Donatos CEO Tom Krouse

Tim Fulton 00:09Welcome to the Confluence Cast, presented by Columbus Underground. We are a weekly Columbus-centric podcast focusing on the civics, lifestyle, entertainment, and people of our city. I'm your host, Tim Fulton. This week: "Every piece is important." For Tom Krouse, the outgoing CEO of Donatos Pizza, this tagline is more than just a catchphrase. With his departure coming up this fall, we sat down to talk about his journey at Donatos. We'll explore the key strategies behind their expansion, including the decision to focus on franchising, and the early adoption of online ordering technology. Tom also shares his thoughts on the importance of building the right team, having strong leadership processes, and how these factors were crucial to their success. You can get more information on what we discussed today in the show notes for this episode at theconfluencecast.com. Enjoy the interview. Sitting down here with Tom Krouse, the outgoing CEO of Donatos. Tom, how are you?

Tom Krouse 01:16I'm great. How are you?

Tim Fulton 01:18Good. Well, we want to talk today basically about your tenure there — what's next, what you've seen in the, I think, 24 years, one month that you've been there. So, why are you leaving, first of all?

Tom Krouse 01:31So, like you said, I've been with — I was 24 years — we brought my replacement on about two and a half years ago. And succession planning is something you really need to be thoughtful about, as a company. And we had a few people that had been in senior positions that we thought might be able to move into this role. And that didn't work out. So we went back and said, "Who is the best person that we can possibly have?" And that's a guy named Kevin King.

Tim Fulton 02:06Actually, was he internal before? Did he start in 2021?

Tom Krouse 02:10No, he started with us — he started the franchise department back in the early '90s, something like that. And then left, and went on to do some great things. And we're like, "Well, he knows the company, the culture of the company. He knows the family," which is important. It's still a family business. And he's had great experience growing a brand. He really was, like, the perfect person. It was just probably more than we were shooting for originally. And so we convinced him — actually, we convinced his wife, that was the first thing, that convinced him to come. And he's been here for two and a half years now. He's doing a great job. And, you know, I've been CEO for almost 15 years. That's like a generation, that's probably long enough. It's time. It's time for new.

Tim Fulton 03:07And you were the third, and Kevin will be the fourth? Is that right? Or the fourth CEO?

Tom Krouse 03:12I think I was the — I don't know, let's see, Jim, two, three — I was the fourth.

Tim Fulton 03:18Okay. He'll be the fifth. And so you made the decision a couple of years ago to do it. What was the impetus for that?

Tom Krouse 03:28Well, basically, I did this for 25 years, it's time. At some point, we needed to put ourselves in the right spot. And, honestly, I think a company needs fresh eyes over a period of time. Not that — I mean, I'm proud of everything that we've done while I've been here, but sometimes there are certain things you're not seeing, and I think it's important to bring some new people in. Now, the other thing I will tell you is, it is a family-owned business. We have our third generation that is working in the business now. Jane's kids are in the potential line to take senior leadership at some point. So we need to make sure we've got somebody that has the characteristics that can help them. And that diversity of experience...

Tim Fulton 04:16From Kevin — he went out, worked for two different companies, but again, knew the business. Right. So talk about the difference. This is your chance to gloat, yes: the expansion that you've done, from the time you were CEO to now, 29 states now. Where were you in before, like 12, 13? Okay. So talk about — that was an edict, I assume, from the family, to say, like, "Yeah, this needs to grow. Grow or die." How did you do that? What were you focused on?

Tom Krouse 04:50Well, there are some things that are maybe less sexy, but are super important. Do you have the right team? And when I say "right team," it's not just, are they great at what they do, but did they understand the culture? So you've got to make sure you have the right team. Do you have the right process, like leadership process, to be able to accomplish the things that you want to do? So we had to put the right people in place, had to put the right process — which was simply staying really focused on the most important things that we need to do to grow. Because companies — we do it, every company does — you get distracted, you start, you have a plan, but then you think, "Well, I should move over here." And sometimes, especially when you're a smaller company like ours, when you're diffused in your efforts, you don't accomplish what you need to. So those are the kind of foundational, I call it boring, things, but super important. There were two big pieces that the team accomplished. One was, we made a decision: if we're going to grow, the best way to do that is through franchising, versus building company stores. Do it through franchising. Generally, you can move quicker, because, number one, it's the franchise partner's capital, not ours. We don't have —

Tim Fulton 06:22It's easier to work with.

Tom Krouse 06:24Exactly. Billions isn't laying around. And probably more importantly, if you're going into Bowling Green, Kentucky, you want to partner with somebody that really understands Bowling Green, Kentucky.

Tim Fulton 06:22The market.

Tom Krouse 06:24The market, and the people. And you're just going to be a lot more successful. So we decided, first, we're going to grow through franchising. And then, what do we need to do? Well, we need the franchise partners to love our product, they love our culture. We needed to improve the cash return — that was the thing. And I'm not saying it was bad, it just wasn't super exciting. The amount of profit that you can make as a partner, as a franchisee, it needed to be better. So we doubled the profitability of an average Donatos in that time period. So once you do that, your current partners want to grow. People who want to be partners — because we call them franchise partners, but, yeah, basically potential franchisees who want to grow — they talk to the existing partners, they see that this is not only a great product and great people, but a good investment. So...

Tim Fulton 07:38And your partners, are they mostly owning, like, dozens of stores?

Tom Krouse 07:45No, it's kind of two groups. There are a couple of larger groups — we have a group that owns most of Cincinnati, and we have a group that owns Indianapolis — but the rest are three stores, five stores, in that range.

Tim Fulton 08:03Were you franchising when you started? Because you said you doubled it.

Tom Krouse 08:07Yeah, we were franchising when I started. I think we had 10 franchisees; we have 47 right now.

Tim Fulton 08:12Got it. And so that was your focus. And talk through — what was improving processes, I imagine?

Tom Krouse 08:21Yeah, processes. You know, top line was probably the biggest piece, like the top-line sales. And using technology, we got very aggressive with online ordering. In fact, we were doing online ordering, I think, before anybody else was. And we've perfected that to the point that, like, 90% of our business is ordered over the phone or online.

Tim Fulton 08:45Online, right, laptop or phone. And so the technology — because I imagine one of the top-line costs is labor rate — and so the technology piece allows you to basically hire fewer people, have them focused on being a customer-facing role. Like, that's the thinking there?

Tom Krouse 09:02Probably more so that it helped drive the top line, without increasing a whole lot of costs. I mean, it is true that you don't have to schedule people to answer the phones. They don't really want to answer the phones anyway, because they're busy making pizzas, right? And you can hear it in their voice: "What do you want?" So, by going to that — but we didn't really cut labor, we just improved the top line and kept the labor the same. That's part of the profitability equation.

Tim Fulton 09:33Got it. And you guys also — was it a switchover to do the baking, the dough, in-house? Or was that always the case?

Tom Krouse 09:41You know, I think Jim's been making the dough at a central location. So we make it, we have a plant in Blacklick. But I think he started that in the early '90s, if not before that. So we've grown it.

Tim Fulton 10:02And in terms of your — sorry to cut you off.

Tom Krouse 10:02No, no problem.

Tim Fulton 10:02In terms of your industry, what are the biggest changes that you've seen, either in the franchising space or the pizza space specifically? Like, what's evolved? Talk specifically about the pandemic, maybe, like, what's different?

Tom Krouse 10:20Well, definitely, the restaurant industry has changed dramatically, because the pandemic forced companies to learn how to bring food to people. We've been doing it for a long time. It's making us better at it. I mean, the competition, frankly, is making us better. Because it used to be, the only people that delivered food was pizza —

Tim Fulton 10:49Was you guys and Chinese food.

Tom Krouse 10:52Chinese food. I think KFC dabbled in it a little bit, but that was it. And now nobody thinks twice about, "We can have food delivered at home." So the competition is greater. So the restaurant industry — I think that third-party delivery, like DoorDash and UberEats, that has exploded. It's brought convenience to the customer. It's also brought more expense to the customer. I mean, deliveries are not cheap. And it's allowed some restaurants to expand their business who really weren't thinking about delivery or off-premise. That's probably the biggest one. Health, nutrition, continues to be important. My father-in-law started the company; it has always been way ahead on eating trends. I mean, before I got there, he was one step ahead of everybody else. But, you know, people have food allergies, it's important to have a gluten-free — we have two different gluten-free options. We took trans fats out early on, so having clean labels and things like that, that's more and more important. And I would say probably the other big change — and this is true, I think, in all business — is just a level of transparency between the customer and the brand, or the company behind the brand. It used to be, it really wasn't talked about, like, "Who is this company, and what do they stand for?" Customers didn't really care.

Tim Fulton 12:34Like, now people are going, "Where do you stand on this thing?"

Tom Krouse 12:37Right. And I come to work for Donatos, and I'm talking to Jim, and he has all these — some might say corny — sayings, like, "Treat others the way you'd like to be treated," or "Do the right thing." But I'm listening, and I'm watching this company, and I've got — this is really what Donatos stands for. It's all about that. And I told Jim — he never liked to accept awards and things like that, it's like, "That's bragging" — I go, "You could call it bragging, but people want to know what kind of company it is."

Tim Fulton 13:15Like, I feel better from somebody I like, somebody I can know, that supports their people.

Tom Krouse 13:23And that's huge. And with social media, you really can't hide behind some fake thing. I mean, I suppose some people do, but...

Tim Fulton 13:35Talk about your involvement in the community. You're a member of a couple of boards.

Tom Krouse 13:38Yeah, I'm on the board of CAPA, I'm on the board of Music Columbus. I used to be on the board of Harmony Project, I used to be on the board of Junior Achievement. But yeah, I'm interested in music and arts and culture in Columbus.

Tim Fulton 13:57You're a songwriter yourself. Before we started recording, you have a song that a lot of people hear sometimes.

Tom Krouse 14:05It's the funniest darn thing. I wrote a song called "The Hot Dog Boy." My eight-year-old son at the time — he's 24 now — he had an idea for a business that had these, like, gourmet, pimped-up hot dogs. They changed depending on the season or the holiday. So I started calling him "hot dog boy," and it made sense to write a song called "The Hot Dog Boy." And it turns out the Columbus Clippers have picked it up, and they play it every home game for the hot dog race.

Tim Fulton 14:39And full disclosure, we both root for Mustard.

Tom Krouse 14:42I mean, should we even talk about this now? Yeah, exactly.

Tim Fulton 14:48Talk about changes you've seen in Columbus. It's evolved, certainly, in the time that you've been here. And, sorry, we didn't say it earlier, you worked for Wendy's for 13 years before that. You're an Ohio State graduate. Sort of talk about — where'd you grow up? Sorry, I don't know.

Tom Krouse 15:04I grew up in Columbus, in Upper Arlington. I was born in Bowling Green, Ohio, moved down here with my family when I was young.

Tim Fulton 15:11Got it. Talk about the business climate in Columbus, and what you've seen change.

Tom Krouse 15:17Oh, man. I'll tell you the thing — and it's probably talked about a lot, but it is true, and it's different, because I've had exposure to other communities — the collaborative nature of this community is unique. I mean, it is businesses helping one another. Even within our category, we will tend to help other pizza players, and that's our competition. But if you think about it, if people like pizza, and pizza is regarded as a positive thing, it's good for everybody. You don't see that in a lot of other communities. When Columbus was awarded the Smart City grant, I think that was kind of a big step for us, to look at things differently, like, "What is it to be a great city?" And something like that, which levels up all technology. But the way the community came together for that grant, and what Alex and Jordan and those did to help that — I kind of look at that as a model for the cultural arts. And I want to see that with music. Because, you know, it's great to be a smart city, but it's probably as important — maybe you could make a case even more important — to be a creative city. How do you solve problems? How do you deal with rapid change, things like that? I think creativity is really — but we have a great creative community. I'd like to see a tighter infrastructure between the different arts and things like that.

Tim Fulton 17:14Yeah, I mean, GCAC does an amazing job.

Tom Krouse 17:14GCAC does an amazing job, but I think we all need to kind of pull together.

Tim Fulton 17:14Yeah. I think, first of all, yes, GCAC does a fantastic job, with all manner of things, especially distributing grants and that sort of thing. But I do see, absolutely, sort of a segmentation of, like — there's a difference between the symphony, the ballet, and then when you get down to individual artists. And one critique that I've had of the Arts Festival — and I realize now, it kind of has to be that way — but there's not a lot of Columbus representation in it, because these people are touring the country and doing arts festivals.

Tom Krouse 17:54Yes, I think this is changing. I really do. I think, in fact, at the Arts Festival, all the music this year was all from Columbus. Yes, all of it was from Columbus. And I think you're seeing conversations between the symphony, and Opera Columbus, and Music Columbus. We're hoping that we can help facilitate conversations that allow us to kind of take it to that next level. But there is — you've got to have infrastructure. And there are a lot of creative musicians from Columbus, that all of their economy goes outside of Columbus. How do we keep that in Columbus?

Tim Fulton 18:39Yeah, absolutely. So what do you see, back to Donatos — what do you see as basically Kevin's next big job, when you're gone in October?

Tom Krouse 18:50Just don't screw it up.

Tim Fulton 18:52Keep it for the kids. Yeah, exactly.

Tom Krouse 18:53You know, I think growing it. And I think the way to grow that is, it's kind of like patting your head and rubbing your belly a little bit. The rubbing-your-belly part is, how do we make sure that the average Donatos experience is the best that it possibly can be? I mean, it sounds like fundamentals, because it is, but how can our service be as reputable as our product reputation? How do we do that? And then, at the same time, be very open to growth. And growth means, you know, we're going to open three stores in Texas this year. So it's literal growth across the country, and growth in terms of being open to new thinking, technology, and innovation. We're working with the Edge innovation center, that's run by my father-in-law and my brother-in-law, Tom Grote, and Jim, his dad, and they are working on automation and technology that's going to make it better for all restaurants, pizza specifically, and even more specifically us. So, looking — fundamentals over here, but a growth mindset and a mindset for technology over here. And we're set up for it. We've got a great team, we're fully resourced.

Tim Fulton 20:23I guess the thing I think about is, is there a point that you can't expand beyond right now, in terms of, you know, the baking, the dough, everything?

Tom Krouse 20:35You know, not really. And this is going to sound like I'm sucking up to my father-in-law, but it is true, he built a system that is unique. And when I'm talking about "system," I mean how the dough comes in. So we don't mix flour in the store, we knead the dough — and that's great for an artisan, where you're really paying attention to it, right? But if you're not paying attention to it, you might get dough that rises one day and doesn't rise the next day, might get burned in a cold-fire oven on the edge one day and not the next day. And so, if you want a consistent product, we've vertically integrated, so the dough comes to the restaurant. The toppings are weighed — 200 to the pound — we bake it, it will only bake the right amount of time at the right temperature, and all of that. Jim kind of devised all that. And it has super high capacity. The average pizza place in America does — I want to say $850,000 a year in sales. And we have restaurants that are close to $3 million right now. Now, that's not our average, right, so the upside...

Tim Fulton 21:57Yeah, you are built to scale. We were not — like, I, for a very short period of time, had a kitchen in the back of a bar, and we were expanding, went to investors, and the first smart question that I had never thought of was, "Okay, how many can you make in an hour?" And I was like, "Oh, I'm gonna have to give it to you on that."

Tom Krouse 22:20We've got a really great platform. I think the bottleneck really is labor. I mean, that's the bottleneck. If we don't have enough drivers on staff, if we don't have enough people scheduled, or people call off — you know, that whole — the labor market's changing so much. We're trying to keep up with the changes, because it's just different.

Tim Fulton 22:45Do you think — this is a very minor side note — do you see it going to a thing where, like, I ordered Chipotle on the Chipotle app, but I know darn well that that delivery is not being facilitated by them, that it's being handled by DoorDash?

Tom Krouse 23:01We have a percentage of our deliveries that are delivered by DoorDash. So, back to the point, is there a capacity? On nights — let's say, because 40-some percent of our sales come on Friday and Saturday night, so it's a lot — and then, on top of that, let's say, in the winter, a little snowstorm pops up. Everybody says, "I'm staying home, I'm ordering pizza." The demand goes way high, and we're not staffed for it. We have a lever that switches, and DoorDash can help augment our driver delivery. So you're able to just switch the switch. So it'll be interesting to see how all that shakes out over the next few years. Because I'm not sure those companies have settled on what their economic model is. There's still kind of buying market share.

Tim Fulton 23:01Oh, yeah.

Tom Krouse 23:01And then, once you get past that, like, what's the world gonna look like? I don't know.

Tim Fulton 24:06Well, and where does that cost lie? Right? Does it go back to the customer? Obviously, it's cheaper to buy directly from you than it is for me to buy Donatos from DoorDash, right? It is. But yeah, if you have to flip that...

Tom Krouse 24:19So we're trying to remain flexible. Like, when UberEats first came to Columbus, there was no delivery company that was signing up, that was everybody else. And we signed up right away.

Tim Fulton 24:30Okay. Like, why did you do that?

Tom Krouse 24:31Like, I want to learn.

Tim Fulton 24:33Yeah, the devil...

Tom Krouse 24:34The devil you know is better than the devil you don't know. So, and that's turned into actually a pretty good partnership with DoorDash. I mean, it's not without its bumps, and they're not perfect, but we're not perfect either. Everybody's trying to keep up with demand. Customer service is a challenge. And, yeah, it's the day and age, it really is.

Tim Fulton 24:56How do you — I'm just curious how much you manage your franchisees. Like, do you manage their relationship with DoorDash, or they get to make those choices on their own?

Tom Krouse 25:05They make those choices.

Tim Fulton 25:05Got it. Just curious. What's next for you?

Tom Krouse 25:11Gosh, you know, it's a hard question. So I hired a coach. Actually, her name is Carol Walker, and she used to be with Cardinal Health, and she started a little business that helps cats like me, who have jobs like mine, to retire, or transition, whatever. Because some people don't do a good job at it, either.

Tim Fulton 25:36And is it specifically that, or is it all executive coaching?

Tom Krouse 25:39No, it's very much focused on a transition in your career. To me, "retirement" is not exactly the right word for it, because I'm not going to just go home and play shuffleboard. I love my grandchildren, but that's not the reason I'm retiring. I'll have more time. So, anyway, her directive is, don't say yes to anything for six months. So, okay. Now, I will tell you, I'm on the board of the International Franchise Association, I'll stay there. And I'm interviewing for a couple other board positions. So I would love board positions, yes. And I'd like to be able to help companies. I mean, I've been around a while, and I think I could bring some good thoughts. And so, if I could do that, and kind of accelerate what they're trying to do, I'd like to do that. And then I'm playing a lot more music. We've got a couple of bands going right now, and I'm actually finishing a record next week. There you go, putting it out. So...

Tim Fulton 26:46All right. Yeah. I end every interview with the same two questions. What do you think Columbus is doing well? And what do you think Columbus is not doing so well?

Tom Krouse 26:56I think what Columbus is doing well is collaborating, and, when there are issues, coming together. I think what Columbus needs to do a better job of is really dealing with some of the more difficult poverty issues that fold over into educational challenges. You know, our graduation rates and our kindergarten readiness is not anything to be proud of. And it's a difficult challenge, but we have got to get ahead of that, because our children are the future. And we can talk all you want about being a smart city, or a creative city, or a collaborative city, but if we're not preparing young people, we'll be in trouble.

Tim Fulton 27:44Absolutely. Yeah. Tom, thanks for your time.

Tom Krouse 27:44Thank you.

Tim Fulton 27:44Thank you for listening to the Confluence Cast, presented by Columbus Underground. Again, you can get more information on what we discussed today in the show notes for this episode at theconfluencecast.com. Please rate, subscribe, share this episode of the Confluence Cast with your friends, family, contacts, enemies, your favorite pizza maker. If you're interested in sponsoring the Confluence Cast, get in touch with us. We can be reached by email at info@theconfluencecast.com. Our theme music was composed by Benji Robinson. Our producer is Philip Cogley. I'm your host, Tim Fulton. Have a great week.