Two Decades of Hot Stuff

Brand hits milestone, celebrates long-time retailer pact

SIOUX FALLS, S.D. -- Hot Stuff Foods LLC, Sioux Falls, S.D., turned the ripe, old age of 20 in December 2006. But the franchisor is soon approaching another, more impressive milestone: a 20-year pact with its longest-serving franchisee, a small convenience retailer named KMJ Convenience Co., Montevideo, Minn.

We were the first ones with them, Mark Jasperson, president of KMJ Convenience, told CSP Daily News. I think we had 15 out of the first 18 Hot Stuff locations. Now we have the longest continuous sitethe oldest continuous-running location.

They are simply the best option for us for branded fast food, continued Jasperson, whose company today operates nine Food-N-Fuel stores. They're service people, and their people in the field are knowledgeable, and they help us make the most profit they can.

Jasperson wasn't part of the business when the two companies aligned. He joined the retail firm in 1992then named Thelen Oil Co.and bought the business 12 years later from father-in-law George Thelen, who had opened his first Hot Stuff location at a Milbank, S.D., store in March 1987.Today, Jasperson's company has six Hot Stuff Food On the Go locationsfive in Minnesota, in addition to the original one in Milbank.

We have tried every program they've had, from fried chicken to Mexican to subs to Chinese, ice cream and espresso coffee, Jasperson said. This last three to four years, they've had really good products coming across the board.... There were times when you're getting a dozen new things in a quarter, and now they're much better planned out. They do the items justice and produce them the right way, and that makes it easier on our employees.

Jasperson's experience with Hot Stuff has been resoundingly positiveand profitable. But not every program set the world on fire, so to speak.

I loved the Chinese program, but it's tough to eat Chinese when you're going down the highway, he said. You needed the right amount of seating to make it work. With Mexican and the making of tacos and burritos, you can get into over-portioning situations. When you start getting into the lettuce and other vegetables, you can see your gross margins dry up pretty quickly.

Hot Stuff's history dates back to December 1986, when it was known as Orion Food Systems LLC. Des Hague, chairman of Hot Stuff Foods, said he believes his company's 20 years of growth and success have come as a result of putting the retailer first.

I think what's been consistent over the last 20 years with Orion and Hot Stuff Foods has been the innovative solutions for the convenience store, Hague told CSP Daily News. A lot of [retail] models have corporate stores and franchised stores, and our view is to be 100% franchised. We have a belief in individual franchises, and we have systems to provide them with solutions. If our franchisees are not successful, we are not successfulso we'd better know their business. That's been a consistent thread throughout our 20 years.

Since Hague joined the company in 2003 as president and CEO, posts he took after guiding the foodservice strategy for 7-Eleven Inc., Dallas, Hot Stuff Foods has honed its strategy of thinking and acting more like a retailer than a manufacturer.

It's not good enough to give a manufacturing solution in today's world, he said. You've got to think about all the things I thought about when I ran foodservice for 7-Elevennot just how many pizzas can I sell but how am I going to leverage the beverages? How am I going to increase gross profit for a 24-hour operator? We want to look like and act like a retailer even though we don't run retail stores. That one thing has been critical to our success over the last two decades.

Also, focusing intently on velocity and disciplined menu differentiation has helped Hot Stuff Foods sustain its growth.

Twenty years ago we had fantastic pizza, and it's still 60% of our business, he said. No one was eating Mexican food 10 years ago, and now it's 10% of our business. Three years ago we had 24 brands. Today we have four. We want to be relevant and go deep in that relevancy.

Hague said his company opened locations in more than 120 big-box convenience stores last year, meaning retailers that wanted to get heavily into foodservice, or what Hague referred to as the cream of the cream. More importantly, the company rejected more than 375 potential openings last year because we wanted to have the right people in the family, he said. We didn't want reckless growth.

Hot Stuff Foods has more than 2,000 locations worldwide and is the fifth-largest pizza operator in the United States. Its brands include Hot Stuff Pizza, Hot Stuff Food On the Go, Hot Stuff Food Xpress, Smash Hit Subs and C-Street Bakery. In November 2006, Hot Stuff acquired Lettieri's Inc., a manufacturer of ready-made food products, such as breakfast sandwiches, enrobed hot dogs, burgers and breadsticks.