Restaurant

Is Pizza Perennially Profitable?

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Posted By arjun

When I asked several leaders in the pizza segment their observations on sales trends, there were varied responses. Art Hurteau, President of A&M Pizza, a franchisee of Domino’s with 14 stores and 3 seasonal venues in Missouri, told me that, “While 2008 was rough, as it was for most, 2009 has started out much better for us, though not as good as 2007.” Rick Barsness, President of Incredible Pizza Company, is “hoping to have even comps…no ups, no downs…and that is where we are so far this year.” That is a preferred position for most in the industry compared to where they are. Ron Berger, Chairman of the 125 unit Figaro’s Pizza franchise group, sees a mixed bag of sales trends from his franchisees. “Since the start of 2008, we have some stores up 30-40% in sales and some down equally as much.” The variations in trends were seen to be “geographically sensitive” in Berger’s view. Not everyone in the pizza business is as positive or neutral in opinion though. Jim Fox, President of Fox’s Pizza Den, says that while he’s not a “doom and gloom guy”, he sees 2009 as a “total disaster for the whole food industry.” While he has many leads for franchisees to help him grow his brand, Fox noted that the banks have “dried up” on financing and that people he used to be able to help get financed are no longer qualified. Though varied, the general mood of the pizza segment seems to be less dire than many other segments in the industry when it comes to sales trends.

Commodity prices have affected every restaurant in the nation. Of late it seems that a correction in several product prices that matter considerably to pizza-makers has offered them some relief. Cheese and flour, which makes up a large portion of a pizza’s cost, has come down in cost in recent months. Hurteau noted that he’s “seen commodity prices improving” as “cheese and flour were as high as 50% up in 2008.” Barsness says Incredible Pizza has “already seen that” when asked about their cheese prices coming down. Berger of Figaro’s had checked cheese prices the day we spoke and saw the price at $1.20 per pound, compared to a 2008 price he recalled to be as high as $2.40 per pound. Berger does expect the price to rise somewhat in the near future as “that price is simply not sustainable for suppliers to maintain indefinitely.” While many commodity prices are starting to or have already come down from 2008 high’s, pizza producers in particular appear to be enjoying major price improvements on the largest staples of their product.

Another trend pizza seems to be benefiting from is the customer’s current laser-focus on value. Pizza has always been a value driven product, with coupons a driving force of a major portion of sales for many. The price point of pizza, when coupled with a coupon, seems more attractive to the consumer than ever right now. Barsness told me, “Mom wants a deal and is looking for the coupon.” Hurteau has noticed a change in customer choice, driven by price point. His group has seen a good response to Domino’s oven-baked sandwich, even after the promotion ended. He told me that research indicates the customer “likes the flavor profile and the price.” Figaro’s seems to be benefiting more than some concepts as they offer both baked pizzas and a Take ‘n Bake product, a freshly prepared, uncooked pizza which typically sells for $1-$2 less than the baked version. Berger says the lower price is attractive to many consumers. “Since the Take ‘n Bake pizzas can be delivered and qualify for government assistance programs, we see about 10% of our business coming from this demographic right now.” Berger believes his franchise is currently the only to offer both baked and unbaked pizzas.

It appears that while none in the restaurant industry will come out of the current market downturn unscathed, the pizza segment appears, broadly speaking, to be in a position to avoid much of the pain many other types of restaurants are feeling.

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