Back in 2021, when management at Pizza Pizza Ltd. considered the future of the company, it would have been tempting to continue on the same trajectory, adding ever more restaurants in familiar Canadian markets. The strategy had worked well in the past, so well, in fact, that it earned the company the title of Canada’s largest pizza franchise.

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But chief executive Paul Goddard sensed it was time for Pizza Pizza to start exploring new markets — namely, Mexico.

“There comes a certain point where you do become too saturated,” said Goddard, prior to the April 21 announcement of Pizza Pizza’s expansion into Latin America’s second-biggest economy. “I think we’re still a long way from that. But in a place like Toronto, for instance, we have 200 locations. We don’t need 500 locations in the city of Toronto. That would probably be too many.”

The company currently has over 700 restaurants across the country. Goddard thinks 1,000 is probably the maximum. “You don’t need 10,000 stores in Canada,” he said.

Here, Goddard takes heed of the law of diminishing returns, which states that the profits gained from a venture will represent a proportionately smaller gain as more money is invested in it. In other words, just because Pizza Pizza can expand, doesn’t mean it should.

You can “actually hurt your franchisee operators if you become too saturated; places start cannibalizing each other,” Goddard said. In order to preserve profitability of individual franchises, “we want to make sure we have smart growth,” he said.

Nice ‘mouthfeel’

The Mexican locations will fall under the PZA Pizzeria brand, which is principally for international markets. The Pizzerias will serve as a playground where Pizza Pizza can experiment with new flavours, while sticking to the company’s “recipe for success,” said Goddard. The PZA Pizzerias will include old favourites, such as pepperoni, but also local flavours, such as shredded pastor pork, a Mexican favourite marinated in a sauce of chilies, garlic, onions and vinegar. It has a nice texture, or “mouthfeel,” said Goddard, quoting a widely used industry term.

The first PZA Pizzeria is opening several months late because COVID-19 slowed the process of training staff in Guadalajara.

Guadalajara-based company Food Gurú will be the “master franchisee,” in charge of recruiting sub-franchisees in the region. In the April 21 press release, founder and president Ricardo Aldrete said, “as we continue to expand, it’s important that we have the right partner to offer quality, value, convenience and unique choices for our customers.”

Food Gurú will open five restaurants this year, and has an “aggressive” expansion plan for 2024, the press release said.

‘A gourmet twist’

The PZA Pizzeria locations in Mexico and abroad will have “a gourmet twist,” Goddard said, “which allows us to sort of preserve the brand attributes of quality, freshness, convenience, everything we have to offer,” while maintaining the flexibility necessary to adapt to local cultural flavours.

Canadians will have the chance to sample the new flavours at one of four Canadian PZA Pizzerias, he said, set to open in the next few months in undisclosed cities.

The expansion was not without its hiccups. Initially, the executive team at Pizza Pizza was skeptical of moving into Mexico.

We don’t have to be everywhere. We want to be where we can do well

Paul Goddard, chief executive, Pizza Pizza

When Food Gurú chief executive Nataly Valdez first approached Goddard and his team, they hesitated, thinking about safety and security concerns. But Valdez was persistent and convincing, said Goddard. She had a hunch there was an opportunity there.

“We certainly did not go into that lightly. We had our own hesitations,” Goddard said.

Organized crime and corruption have hurt the business climate in Mexico, according to an analysis by Banco Santander SA. Mexico routinely grapples with human rights violations, including torture, gender-based violence, and enforced disappearances, according to Human Rights Watch. Meanwhile, President López Obrador has expanded the use of armed forces to control immigration, run social programs, and pursue large projects. Impunity is common in the Mexican criminal justice system.

“There’s some risk there,” said Goddard. “There are some political issues, there are issues with safety and things. But I think somewhere like Guadalajara is a very safe, reputable place. It has its issues too, just like any city, just like Toronto does.”

Pizza Pizza isn’t the only company with an interest in the Mexican market. Bombardier Recreational Products Inc. plans to manufacture its electric motorcycles there. Canadian-owned dollar store chain PesoRama Inc. has set up shop in Mexico City. Restaurant Brands International Inc.’s Tim Hortons brand plans to open 50 restaurants in Mexico’s Querétaro region.

But Canadian companies haven’t always been interested in Mexico. Even though Canada and Mexico have been trading partners since 1994 thanks to the North American Free Trade Agreement (NAFTA), Canadian entrepreneurs and executives have tended to prefer to do business in the United States. In 2000, exports to the U.S. accounted for about 87 per cent of Canada’s total exports, while exports to the U.S. accounted for about 88 per cent of Mexico’s total.

Approaching with care

However, sentiment toward Mexico has been changing. At the Three Amigos summit in Mexico in January — a meeting between U.S. President Joe Biden, Mexican president Andrés Manuel López Obrador, and Canadian Prime Minister Justin Trudeau — Biden referred to the three countries as “true partners.”

Today, Canada and Mexico share $41.7 billion in two-way merchandise trade annually, making Mexico Canada’s third-largest trading partner, behind the U.S. and China. More than 1.8 million Canadians visited Mexico in 2022, but the country has more to offer than beaches and good weather. It’s one of the emerging countries most open to foreign direct investment, boasting 13 trade agreements, which is nearly on par with Canada’s 15.

Trading with Mexico will not be without its challenges, however. Inflation has slowed Mexico’s pandemic recovery. The country is “well placed to navigate the challenges and risks,” wrote the International Monetary Fund in its latest review of Mexico’s economy.

Still, the looming recession threatens to compound issues such as slow growth and high inequality in the country. That’s why Pizza Pizza is approaching its foray into Mexico with care. Expansion into cities other than Guadalajara and Ajijic will be done on a case-by-case basis.

“There are probably some places in Mexico we probably would avoid, too,” Goddard said. “We don’t have to be everywhere. We want to be where we can do well.”

• Email: mcoulton@postmedia.com | Twitter: marisacoulton