2211 Woodward Avenue
Ranked 284 on the Forbes list of largest private companies, Ilitch Holdings Inc. was created in 1999 to manage the business interests of Mike Ilitch, whose Detroit-based private holdings include: Little Caesar Enterprises, Inc., the pizza chain that remains the family's core business; the Detroit Red Wings hockey team; the Detroit Tigers baseball team; Olympia Entertainment, devoted to management and concessions at sports stadiums; and Olympia Development LLC, which focuses primarily on real estate interests in downtown Detroit.
Ilitch Builds an Empire
Michael Ilitch, a Detroit native and aspiring baseball player, who played for a Tigers' farm team until injury forced him to retire, founded Little Ceasars in 1959 with $10,000 in capital. He and his wife, Marian, opened their first business one year after Frank and Dan Carney opened the first Pizza Hut. Ilitch, then 29, started the establishment as a take-out restaurant in a strip mall in a Detroit suburb. In a style unusual for the time, the Ilitches's restaurant had no tables; it was purely a pick-up operation. His wife is credited with creating the new business's name, according to a 1995 Los Angeles Times article. She recalled: 'We were just married, and he was my hero, my Caesar. But he hadn't accomplished anything yet, so he was my little Caesar.'
In the late 1950s, pizza was considered a fad, much like Hula Hoops and coonskin caps, and few in the business world saw much potential for growth beyond mom-and-pop operations. They were wrong. A few years after Ilitch created Little Caesar, another Detroit native, Tom Monaghan, founded Domino's Pizza. Each of the three future pizza magnates unknowingly carved out a unique share of the future market. Pizza Hut pioneered sit-down restaurants; Domino's was first with home delivery; and Little Caesar initiated carryout. In the future, Ilitch and Monaghan would become rivals on another stage as well.
The Ilitches were ahead of their time in discounting, anticipating the pizza price wars of later years, as they undercut the price of their mom-and-pop competitors by 50 cents. Two years after opening the first Little Caesar, where Marian ran the counter and kept the books while Michael made the pies, the Ilitches opened a second outlet. In 1962 they began to expand by selling franchises of Little Caesars throughout the Detroit metropolitan area. They opened 50 franchises in the next ten years and went on to experience explosive growth in the 1970s.
The 1970s and 'Pizza! Pizza!'
An economic slump caused by the Arab oil embargo of 1973 sent more married women into the workforce. One result was that families had less time to cook meals and needed a cost-effective solution that would replace some home-cooked meals. The Ilitches, with seven children, knew how expensive it was to feed a family. Their offer of two pizzas for one price found a ready market. Because a carry-out pizza operation was about four percent cheaper than home delivery, Little Caesars could undercut delivery rivals, such as Domino's.
In 1976 the Ilitches turned to Madison Avenue to pitch their one-price concept. Cliff Freeman, already famous for his Wendy's 'Where's the Beef?' ad campaign, created the 'Pizza! Pizza!' concept, backed by the slogan, 'Two Great Pizzas! One Great Price! Always! Always!' As a regional company, Little Caesars had only 200 outlets in 1981. At that point, the Ilitches took the business nationwide, and by 1984 they had 500 outlets, a figure that had doubled within two years. Michael, a high-school graduate, and Marian, whose education stopped after one year at a junior college, were now extremely wealthy entrepreneurs.
Michael never forgot his love for sports. In the mid-1970s he formed a local pro softball team, called the Caesars, and recruited the best players in the country. Although he lost $500,000 in three years, his team won two American Slo-Pitch titles. Ilitch was so successful that the other team owners changed the rules to restrict the Caesars, precipitating a row that ended up in court. Ilitch also sponsored numerous other amateur hockey, bowling, and softball teams. He encouraged his store operators to follow his example.
When his beloved Tigers came up for sale in the early 1980s, Ilitch was eager to purchase the team, but was thwarted when his crosstown rival, Domino's Tom Monaghan, was given an exclusive bid and purchased the team for $53 million. Still avid to own a major professional sports team, Ilitch turned his attention to the local NHL hockey club, the Detroit Red Wings.
Once a proud and winning franchise, four-time Stanley Cup winners from 1948 to 1955, the Red Wings had hit bottom after a long, slow decline. Only once in the previous 13 seasons had the team made the playoffs, at a time when 16 of the league's 21 teams qualified. Despite the attraction of watching games in three-year-old Joe Louis Arena, Red Wings' games were poorly attended. The season ticket base was reported to be a paltry 2,500, and according to Michael Ilitch, Jr., the number was actually closer to 1,500. Moreover, the team was saddled with debt and bereft of talent.
Ilitch purchased the Detroit Red Wings in June 1982 for $11 million. He improved every aspect of the organization, not only investing money in the recruitment of players from all over the world, but also upgrading the arena. Although the team's record did not improve much, attendance soon reached record levels, helped in part by Ilitch's marketing efforts that included giving away free cars during games. Season ticket holders swelled to 16,000, and after the team reached the Stanley Cup semifinals in 1987 and 1988, the Red Wings had become one of the league's most valuable franchises. Ilitch was now also one of the most respected owners, legendary for treating his players like family, often giving out spontaneous bonuses for good play.
The Ilitches became heavily involved in real estate in the mid-1980s. Their first major purchase was the Fox, an ornate 1920s 5,000-seat movie theater, once a jewel in a downtown Detroit that had seen decades of decline. Countering a 30-year trend of businesses fleeing the city, the Ilitches moved their Little Caesar headquarters from the suburbs to a ten-story office building adjacent to the Fox. Elected officials, eager to spark downtown development, helped them with the deal. The city council approved $18 million in city funds for the project.
After the Ilitches spent millions of dollars in renovations, the Fox reopened in 1988, offering a mix of concerts, theater, family shows, and restored classic films, and was quite profitable within a year. By the end of the 1990s it trailed only Radio City Music Hall in sales receipts among large theaters. Also in 1988 the Ilitches purchased a sports management company, Olympic Arenas, to handle events not only for the Fox, but also for Detroit's Joe Louis Arena, Cobo Arena, and other entertainment venues. In partnership with other businesses, the Ilitches helped to open restaurants and clubs in the revitalized theater district. The Ilitches also purchased the Detroit Drive arena football team and the Red Wings' farm team in Adirondack, New York.
To help run their businesses, the Ilitches enlisted the help of their grown children. All seven worked for the family concerns in some capacity at some time, and five became company executives. Often business would be hashed out around the kitchen table. According to Detroit Free Press columnist Doron Levin, the Ilitches were 'a famously private clan. No one but their bankers and accountants know the inner workings of their companies. Since stock in their enterprises isn't publicly held, the family has no obligation to disclose sales figures or how much money their companies are making--or losing.'
In 1990, however, there was no talk about losing money. Little Caesars and another Detroit-based corporation, Kmart, struck a deal to create Little Caesar Pizza Stations in more than 400 Kmart stores. Nationwide, pizza sales were so strong that the National Restaurant Association predicted in 1991 that within a few years pizza would supplant hamburgers as America's leading fast food--and attempts by McDonald's and Burger King to break into the pizza business never panned out. Little Caesar boasted more then 4,000 outlets and sales that continued to rise. Its rival, Domino's, was at the same time experiencing a number of reversals. Founder Tom Monaghan had taken a two-year leave of absence in 1989, and his business suffered as a result. In 1988 Domino's systemwide sales were double that of Little Caesar, but by the end of 1993 Little Caesar, with revenues of $2.3 billion, surpassed Domino's to become the second-largest pizza chain in the country, trailing only Pizza Hut and its $4.2 billion in U.S. sales. Monaghan, forced to retrench, began to sell off assets--including the Detroit Tigers.
Making the Big Leagues in the 1990s
Ilitch finally realized his dream of owning the major league baseball team for which he played in the minor leagues. He purchased the Tigers from Monaghan for $85 million in July 1992, then gave up day-to-day control of Little Caesar to devote more time to his sports teams. The result was back-to-back Stanley Cups for the Red Wings, a new stadium for the Tigers, and costly neglect of the core pizza business.
After several frustrating seasons during which the team failed to live up to its potential, the Detroit Red Wings finally returned to its former glory. Ilitch hired the NHL's most successful coach, Scott Bowman, in 1993. By 1995 the Wings reached the Stanley Cup Finals, losing to New Jersey. Two years later the team won its first Stanley Cup in 42 years, sweeping the Philadelphia Flyers in four straight, then backed it up the next season with another sweep, this time over the Washington Capitals. By the end of the decade, under Ilitch's ownership, the Detroit Red Wings were worth $184 million, according to Forbes magazine.
The Tigers, on the other hand, regressed. After challenging for a division title in 1993, the club finished last in its division in 1994, and by 1996 posted the worst record in baseball. On another front, however, Ilitch succeeded, accomplishing something at which the previous owner had failed: building a new baseball stadium to replace the decaying, however venerable, Tiger Stadium.
Ilitch had to overcome both political and community obstacles to reach his goal. He began his push for a new stadium by pledging to spend $175 million of his own money. Years of currying favor with local politicians, as well as the good will he had earned by moving Little Caesars from the suburbs to the city, now paid off. The city council repealed an ordinance banning the use of city funds to build a new stadium, pushed through by activists who wanted to preserve and renovate Tiger Stadium. When the matter became a ballot initiative, Ilitch and his political allies won an overwhelming victory, garnering 86 percent of the vote. A later vote authorizing the county to finance the stadium by a 1-percent tax on taxicab fares and hotel rooms was also approved by voters, this time by 82 percent of the countywide vote, as Ilitch and his allies outspent their opponents by about $700,000 to $20,000. Michigan's Governor John Engler then provided $55 million to cover the cost of clearing the land and providing infrastructure.
Comerica Park opened for the 2000 season, and the value of the Tigers franchise increased by a dramatic 32 percent, to $200 million, according to Forbes. The play of the team, however, continued to disappoint the fans, and attendance suffered accordingly; it was not at the level that other teams in the major leagues enjoyed with new ballparks.
While Ilitch devoted his time to running the Red Wings and Tigers, as well as shepherding through the stadium deal, his pizza business began to deteriorate. With a recession in the early 1990s, the relationship between Little Caesar and its franchisees turned confrontational. Members of the Association of Little Caesar Franchisees were unhappy with the high cost of ingredients charged by Little Caesar's subsidiary, Blue Line Distributing. What ensued was a lingering lawsuit that alleged the company violated antitrust laws. Franchisees also complained that the corporate parent lacked foresight and planning, changing from one strategy to the next in an attempt to spur flat sales. When pizza sizes were enlarged by two inches in the chain's 'Big! Big! Pizza' initiative, franchisees were only given two weeks notice of the change and encouraged to get rid of their 12-inch pans. Later the 12-inch size was brought back by popular demand, and many of the franchisees were caught short. Other failed marketing attempts included football-shaped pizzas that never caught on, and spaghetti, frozen and heated in the ovens, which some owners said they couldn't give away. Little Caesar's move into the delivery business in 1996 also proved problematic. Franchisees complained that they did not receive proper training and that the $1 delivery charge alienated many customers. The taste of Little Caesar's pizza, baked on a conveyor belt system, also came under criticism. Consumer Reports found it 'low in flavor, and the cheese can be so chewy it's almost rubbery.' Cost-cutting efforts then brought lower grade ingredients to the product, according to franchisees.
Advertising budgets were slashed as sales slipped. Rather than challenging Pizza Hut for supremacy in the market, Little Caesar fell behind Domino's in systemwide sales. By the end of the decade, the company found its number-three position strongly challenged by newcomer Papa John's, with its emphasis on quality ingredients. By 1997 Ilitch was forced to refocus his attention on his pizza business. He eliminated 27 corporate management positions, followed a year later by a 25-percent cut of the chain's headquarters staff. In 1999 he closed 400 poorly performing restaurants to either remodel with drive-thru windows or to relocate. Little Caesar Enterprises looked to expand its overseas operations, totaling about 250 outlets in 18 foreign markets, by announcing in late 1999 that it would open 400 restaurants in Japan by 2003 and hoped to complete an agreement for 300 new stores in Latin America. In April 2000 the company also announced a co-branding arrangement with the Subway sandwich chain and the opening of a test unit that would offer the full menu boards of both restaurants.
Getting on in years and suffering from heart problems, Ilitch, along with his wife, had to face the task of transferring assets to their heirs. In 1999 Ilitch Holdings, Inc. was formed, and two outside executives were brought in to run it: Richard Peters, a Penske Corp. executive was named CEO, and Jim Weissenborn, from National Mortgage Corp., was made CFO. They lasted only six months before resigning. In June 2000 it was announced that two of the Ilitch children, Denise and Chris, would share the newly created job of president. While they would oversee day-to-day operations, Michael and Marian Ilitch would continue to serve as chair and vice-chair and assist in running the family businesses.
More than family interests were at stake. 'A big part of downtown Detroit's future depends on the fate of the Ilitch businesses,' wrote Detroit Free Press columnist Doron Levin, who then elaborated: 'Detroit can benefit greatly from a smooth transfer of power--or suffer from a misstep. The next generation has lots of tough issues before it, chief of which is what to do about the faltering Little Caesars pizza chain. While the Ilitches have substantial non-pizza interests, Little Caesars has served as the linchpin for the whole empire.'
Principal Subsidiaries: Little Caesars Enterprises, Inc.; Blue Line Distributing; Olympia Entertainment; Olympia Specialty Foods; Olympia Development LLC; Detroit Tigers, Inc.; Detroit Red Wings.
Principal Competitors: Pizza Hut Inc.; Domino's Pizza, Inc.; Papa John's International, Inc.
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