866 Rick Rosenfield: Co-Founder of California Pizza Kitchen and Author of The California Pizza Kitchen Story

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4:30You just want to make sure you will get knocked down, but just make sure you don't get knocked out.

4:35Kara Goldin:So your only choice should be go focus on what you can control. Hi everyone and welcome to the Kara Golden Show. Join me each week for inspiring conversations with some of the world's greatest leaders. We'll talk with founders, entrepreneurs, CEOs, and really some of the most interesting people of our time. Can't wait to get started. Let's go. Hi, everyone, and welcome back to The Kara Golden Show. Have you ever had an idea that sounded completely crazy at the time, but you just couldn't let it go? In the mid-1980s, pizza was pretty simple. Pepperoni, sausage, maybe mushrooms if you were adventurous.

5:21Kara Goldin:Nobody was asking for barbecued chicken on a pizza. And then two federal prosecutors certainly weren't expected to walk away from successful legal careers to open a restaurant, but they did. So California Pizza Kitchen. And today I'm excited to be joined by Rick Rosenfield, the co-founder of California Pizza Kitchen, who has a brand new, incredible book out called The California Pizza Kitchen Story. And before helping to create one of the most recognizable restaurant brands in America, as I mentioned, he had a totally different career and then decided with his co-founder and friend, Larry Flax, to go off and create the pizza that changed an industry.

6:13Kara Goldin:So I'm excited to not only dig into this incredible book from the author himself, but also the brand and how it started, how it scaled. So incredible. So Rick, welcome to The Kara Golden Show. I'm so excited to meet you. Thanks, Kara. It's fun to be here. This episode of the Kara Golden Show is brought to you by Grooms. This time of year, I want more energy, not more steps. The days are longer, the calendar is filling up, and I want to feel as good as the weather. But summer routines only work if they're easy. That's why I've been loving Grooms. Grooms is one delicious daily pack of gummy bears that cover your greens, vitamins, minerals, and prebiotics all in one.

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9:25Kara Goldin:Super, super fun. So for listeners who might know the name California Pizza Kitchen, but might not know the backstory behind it or kind of the vision for what you wanted to create. Maybe start there. Sure. Well, my partner and I started as federal prosecutors. That's where we met in Los Angeles. I grew up in Chicago and went to work for the Department of Justice in Washington, writing briefs in the Supreme Court, and then became assistant U.S. attorney, trial lawyer in L.A. And then we went off and formed our defense practice, which we did for 12 or 13 years. But we were frustrated with it, and we always wanted to be in the restaurant business.

10:12In fact, we had one idea after another in the entire time we were practicing. And we got close to an idea, but each time a new client would come along with a big retainer, and that would put it on hold. And then finally, in late 1984, I had just seen this pasta cafeteria in Chicago. And I had this in my mind. At that time, I was running marathons, and carbohydrate loading for marathons was the thing, and fresh pasta was the thing also. And I told Larry about it. He said, yeah, it's a good idea. Let's look at it after we finish this long trial in San Francisco. So we came back from the trial. We were told about a concept like that, and we went out and saw it in the mall in Glendale, California, this pasta concept with a pizza going under heat lamps.

11:11It looked awful, but people were grabbing a slice of pizza. So on the way home back to our law offices in Beverly Hills, we started kicking around and said, yeah, let's put some pizza in the pasta concept. And somehow, by the time we got back to our law office, we had changed completely. Now the concept became, look at this new style of pizza that's emerging. It started with Alice Waters at Chez Panisse in Berkeley. She is really the mother of California cuisine, but also the mother of California style pizza. And she was putting seasonal vegetables on it and goat cheese. And then Wolfgang Puck took that idea to Spago, and he introduced it with duck sausage pizza and smoked salmon pizza called the Jewish pizza.

12:04And so what a great idea, but let's do Spago for the masses. Let's make it accessible. You don't have to be a celebrity to get in or wait two weeks and make it family-oriented. And it all happened in one afternoon, before we, however, but before we had a menu or even the name, just the concept had emerged very clearly to us. Take this wood-burning oven, put it in the center of the room, put a counter around it.

12:34Kara Goldin:So barbecued chicken pizza was clearly one of the first pizzas that I had from California Pizza Kitchen. It was incredible. I think the first place I had it actually was in Los Angeles. Can you talk about that first restaurant that you actually opened? Sure. So we ended up, and the story is in the book, as you saw, making a deal with Spago's former chef, pizza chef, and went back and forth. finally came to terms with him. We opened the first restaurant, and he had his Spago-ish pizzas. It was rabbit sausage pizza, and lamb sausage pizza, radicchio pine nut pizza, grape leaf pizza, and all these exotic pizzas.

13:26But among that group was barbecued chicken pizza, And it was a smash success. If we sold 200 pizzas, 160 of them were barbecue chicken, 20 of them were mushroom pepperoni and sausage, which my partner and I insisted on. And just as Baskin-Robbins had 31 flavors and Jamoak Almond Fudge was their number one, vanilla chocolates and strawberry were two, three, and four. So we insisted on a traditional cheese pizza and a mushroom, pepperoni, and sausage pizza. But that's all we got on the menu. All of his pizzas bombed except barbecue chicken pizza. And that was the light bulb. because what people came in and said, which was really amazing, it was a light bulb moment for us, I don't even like pizza.

14:19I love this.

14:21Kara Goldin:That's wild. And this is at a time where I can only imagine, but you talk about it in the book as well, where people thought these guys are crazy. They're federal prosecutors who are, you know, what in the world were they doing? And what I mean, I'm sure your family and friends were saying that to you as well. That, you know, what exactly what is it that you're trying to do here, Rick? Everyone thought we were crazy. My wife, who grew up in her family's diner in Birmingham, Alabama, had thought she had married a successful lawyer. She thought I was crazy, too. Only for a moment, though, because with with Esther, whenever I did, she was all in.

15:08So she was all in from the beginning. But we did get 22 friends to invest with us after we had mortgaged our home, borrowed money on our law practice from the bank, basically mortgaged ourselves to the hilt, signed personal guarantees on the lease. Well, we were all in. But, you know, it's interesting. I've reflected on it. I often say, if I knew then what I know now, would I have done it? And I'm not so sure, right? I think naivete is what got us over the hurdle. That we thought, wow, we have this great idea, a concept, right, for these new style pizzas. It's a concept. But as soon as we got into the restaurant business, we realized we could never make it out of a concept.

16:07We would have been one and done if we didn't have people that could execute our vision.

16:14Kara Goldin:So interesting. So when you had this idea and you were sitting around with Larry and dreaming this idea up, was it, did you have the idea that it was going to go across the country in retail or, sorry, in grocery stores? I mean, what was kind of the vision that you had as the co-founder? At that moment, grocery stores was the farthest thing from our mind. However, in our naivete, nevertheless, when I sat down to, at that point, before computers, it was a word processor at my desk, and for the bank asked us to write a business plan. I wrote, this is before we had a menu, before we had a chef, before we had barbecue chicken pizza.

17:11And I wrote that we were going to introduce the third style of, the third major style of pizza to the country. Along with New York and Chicago, we were going to create the third style that was important, California style pizza. and California, and this is where it gets crazily bold, right? Chutzpah, pure chutzpah and pure hubris, right? I wrote that in the future, California-style pizza will be defined by whatever California Pizza Kitchen says it is.

17:51Kara Goldin:And do you think that that's the same, would you say that today? Well, of course it happened. Yeah. But as I reflect, it was pure hubris to say it. But, oh, I'm sorry. To continue, we wrote that we intended to take it national and indeed international before we ever really had the fully defined concept. And so how big did it actually, did California Pizza Kitchen actually get, if you can share that with the audience? Sure, I can. When we sold it to private equity in 2011, we had 265 restaurants worldwide. And many people that go into a CPK restaurant think it's franchised, but they were not. We owned over 200 full-service restaurants were company-owned in the U.S.

18:48The only two franchisees we had, other than the airports, which were HMS hosts, Steve Wynn, who became our biggest investor with our second restaurant, convinced us to make him a franchisee when he opened the Mirage. And then Rick Caruso from L.A., who, of course, is a very famous and prominent developer now, was opening his first shopping center in the late 80s. I'm sorry, late 90s, the exact 1996. And he wanted to become a franchisee and said, I just want to have CPK here. I'll own it. You guys operate it for me. But he wanted CPK. But other than that, they were all company owned. But how big did it get?

19:36The math, if you took, we were public. So those numbers were available. If I recall, we were doing around$650 million in revenue. If you add that to our frozen pizza sales, because then we were in 20 ,000 locations, all 50 states, District of Columbia. and then you add the international franchise revenue, you would come out really close to a billion dollars. Wow. So we were nearly a billion dollar system-wide revenue if you looked at it within those terms, which was pretty mind-boggling to me.

20:16Kara Goldin:So in the climb to scale the company, every entrepreneur, and you as well, have, you have moments when you see how hard this business is and you think, oh boy, this is it, right? I'm not sure that we're going to make it. What was the first point where you said, wow, this is one that I didn't expect and I'm not sure that I'm going to be able to find my way out of this one? That's interesting. We never did get to that point. But what happened, so we always had confidence in what we were trying to create. And around 1992, we had 25 units. We were about to go public. And PepsiCo came and they bought two-thirds of us.

21:11To make a long story shorter, they came along and said, we don't want to buy you guys out. If you want to leave, we're not interested. But what they did then, at that time, they owned. They were the largest restaurant chain in the world in number of units. They owned Taco Bell, KFC, and Pizza Hut. This is before they spun it into what became Yum. And they said, and where they, what with them is they basically, we had 25 restaurants that we had built over the previous seven years. And they said build 30 a year. And in fact, they said, you have a blank check. Basically, you guys are cowards if you don't build 50 to 100 a year.

21:59So they said, put them everywhere. You know, try them in every kind of location. So we built up these real estate teams to build a pipeline because you can imagine the pipeline to build 30 or more restaurants a year off of our base was amazing that what we had to wrap up for. But we were very full of ourselves and we were spurred on and we started building restaurants in a lot of neighborhoods to areas that were green areas, meaning not high density, you know, with future future locations with malls that were in what they call green areas, you know, surrounded by cows, but going to grow someday.

22:42and those tanked. And now we found ourselves with Pepsi stepping into the business, putting in their own executives and cutting our quality. That's as close as it ever got to me to a really, really bad moment. And I remember I was visiting our restaurants in Florida and having dinner with some of our managers in Miami and had said to them, you know, we're still committed to quality. And I saw out of the corner of my eye a woman manager roll her eyes at her compatriot across the table, like, does he really believe this? And I went home and I called Larry and I said, Larry, we are really screwed.

23:33And that was probably everything. That may have been the low point. And the issue to me was less about our customer. We had lost, our employees had lost, we had broken trust with them. because I believe what made CPK great in its greatest days was that our employees carried forth the torch of quality, that they were committed to quality. They knew the company was committed to quality. They knew we were committed to training. They were new to the greatest ingredients. When we broke trust with them was the most challenging period of my experience at CPK in the 25 years.

24:26Kara Goldin:So, so interesting. So they hadn't totally bought you out, right? They just controlled the majority of the company? Well, it's interesting. Because of our great lawyer, Bob Cotton, our personal lawyer and CPK's lawyer, we actually had a deal, negotiated a deal with PepsiCo where it didn't matter how much equity they had. they would never have more than 50 % of the vote. So they had two-thirds of the equity and 50 % of the vote. We had a deadlock potential. They had no way to really control us. But Larry and I were so humbled and chagrined by us overexpanding that we literally let them have the reins.

25:16Even though they didn't have the legal reins, we were broken. We were literally emotionally defeated. I'd say that's probably an answer to your question. That's probably as low as we had ever gotten. I didn't really believe we were on the verge of failing as a business. We had PepsiCo to backstop us at that point. So when they finally got out of the restaurant business, which is part of the book, they spun off their restaurants into Yum! But because of that agreement we had that our lawyer was so smart to have worked out, they couldn't spin us without our approval. So all they could do is put their interest up for sale and tell the buyers, Pepsi would like to sell its two-thirds interest, but we can't.

26:06You'll have to make us an offer that's acceptable to us, and then you have to make an offer to Rick and Larry that's acceptable to them. It gave us some great leverage, as you can imagine. That's what happened.

26:17Kara Goldin:Oh, that's, yeah, it's so, so interesting. And so how long before you had sort of given up, I guess, did that ultimately, how long did you have to wait for that to occur? Well, let's say in less than two years, so we were down and out. PepsiCo was effectively running the company. And lo and behold, they decide to spit off the restaurants. And up comes that deal. We go, whoa, wait a minute. We have a whole new life, right? Because we were also crushed under the debt that Pepsi was loaning us. They were writing those checks for expansion, but it was a loan that someday was going to come due. Now, all of a sudden, we had a brand new life.

27:09We could control the deal. And what happened was, which incredibly is, Pepsi got out, sold it to private equity guys, Bruckman, Ross, or Cheryl out of New York, and the debt was completely wiped out. Now we had our interest completely free of debt, other than the financing that BRS put on it. But we were relieved of a lot of money and gave us a whole new life. And we go, whoa, we have a whole, and we then took it from there.

27:41Kara Goldin:I mean, it's fascinating. And, you know, you talk about this in the book. I mean, many founders just can't even imagine all that you've been through, right? Here they are, maybe they're in their local airport having a California pizza kitchen, maybe even a barbecued chicken, but to know that the founders have been challenged like this. I mean, they have no idea, right? I mean, it's, it's, and no idea could happen to them. Right. Yeah. These are, that's why I think that's the purpose in writing the book is to help people who are interested. Well, two, two, on one side, two entrepreneurs that face these challenges and want to have some help in navigating it.

28:30And the other was that I wanted to really talk about the culture that we built for restaurateurs, for people in business, for people in their own personal lives. The culture that CPK had is quite unique.