To Survive in a Fiercely Competitive Market, Operators Must Adapt to a Rising Demand for Delivery, Ease of Ordering and “Cleaner” Ingredients in 2017
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To survive in a fiercely competitive market, operators must adapt to a rising demand for delivery, ease of ordering and “cleaner” ingredients in 2017. izza makes everything better, but the world’s greatest food had to work overtime in 2016, which will long be remembered as the year we’d rather forget. Atrocities, natural disasters, Pthe Syrian refugee crisis and the nastiest presidential election in recent memory left us all crying out for comfort—and pizza, as always, was there for us, dripping gooey, melty cheese and salty, savory goodness over our woes and worries. So it should come as a surprise to no one that pizza consumption this year climbed to its highest level in the past four years, according to research firm Technomic’s 2016 Pizza Consumer Trend Report. Forty-one percent of consumers polled say they now eat pizza once a week, a big jump from 26% just two years ago. And a Harris Poll found pizza is Americans’ No. 1 favorite comfort food, earning twice as many votes as any other dish. (Take that, chocolate!) In other words, don’t let anyone tell you that you’re in the wrong business. The pizza industry, in fact, forged ahead in the past year, even though independents, bound to decades of proud tra- dition and slow to adopt new technologies, continued to lag behind the chains in market share. All in all, the signs point to modest growth in the segment, with fast-casual chains leading the charge and online ordering technology and third-party delivery options fueling the engine. Now let’s take a deeper look. WORLD PIZZA MARKET $128 BILLION US PIZZA MARKET $44 BILLION NO. OF US PIZZERIAS 76,723 AVERAGE UNIT SALES $579,127 CONSUMER DEMAND 26% TREND COMPARED TO 2015 A NEW APPROACH TO CATEGORIZING PIZZERIAS sales—plus a couple thousand additional stores—for the First, we’ve got some explaining to do about this year’s year ending September 30, 2016, compared to the pre- industry numbers. After working closely with research vious year. firms CHD Expert and Technomic, we’ve come up with some figures that don’t quite jibe with last year’s report. In TOP 50 CHAINS SHOW GAINS the past, our data on pizza industry sales and store counts So let’s take a closer look at those numbers. According has varied because pizza itself has often been something to CHD Expert, there were 76,723 pizza restaurants in of a nebulous restaurant category, floating between Quick operation as of the end of September 2016. A total of Service (QSR), Full Service (FSR), Limited Service (LSR) 5,377 new pizzerias opened their doors in the past year, and Fast-Casual. This year we’ve worked with CHD while 6,066 closed down. But if you dig a little deeper, Expert and Technomic to better define the overall pizza you find that independent pizza shops held their own restaurant category for the purposes of this report. We compared to the chains in terms of opens and closes. include in our data both pizzerias traditionally categorized Independents opened 3,614 stores and closed 3,656 as LSRs as well as any other restaurants (such as FSRs) stores, for a net loss of only 42 units. Chains, meanwhile, with the word “pizza” in their names (Example: The Cali- opened 1,763 stores and closed 2,410, for a net loss of fornia Pizza Kitchen chain was left out of previous reports 647. The total impact on the industry was a net loss of for a while because Technomic classifies it as a FSR, but, only 689 stores—less than 1%. with our new classification method, we’ll include it in our But the chains, while closing more stores, still outsold reports from now on—it’s definitely a pizza restaurant in the independents. Independents now comprise 55% of our book.) In short, if pizza features prominently on your America’s pizza restaurants while bringing in only 42.5% menu, we’re counting you. of the sales. With a total of 42,455 units operating as The upshot? This new, broader category has yielded of September 30, 2016, independents logged sales of substantially bigger numbers for overall pizza industry $18,879,367,505 this year, while the chains raked in 40 PMQ Pizza Magazine The Pizza Industry’s Business Monthly U.S. PIZZA SALES $44.43 BILLION (YEAR ENDING SEPTEMBER 2015) SOURCE: CHD EXPERT & TECHNOMIC TOP 50 CHAINS: 24.75 BILLION 55.72% INDEPENDENTS & SMALL CHAINS: 19.75 BILLION 44.28% INDEPENDENT PIZZERIAS VS CHAIN STORES (LESS THAN 10 UNITS) (MORE THAN 10 UNITS) INDEPENDENTS 3614 CHAINS OPENINGS INDEPENDENT PIZZERIAS VS CHAIN STORES 1763 WORLD PIZZA MARKET $128 BILLION (LESS THAN 10 UNITS) (MORE THAN 10 UNITS) (IN BILLIONS) TOTAL PIZZA INDUSTRY INDEPENDENTS 5377 10.28% SALES TOTAL $18,879,367,505 RUSSIA $.83 BIL INDEPENDENTS 3.48% 25.76% $44.43 Billion USD CHAINS 7.39% 3656 $25,552,998,951 WESTERN EUROPE $47.28 BIL 10.99% ASIA PACIFIC $10.80 BIL CHAINS NORTH AMERICA $45.15 BIL CLOSINGS EASTERN EUROPE $3.38 BIL 30.70% INDEPENDENTS 2410 UNIT TOTAL 42,455 TOTAL PIZZA INDUSTRY 12.67% CHINA $3.67 BIL 76,723 CHAINS 6066 MIDDLE EAST & AFRICA $4.71 BIL 34,268 NET LOSS 8.12% INDEPENDENTS 45.15% AUSTRALASIA $1.97 BIL AVERAGE SALES $ 444,691 LATIN AMERICA $13.28 BIL PER UNIT TOTAL $579,127 CHAINS 42 647 689 SOURCE: EUROMONITOR INTERNATIONAL $745,681 INDEPENDENTS CHAINS TOTAL PIZZA INDUSTRY (INCLUDING A FORECAST THROUGH 2020) SOURCE: CHD EXPERT SOURCE: CHD EXPERT $25,552,998,951 with only 34,268 units, according to want to stay competitive. The chains are also quick to CHD Expert. Independents averaged $444,691 in sales experiment with new styles, unique toppings and trending per unit, compared to $745,681 per unit for the chains. flavor profiles. Independent operators who continue to Combined, the independents and chains—again, underestimate the power of quick and easy ordering— we’re counting both LSRs and FSRs with “pizza” in paired with the enticement of flashy new menu items with their names—generated sales totaling $44,432,366,456, bolder flavors—do so at their own peril. according to CHD Expert. To arrive at our estimate of overall industry sales growth WEIRD, WILD AND LOCALIZED from last year, we looked at a couple of different sources— Speaking of flashy new menu items, would you like a Technomic and Euromonitor International. Technomic little kangaroo meat on your thin-crust? How about cac- reports a 5% increase in pizzeria sales in 2016, while tus or grasshoppers? If that sounds good to you, you may Euromonitor shows a 2.5% increase. By splitting the dif- not be from around these parts. Although Americans have ference, we’ve arrived at an estimated increase of 3.75% gotten pickier about the quality and flavor profile of our in sales for the past year. All in all, these are encouraging toppings, we still mostly stick with the tried-and-true: pork, numbers. A net loss of less than 1% of the country’s pizza chicken, maybe the occasional anchovy and, if you really stores, coupled with an increase in industry-wide sales of want to get all fancy-pants, the odd truffle or two. For a 3.75%, suggests the pizza industry has stabilized, at least real culinary adventure, you’ll have to hop on a jet to India for the time being. or South Korea, where pizza makers, including at global At the risk of sounding like a broken record, we again chains like Pizza Hut and Domino’s, are reinventing the attribute the pizza chains’ higher market share in large classic dish with local tastes in mind. “In nontraditional part to technology. Even the smaller chains have gotten markets—those in which pizza is not traditionally a com- wise to the power of online ordering, which also boosts mon offering—operators need to find ways to make pizza ticket averages. As we’ll see later on in this year’s report, more appealing to consumers who are relatively unfamiliar Domino’s and Pizza Hut have dedicated themselves to the with the format,” says Stephen Dutton, a consumer food- proposition that convenience trumps quality these days, service analyst with Euromonitor International. “Adopting and smaller chains have no choice but to keep up if they local ingredients is one way to do this.” 42 PMQ Pizza Magazine The Pizza Industry’s Business Monthly In some cases, the experimentation gets a little wacky, but not always foreign to American palates. Pizza Hut Middle East has rolled out pizzas with cheeseburger sliders embed- ded in the crust and cone-shaped removable crusts stuffed with cream cheese. A Pizza Hut Singapore creation boasts a “lava crust” style, with Parmesan and cheddar cheeses oozing out of holes pocked throughout the crust. Things U.S. PIZZA SALES get a little stranger in Australia, where Pizza Hut last year launched a meat lovers pie on a crust stuffed with Vegem- $44.43 BILLION ite, a thick, salty spread made from leftover brewers’ yeast (YEAR ENDING SEPTEMBER 2015) extract. “Pizza Hut has had a lot of success experimenting with SOURCE: CHD EXPERT & TECHNOMIC their pizza offerings in international markets, because that’s what consumers often want and expect from these chains,” Dutton notes. The same goes for Domino’s, which en- TOP 50 CHAINS: 24.75 BILLION courages local sourcing of ingredients through its master 55.72% franchise model and gives franchisees “a lot of localized INDEPENDENTS & SMALL CHAINS: 19.75 BILLION After launching in 2008, MOD Pizza control in terms of format type and product offering be- 44.28% has already become one of the five cause they, as locals themselves, know what works best in fastest-growing restaurant brands in the country.