Welcome to Season 18 of the Troubleshooting Innovation podcast. Nick Fallucca, chief product and innovation officer at Palermo’s, explores what leadership, product development and growth look like for this third-generation pizzaiolo. Sponsored by HaFSBX.
In Episode 4, we hear Nick’s perspective on what it’s like for a family business to become a household name.
Learn more about this season here, and tune into Troubleshooting Innovation on Apple or Spotify.
Joanie Spencer: Nick, welcome back.
Nick Falluca: Hey. Thanks for having me on again.
Spencer: Alright, so last week we talked about growth from more of a product development standpoint and operations and looking at innovation. But this week we’re going to talk about sort of the nationwide expansion and how the brand has grown from your perspective. So, I want to start by going back to the first conversation that we had and remembering what it was like growing up in the family business. So, at what point do you remember your family name being associated with pizza, like in your community?
Fallucca: So, in 2003 is when Primo Thin got nationwide distribution through Costco. And so, from that point on, the Palermo’s name started to carry a weight outside of Milwaukee and Wisconsin, and our brand. From that point on, is when we really began to expand into different retailers and have the growth that started a little bit what we’re seeing today. But not quite to the extent as once Screamin’ Sicilian or Urban Pie or Connie’s, you know, came into the fold. And you know, we have a family of brands, as we say. So, now, we have this family of brands to build upon. And not every brand stands for everything. But Palermo’s Primo Thin was really what, you know, made a name for ourselves outside of the Milwaukee community.
Spencer: And you guys do some private label as well. So how is it, you know, seeing your family’s product on a brand that’s not yours?
Fallucca: I think it’s fantastic. I think it’s leveraging our skillset and innovation and knowing the consumer marketplace. And just building a world class pizza. It’s an honor to have the top retailers in the world come to us and trust us with manufacturing their frozen pizza, because the level and standard that they have asked of us has made us a better company. And so you know, because of some of them, you know, if you’re just selling your own brand, you don’t have to have a BRC or an SQF facility, but, we’re BRC A+ in our facilities, and that that means a lot to us. And so, them forcing us to be better on all fronts is something that we strive to do, whether it’s sustainability or whether it’s, you know, buying better or forecasting better or what have you, partnering with the biggest and the best makes us better
Spencer: And when your lowest standard has to meet the highest standard of your toughest customer that really forces excellence on you, like there’s no room for complacency, right?
Fallucca: Absolutely. I mean, because if you’re not bringing them better products, better solutions, better cost, someone else is. And we can’t just rest on our laurels, that we make a good product, so therefore everything’s all hunky dory. You have to really be pushing the envelope on continuous improvement and innovation and everything.
Spencer: Help me understand sort of the timeline when you were doing the private label production and then branching out with this family of brands. Which came first?
Fallucca: Brand came first in a much smaller scale. When we first started in the set in the late ’70s, it was Palermo’s the brand. And then it wasn’t until like ’89 that we got into private brand. But the scale of private brand far outpaced the scale of brand until the 2000s, and now, we’re about 50/50, private brand to brand.
Spencer: Do you think having those standards to live up to with the private label customers helped you continue leveling up in order to expand out creating more brands?
Fallucca: Absolutely. I mean, it gave us the confidence to make it in a way that is the highest standards of food quality and food safety, but also understanding what private brand wants and what they’re able to deliver versus what our brands are able to deliver and stand for.
And I mean, private brands have come a long way as well. I mean, the private brands, the past used to be just, you know, your white label, you know, green beans. But I mean, the world has gotten so connected. And you know, whether it’s understanding what different people are doing in Europe or Asia, it’s seeing that the private brand can really evolve and to be something better. And, you know, the private brand has to stand for something more. And there might have to be different, you know, spinoffs of that brand, where Target doesn’t just say — it’s just not the Target frozen pizza — you know, it’s the Archer Farms. You know, it doesn’t just say Walmart frozen pizza. Might say Better Goods or Sam’s Choice or Great Value, depending on what does that brand stand for, and how does that brand communicate to the customer. It’s different than it was, you know, back in the day.
Spencer: For sure. So, as you started branching out in into this family of brands, I’m kind of curious, what were the discussions that had to take place like, ‘Okay, we’re ready for this.’ Because I’m guessing that it’s a complicated process.
Fallucca: You know, I would like to say we had this really amazing process of figuring out that we’re ready, but that’s not the case. I mean, my grandfather was a ‘ready, shoot, aim’ kind of a person, and as I’ve mentioned before, some of the way that we develop is sophisticated chaos.
As we launched our Screamin’ Sicilian, you couldn’t have a private brand go and be on a leading edge like that. As we launched the Urban Pie, which is high-end, unique flavors, you know, culinary-inspired recipes, you can’t just bring that to a retailer right away because we are willing to take a risk that a retailer or big CPG is not ready to yet. And sometimes it pays off, and sometimes it doesn’t. But then other brands are more organic. So, we acquired Connie’s brand out of Chicago, an incredible family company, family restaurant that got in the frozen pizza. Basically, a very similar story to ours. We were already manufacturing their product. We were already distributing their product. And so, it was a pretty natural next step for us, just to acquire the brand. You know, so that was more of a calculated decision versus something like Screamin’ Sicilian or, I mean, that was calculated too, but in different way.
Spencer: Are there operational considerations that you have to think about?
Fallucca: For sure. I mean, if you think about a pizza, you know your first thing is your crust. And at Palermo’s, we have four bakeries that can do a wide range of crust, but you still can’t do everything. We can’t do certain items, and so we have to partner with different crust manufacturers to make other specific crust items. Or certain meats — we can slice certain meats. We can apply via a waterfall. There’s other things that maybe the brand desires that we have to do by hand, and then we have to weigh the constraints, to say, ‘Is the consumer willing to pay the extra money for whatever this might be?’ If not, then, while we think it’s amazing, it might not be worth putting on the pizza.
You know, for example, is prosciutto. For the people that have eaten prosciutto, it’s such a thin, delicate, fatty item. And so, trying to apply that in a manufacturing setting is just impossible. You know. So, we’ve had to buy packets, like little one-ounce packets of prosciutto, put them on the pizza, and then the consumer puts it on themselves. So, it’s things like that where you have to figure out a practical way to do it. But then even, which is interesting from a food safety, in Europe, most prosciutto on pizzas eaten, not baked. So the pizza comes out of the oven, they put the prosciutto on and it kind of like melts into the pizza, because it’s such a delicious, cured meat.
In the United States, the quality of the prosciutto is not the same. But also from a regulatory you know, if you don’t need to heat that item, now that prosciutto is a ready-to-eat item. What are the implications of having a ready to eat item on a not-ready-to-eat pizza? And the food safety. And they’re like, ‘Well, if you said I can eat the prosciutto cold, why can’t I eat the whole pizza cold?’ And so, it’s funny, but we have to make sure.
Spencer: Oh, consumers.
Fallucca: We love you, consumers! We love you all.
And so, all these considerations have to happen when the product tests well, let’s say, in the consumer focus group or through the studies, but then commercializing it is what’s actually possible. Or, you know, one of our brands, Urban Pie, is an all-natural product. It’s sold at Whole Foods and Sprouts, but there’s only so many types of product that can fit into their system. And so that limits you from a development perspective, if you want to be elevated, unique, but you also have to be clean. Oh, and there’s a thing called the price point you have to hit. You know, some of those things kind of constrain to what you’re able to do. And so the big manufacturers of let’s say meats are probably not willing to do something that’s so new and unique because in the world of retail, nothing’s a guarantee.
So, let’s say we want to use one of the newer meats out there today, called ‘nduja. It’s kind of like a chorizo, like a spicy Italian spreadable sausage paste. And it’s delicious. It’s amazing. But in order to do it in restaurant, you kind of have, like, this tube of it, and you kind of, like, squeeze it out or cut it or spread it on your pizza. When it bakes up, it bakes up like a sausage. And so, it’s like, we go to our, you know, different meat suppliers say, ‘Hey, can you do this?’ Like, well, ‘Yes, it’d have to be IQF and, you know, and our order minimums are X.’ ‘Okay, well, we’re launching it for our brand. So, we’re only putting it into this amount of retailers.’ Because we have to test it before we just go, nationwide launch. And they say, ‘Well, your volumes and our volumes don’t match up.’ Or you go to a small guy, it’s like, ‘Yeah, I would love to make this item for you, and here’s your cost.’ And it’s like, ‘Whoa, we can’t afford that.’ Or it’s like, ‘Yeah, you just, you have to just kettle-cook your own sausage.’ Like it’s, it’s easy, right? You know, so it’s all these considerations of what’s possible. And then what does the consumer want? And you kind of marry up the two. And the price. It’s like, what your consumer wants, what you can do, and what the price is, and whatever kind of fits in that middle is, you know, what your sweet spot is.
Spencer: You’re stressing me out. Like, that’s a hard sweet spot to find.
Fallucca: It is, it is. But that’s what we do all day, and that’s why we have incredible, you know, chefs and food scientists and sourcing team and quality. It takes a whole team. And then it’s like, let’s say we can do everything through the process, and now it’s, you know, partnering with operations and make sure they can make it. It’s really not one department. It’s all the departments working together. I said before, it’s not, it’s not me … it’s the team working in conjunction to launch these unique items in the marketplace.
Spencer: Well, yeah, and we talked about that a couple weeks ago. Everybody has specific roles that they’re responsible for, and it’s their area of expertise, and everybody’s got to come to the table. And looking at all of these logistics to get a product launched, that’s a really tangible example of why you put so much emphasis on your teams and your people. Because you’re right, one person could not handle all of those micro details.
Fallucca: Correct. And for the brand, it’s important for us to stand for what the brand stands for. And being true to what it is. And sometimes we’ll try different things through a retailer. But for the most part, you know. Like our Urban Pie brand will always be all-natural, and, you know, food-focused. So, if we’re doing something basic, it better be damn good. Better be that truly authentic. You know, it’s like, we have a margarita pizza on our new urban pie pinza line. And, okay, it’s a margarita pizza, but a margarita pizza that’s a value margarita pizza compared to a margarita pizza that is using, you know, a high-hydration dough, San Marzano tomatoes, stracciatella cheese. Okay, now you’ve got a different, it’s a different animal. And so it’s like, every one of these components is just truly excellent by itself, and you put it together, and it’s incredible. So sometimes simplicity stands for a lot. Or sometimes just over the top is what the brand wants. And so that’s kind of the fun thing, is being able to use our portfolio of ingredients and manufacturing processes to make whatever that brand needs.
Spencer: Okay, so let’s bring the brands back together, back with the private label business. Paint a picture for me in your operation of how you make everything happen. Like, is there any sort of competition that has to be considered. Or, like, how do you schedule how everything, all the lines run to get all of the brands and all of the private label customers products going?
Fallucca: Yeah, I mean, the back of the envelope is really messy. I mean, we’ve got teams that are dedicated to the forecasting and scheduling, you know, seeing what we have in inventory. What’s in the forecast? We try to work with the private label teams and the brand teams to say, you know, ‘What is your forecast down to a skew level?’ And then how do we make sure that we can line up like items together?
And so, let’s say we make 20 different rising crust pepperoni items. But they’re not all for the same retailer. We’re not going to make X brand cheese, pepperoni, sausage, supreme because you have to clean up the line and whatnot. So, we like to start the day making whatever some of our cheese items are. And each line manufactures different products. But for the most part, if you can manufacture a bunch of cheese items, you don’t have to do a full washdown, because you’re not incorporating a different species. So, you’re not incorporating pork, beef or chicken. So you’ll try to get all your cheese done. And then, okay, now let’s incorporate pork and beef. So now let’s do like sausage and pepperoni items. So maybe it’s like your pepperoni or your pepperoni and sausage. So now you’ve made your cheese, and you’ve made your whole different styles of product. And then you go to, let’s say, cheese and pepperoni. And then you make all of your cheese, pepperoni and sausage items. Then you incorporate the vegetables. So now you’re making all your supreme items. So, you’ve gotten through kind of, you know, 90% of all the products you’re going to make, and then at the end is when you’re going to probably start making your unique items, whether it’s stuff with white sauce or barbecue sauce or chicken, chicken spinach — things like that, that are gonna require full wash downs every time — because spinach is not an allergen, but spinach is green, and people don’t want spinach on their pepperoni pizza,
Spencer: There’s something green on my pizza!
Fallucca: Exactly. Whereas, like, if I’m going from a mozzarella blend to a mozzarella-provolone blend, it’s okay if you get mozzarella on your mozzarella-provolone blend. Things like that, it’s okay. But again, you can’t get you can’t get pepperoni into your into your cheese. Though, sometimes we just don’t have the ability to forecast like that because, you know, customer X needs to get shipped out this day. So, we’ll make the chicken bacon ranch with spinach the first thing in the morning and then just have to do a full washdown. So, we’ll do that, and you know, basically the whole line is completely clean ready to go for that next item.
And so we try to be pretty locked into our schedule for a couple of weeks out, but someone has a big promotion for Super Bowl or March Madness. And we generally know when the Super Bowl is, when March Madness is, when Halloween is, so we can plan for these big retailer events. And we try to get these even, like a year out. We know it every February, the Super Bowl is going to happen. We know every March, March Madness is going to happen. And we know that retailers like to promote pizza at these times because people are gathered with friends and family, so we generally shouldn’t be shocked when they want to do that promotion.
Spencer: So what are the like pizza holidays or pizza season? So, we got Super Bowl of course, and March Madness, Halloween, I always eat a pizza on Halloween. It’s easy. What are the other ones?
Fallucca: Day before Thanksgiving is pretty big, you know, or sometimes the day after. ‘I don’t want to cook, so I eat pizza.’ Or ‘I’m sick of Turkey. I want pizza.’
But really I would say peak pizza season is from back to school until, I would say, March Madness. We have times where, if it was just based on the capacity of the day, we’d have the peaks there. But because we can build inventory ahead of time, we don’t really have a busy or slow time. We’re always pretty jam packed, jam packed, but finding out new ways to bring on more business always.
Spencer: Are there any specific brands that get a higher demand in a specific season or holiday?
Fallucca: No, not specific season or holiday, but Screamin’ Sicilian is our biggest brand by far. That’s sold in every major retailer across the country, with the exception of the natural channel. But then Urban Pie is primarily in the natural channel, so your Sprouts, your Whole Foods, your independent higher-end or natural grocery stores.
Spencer: Okay, so let’s talk about Screamin’ Sicilian for a minute because that’s the one that took you out of the region and really made Palermo’s a household name. What was that like in the beginning? Like, how old — I’m gonna ask you to age yourself — how old were you when that happened? Were you involved in the business, or was that already in play?
Fallucca: You’re making me do math. So yeah. So I’m, I’m 38 now, and that brand launched in 2013, so, you know, 13 years ago. I mean, I was, I was involved in the business, and at that time, I was overseeing our marketing and R&D. So my team’s got to be a part of that development.
Spencer: That must have been so exciting!
Fallucca: Yes, it was. Well, it’s always an evolution. I mean, just developing something was one thing. Developing and launching, it’s different. But then seeing the success is what’s really been exciting. So, it’s kind of like this long, drawn out process. You can’t get too excited just for launching something, because you don’t know until it actually sells.
Spencer: Right! You got to see if it works, first.
Fallucca: Exactly. But, yeah, I mean, what’s really exciting is to see just the numerous awards of, you know, continuously the best frozen pizza in the marketplace. Our Screamin’ Sicilian is always in the top three. It wins a lot of awards for best frozen pizza. So, it’s just exciting to see that. Exciting to see the retailers wanting it, not just because it’s fun or unique, but because it’s moving the velocities that they need. It’s bringing in unique customers to their category.
People that buy Screamin’ Sicilian, they have a higher basket ring than other consumers because of what they’re bringing in. People will — because when they buy Screamin’ — they will go to specific stores to get it sometimes. And so that’s a good story to tell retailers. ‘If you don’t have this product, they’re going to go somewhere else and they’re going to get it, which means that this large basket ring, you’re missing out on. It’s a great story to be able to tell. And then, you know, measuring the velocity, to say, ‘The velocity this product brings you, but also, because it’s a high dollar ring, you’re getting more dollar margin.’ A $1 pizza can has to sell so many more units than a $10 pizza, you know, for you to get — and everyone’s getting the same margin out there — but whatever their percentage is of $1 versus $9 or $10 is different.
But then the consumer point of view is great too. Because, you know, sometimes it’s funny, we think, ‘Oh my gosh, like, $10 is a lot for a frozen pizza.’ But, I mean, I went to Starbucks this morning, and, you know, I paid $7 for my coffee. I didn’t blink an eye. You go to get pizza delivery. I still get pizza delivery — yes, even me, I get pizza delivery from my local pizzeria — A, I want to support local restaurants and B, I just, I like their product, and it’s easy. You just call them and they show up. But it’s 40 bucks, you know, for a couple of pizzas. And in the time it gets you it’s sometimes not always hot, or, you know, it’s toppings have all shifted, or delivery driver takes couple slices. No, he doesn’t do that. But, you know, it’s like, ‘Okay, so $9, that’s a hell of a deal.’ And for a really great pizza, you know, for so for 20 bucks, you can entirely feed your family.
And then, going back to the private brand, we’ve got a couple private brands that have really amazing products for $4.99. And so, tell me where you can feed a family of four for five bucks? You can’t. In the frozen pizza world, you can. So, whether it’s five bucks for, you know, one big, thick rising crust pizza, or 20 bucks for two Screamin’ Sicilians, you’ve got your family fed. You’ve got probably leftovers, and you saved yourself a whole bunch of money on a super-premium product.
Spencer: So, talking about feeding your family. I recently was talking to a baker that was retiring, and he had spent his career in various areas of food, and one of them was in the pizza business. He talked to me for a while about the pressure that comes with making frozen pizzas and the fact that it is like family pizza night and it’s the whole meal. He talked about, like, a lot of pressure to get it right. Do you guys feel that pressure, especially with, Screamin’ Sicilian, when there is this expectation that comes with the brand’s reputation, that if it’s not exactly what it’s supposed to be, there’s no meal.
Fallucca: I think about my family, and if I put together a meal and they don’t like it, you’ve been working all day, you come home and the last thing you need is to have your meal time screwed up. So, I would not say, though, we are under pressure, I would just say, it’s our responsibility to provide that food-safe, great, tasting, consistent product, any given occasion. And if not, we’ll make it right. We’ll fully refund you if it’s not right because we don’t want to mess up. So, it’s not a pressure because that’s what we do, and that’s what we do well.
Spencer: It’s just sort of baked into your quality expectations.
Fallucca: Yeah, no pun intended. It’s baked into the expectations.
Spencer: Okay, I’ve got one last one, and I’m going to be fan girling a little bit. But I want to have just sort of an open discussion about brain collaboration. Because you guys have been killing it with brain collaborations, like really cool ones with Cheez-It and Surfer Boy. I am a huge Stranger Things fan, so I loved that you guys did that. I just want to pick your brain and talk about how these kinds of things come to fruition. Like, how did you get these brand collaborations going?
Fallucca: I think where it started was them having the trust that we’re going to be able to do whatever is right for their brand. So that’s the first thing. Second is, you know, I like to think that we’ve got a good brand and a great company. But there’s other brands that carry far more weight than we do, and one of those, obviously, is Netflix’s show Stranger Things. There’s like not even words that describe the difference of fan base, from a Screamin’ Sicilian pizza to, you know, one of the most popular shows of all time. So, it’s like, it’s a different scale.
And the way that occurred is we got a call from Walmart that they got a call from Netflix that they want to launch us like, ‘Hey, just so you guys know, in the new season of Stranger Things, they’re gonna be working at a place called Surfer Boy Pizza. It’s gonna be a major part of the show. They’re gonna be riding around in this really cool van, and that’s a major element. So, we want to do a collaboration. Who should we work with?’ And Walmart’s like, ‘Palermo’s.’ And so it’s a huge honor. And within six months from concept to launch, we were able to ideate, design, develop, launch into the biggest retailer in the world in six months. And it was a really fun one to do and to work with Netflix team. We talk about different skillsets, different levels. And obviously, Netflix, I mean, they’re a massive media corporation, and they know what they’re doing, and they’ve got incredible shows. And so to be able to work with them and quickly go back and forth on packaging and creative was really fun.
And then we approached, or we’re approached by these other different partners. And you think about, ‘What’s the best snack brand in the world?’ And Cheez-It obviously always rises to the top.
Also like, what’s the fit? We’re not going to do a Sour Patch Kids pizza.
Spencer: Thank God.
Fallucca: But like, you know, not like, that easy fit. Where it’s like, Cheez-It, that’s got an incredible cheese cracker, that cracker crust. It was relatively easy, like, I understand the fit. And same with Ragu, as far as like, they’re the top-selling sauce company in the United States. So, let’s see how that does. It tested really well with consumers.
So, it’s fun to try these different things that really leveraging what our brand stands for. And when we partner with other brands, it’s really leveraging, ‘What does your brand stand for?’ You know, so what does Surfer Boy stand for? What does Cheez-It stand for? What does Ragu stand for? And bringing our development and our technical knowledge and leveraging these incredible, iconic brands has been just an incredible opportunity, and looking forward to continuing these ton of partnerships, as long as they are successful in marketplace.
Spencer: I mean, what a fun day at work to get to come up with these crazy new concepts. And it just seems like the sky’s the limit on them.
Fallucca: Yeah, it’s great.
Spencer: So, that is it for this week, Nick. Next week is gonna be our last week together, and we’re gonna talk about the future of innovation. I think you’ve taken it as far as we can go on the past and the present. So, we’ll talk about what the future looks like for Palermo’s, and I can’t wait for that discussion. So, thank you for this week. This was really fun.
Fallucca: Thanks. We’ll talk next week.
