Marco's Enters $100M Deal With Family Video

Marco's Pizza, the franchisor of more than 280 restaurants in 21 states, has partnered in a $100 million deal with privately held movie rental chain Family Video to open Marco's outlets within as many as 350 of its movie stores.

Jack Butorac, chief executive of Toledo, Ohio-based Marco's, said the partnership was an "exciting match" of like-minded brands with systems that can help each other grow.

"When you choose whom you align with, you want to align with folks that share your culture and goals," Butorac said. "Even though Family Video is the largest privately owned video chain in the country, they're completely down to earth and value partnerships."

In this arrangement, Family Video would become Marco's largest franchisee. Because Glenview, Ill.-based Family Video owns all of the real estate for its more than 735 movie rental stores in 19 states, the company had the flexibility to fill available space in its buildings with new revenue streams, Butorac said.

Plans for the franchised Marco's units call for about 1,500 square feet of space, and most Family Video stores have that capacity available in their buildings, which typically encompass about 7,000 square feet.

Marco's first entered Family Video when a franchisee leased parts of four Family Video stores about three years ago. The movie rental company became familiar with Marco's and approached executives at its franchise convention last March to pitch this deal.

Despite the fact that the retail video rental business is declining — particularly given the intense competition from companies like Netflix — Marco's is confident that this line of franchising is sustainable.

"They said they wanted to be our franchisee, and they wanted to be treated special," Butorac said. "At first it didn't make sense to me, because I thought if they were looking for a replacement concept [for an empty video store], the answer is 'no'. But their same-store sales were up 4 percent last year, and they had record profits. They're planning ahead for what consumers are saying they want.

"When you have very little debt and lots of cash, you don't need a lot of money to make money."

The first co-located Marco's restaurant is scheduled to open within a Family Video store in Wheeling, Ill., in the first quarter of 2012. Officials from both companies said the majority of the 350 conversions to follow would be in the Midwest, beginning with Illinois and Indiana.

Butorac said Marco's and Family Video share not only demographics for core customers but also similar criteria for selecting sites for new stores.

"If we know who our current customers are, we can forecast potential customers at future sites," he said, "and when we looked at Family Video's 735 stores, we were shocked that so many of their stores were located exactly where we'd want to be. We look for what we call 'rooftops' in an area we're scouting, and they look for 'rooftops.'"

Marco's and Family Video are working on a joint online-ordering system for cobranded locations that would allow customers to order their pizza, select a DVD from Family Video's library, and have both delivered by the same driver.

For now, Family Video will have the same contribution requirements as any franchisee in terms of sales royalties, national marketing fund dollars and investment toward the Marco's University online-training platform, Butorac said.

"But as they grow, I'll give them some economic advantages," he said. "They would like to build as many as 500 stores, so if they make it past 350, I'll give them some incentives. It's good for them and good for me."

Contact Mark Brandau at mark.brandau@penton.com.
Follow him on Twitter: @Mark_from_NRN