Marco's teams up with Family Video with aim to be 4th-largest pizza chain

Jack Butorac, chief executive officer of Marco's Pizza, has teamed up with Keith Hoogland, president of Family Video. The agreement allows Family Video to open Marco's shops in the movie rental chain's stores.

Toledo-based Marco's Pizza on Thursday announced an agreement with Illinois-based Family Video that eventually will put hundreds of Marco's shops in the movie rental chain's stores.

The partnership should give a considerable boost to Chief Executive Officer Jack Butorac's long-term goal of becoming the fourth-largest pizza chain in the United States.

"It's going to have a huge impact," Mr. Butorac said. "We've given them financial incentive to build stores on a timely basis and aggressively."

In all, Family Video has committed $100 million to developing the Marco's stores. The first, in Wheeling, Ill., should open some time before the end of March. Permit applications are in for nine other stores. The plan calls for 250 stores within seven years and perhaps eventually 350 or more stores.

Family Video will be the franchisee, owning all the Marco's stores in its locations.

Because of agreements that protect existing Marco's franchises from competition from new ones, none of the Family Video stores in Toledo will get a pizzeria.

Marco's, founded in 1978, has more than 280 stores in 21 states, and has been on an aggressive growth track. Last year, 61 franchises opened. This year, company officials expected at least 100 new locations prior to the agreement with Family Video.

Executives from both companies said the partnership is a perfect fit -- beyond the simple pleasure of picking up a pie and a movie for a night in.

Having stores in Family Video locations will allow Marco's to tap into new markets with guaranteed foot traffic.

And once a community gets a Marco's in a video store, it could lead to more Marco's locations in that area.

For Family Video, the addition allows them to fill unneeded space in their stores created by the shift of home movies from VHS to DVD. Where the stores once needed 7,000 square feet, they now need about 5,000. Some stores already house independently owned pizza franchises, but company President Keith Hoogland said Family Video had been looking for an opportunity to fill that space with something the company owns.

They're also open to adding Marco's locations to new Family Video stores. The company has 762 locations in 19 states.

Nima Samadi, a senior industry analyst with IBISWorld, said it's a move that makes sense.

"I think why this particular pairing is especially appealing to them [is] there are some benefits. When someone goes to a pizza shop, it's a take-home activity. They have the option of making their order and browsing videos."

Mr. Samadi also said it would help the video chain offset some of its costs, drive foot traffic, and further differentiate them from the increasing competition from mail order and kiosk rental options.

Mr. Butorac admitted he was somewhat skeptical about putting so much faith in video rental stores, but said discussions with Mr. Hoogland and others assured him their business is a solid one.

The privately held company claims same-store sales growth in 29 of its 30 years and said business remains strong.

"When people say bricks and mortar is going downhill, I just laugh," Mr. Hoogland said. "If anybody came and looked at my books, they would want to get in too because it's doing so well."

The trouble with larger, publicly traded video and game rental chains such as Blockbuster, Mr. Hoogland said, is their huge debt loads. Family Video owns most of its stores and carries very little debt, officials said.

Family Video has been working with a system that allows customers to reserve movies online they wish to pick up in the store. The two companies envision developing that into a system that would allow someone to order both a pizza and a movie and have them delivered together.

"I think that's really going to be a pretty neat business that saves a whole trip for the customer," Mr. Hoogland said.

The agreement has been in the works for about a year, and was officially signed last week.

Contact Tyrel Linkhorn at: tlinkhorn@theblade.com or 419-724-6134.