,' Detroit Free Press, July 9, 1999.
Farkas, David, 'Italian Stallion,' Chain Leader, July 2000, pp. 52--60.
Huber, Tim, 'Buca Gets Big Venture Helping,' CityBusiness: The Business Journal of the Twin Cities, April 17, 1998, p.20.
Montgomery, Christine, 'Buca di Beppo Adds Extra Touch,' Washington Times, June 3, 1999.
Rosengren, John, 'Gluttons for Growth,' Corporate Report Minnesota, June 1999, p. 21.
Tellijohn, Andrew, 'Beaucoup Open Nationwide,' Minneapolis-St. Paul City Business, September 29, 2000, p. 5.
Source: International Directory of Company Histories, Vol. 38. St. James Press, 2001.