Perry Ludy and Terry Huffman, who worked together at Pizza Hut in the 1980s as regional vice presidents, has purchased for an undisclosed price 59 company-owned Little Caesars restaurants in Kansas, Missouri, Maryland, north Carolina, South Carolina and Virginia. Their new company, which is based in West Hartford, Conn., is called Cutting Edge Pizza L.L.C.

The two entrepreneurs insist that they are unfazed by Little Caesars’ recent contraction, looking instead to seize on the chain’s smaller size as a way to grow their own company to a least 350 restaurants over the next five years.

Although Little Caesars, which is a closely held private company, almost never disclosed financial information, Crain’s Detroit Business obtained a copy of the chain’s 2000 franchise offering circular, dated March 30. The newspaper said the chain reported a net loss of 1,086 franchised and company-owned carryout and delivery stores in the United States since 1998, representing a 40 percent decline in unit counts over a three –year period.

Reportedly, Little Caesars had 1,549 franchised and company-owned delivery and carryout stores at the end of 2000 with an additional 547 outlets at Kmart Corp. stores and 45 Pizza Stations and Express stores. In addition, 1.086 K-Cafes in Kmart stores sell Little Caesars pizzas.

Little Caesars declined to comment on its most recent circular. However, Mike Scruggs, senior vice president of global operations for the chain, acknowledged that “unit counts are down.” But,” he added, “we have taken a very aggressive approach in our efforts to franchise the business by selling stores to new franchisees and by getting existing franchisees to open new stores.”

He conceded that over the last few years Little Caesars had closed an unspecified number of underperforming company restaurants because “it was difficult to run corporate stores that were all over the United States from our headquarters here in Detroit. We didn’t do a good job in some parts of the country, so our sales suffered, by now we want to move on. The takeaway from all that is our focus on developing franchisees who will give us ownership mentality at every store.”

Scruggs said Little Caesars has some new products “coming down the pike,” and, in addition to multiunit franchising, the company also is cultivating new operators through a manage-to-own program that was kicked off earlier this year. The plan gives restaurant managers the opportunity to earn a bonus, a percentage of profits and eventually the possibility of 100-percent ownership of the unit.

Little Caesars has signed on 50 new U.S. franchisees in the last 18 months, according to Scruggs.

”There has been a resurgence of older franchisees that are selling their stores to new and more aggressive owner-operators, which has been a good thing for us as well,” he said. “There is new blood and new enthusiasm and new energy in the system, and that will result in more satisfied customers, which will help with sales.”

Scruggs pointed to the owners of Cutting Edge Pizza as an example of the brand’s transformation. Ludy, a former college basketball player who started out in human resources at Pizza hut, worked his way up to regional vice president of the North Central region, a position that put him in charge of more than 1,000 restaurants.

Both Ludy and Huffman left Dallas-based Pizza Hut more than 10 years ago to start up a joint business venture in banking. They recently decided they wanted to return to the restaurant industry.

The duo said their experience in the pizza category has prepared them to compete with the other three major players, including former employer and segment leader Pizza hut as well as No.2 Domino’s Pizza and Papa John’s, which has overtaken Little Caesars for the No. 3 position.

”Frankly, I’m not sure the other big chains out there are taking a strategic look on the local level,” said Ludy, who added that he believes they are focused more on the national perspective.

Although Little Caesars has closed a large number of restaurants over the last three years and has no national advertising on television, Ludy described the chain as “ripe for the opportunity to grow” with multiunit operators.

”We spoke to a number of different national chains before deciding on Little Caesars,” said Ludy, who added that concepts like Pizza Hut are overly saturated and can’t offer a franchisee the chance to develop 200-plus stores.

”The way we will grow our business is by picking up on those things that are negative and turning them into positives,” Ludy said. “For instance, no national advertising- the way I see it, Little Caesars is not penetrated in many markets nationwide, so being on television is the last thing I would recommend until the chain has built critical mass. Once critical mass is built, then Little Caesars should get on TV.”

Ludy – who is the author of a recent book titled “Profit Building: Cutting costs Without Cutting People” – and Huffman both talk of their “street fighting” approach to edging out the competition on a location-by-location basis.

The company is initiating a profit-sharing program called “Partnership through Performance,” which is based on preset sales goals aimed at rewarding restaurant-level managers as well as 10 area managers and market directors. The goal of the program is to cultivate happier employees, which leads to improved customer service.

”We are sharing a substantial portion of profits back with the people who are operating our stores,” Huffman said. “I know how hard these people have to work every day because I know how hard I worked when I managed a Pizza Hut restaurant. For those people who really want to perform, I want them to share in my success.”

He added: “The actual initial payouts don’t go into effect for another three weeks, but we are seeing a substantial difference in performance already. The attitude and enthusiasm is very encouraging.”

Cutting Edge declined to disclose financial figures, but Huffman said the company was aiming for average unit volumes of $400,000 to $500,000. Ludy said he believed it had the potential to double the sales of the restaurants, but he didn’t disclose the stores’ current sales figures.

In addition to the profit-sharing program, Cutting Edge plans to reduce its costs on the store level through several other initiatives. The company plans to cut down of food waste and share best practices among restaurant managers on a regular basis, according to Huffman.

Ludy added that the company would utilize several of the strategies from his book as well as leverage its size as a multiunit operator to reduce costs further by purchasing in bulk product, equipment and services.