Pizza Franchise

8/3/2019 Pizza Franchise

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PIZZA FRANCHISE

US

Industry Overview

Given the current straitened economic conditions the restaurant industry is

proving resilient. Eating out in restaurants and the purchasing of take-out

and delivery meals is an essential part of the American lifestyle. The

convenience and value offered by the restaurant industry makes

management of consumers day to day living easier. Research by the

National Restaurant Association indicates that consumers, although worried

about the economy, intend to continue their patronage of restaurants. It is expected that quick service, take out and

delivery style restaurants will benefit at the expense of upscale and casual dining. It is predicted also that moderating gas

prices and other commodities will mean that consumers may have more disposable income in 2009.

The US pizza market is a mature, developed market and highly competitive. Franchised pizza chains account for

around 60% of the market. It is estimated that there are around150 well known pizza franchises in operation and

an unknown number of local and regional pizza franchises. While the pizza market experienced growth until 2007 when it

reached a value of $34 billion, the financial downturn resulted in flat sales in 2008, a trend which is expected to continue

for 2009. As well as moderating sales,franchiseoperators are facing a minimum wage increase from $6.55 to $7.25 per

hour effective July 24, 2009. On a more positive note, commodity prices are falling. The price of cheese, wheat and most

pizza toppings has fallen in 2009. Also, the trading down by cash strapped consumers from casual and upscale dining to

less expensive alternatives is expected to benefit pizza franchise operators.

Top 10 Pizza Franchise Chains

Company Name Founded Units Service Type

1. Pizza Hut 1958 14,759 Family Style

2.Dominos Pizza 1960 8,641 Take-out/Delivery

3.Papa Johns Pizza 1985 3,238Take-

out/Delivery

4.Little Caesars 1959 2,000Take-

out/Delivery

5.Noble Romans Pizza 1972 1,400 Take-
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out/Delivery

6.Papa Murphys Take N BakePizza

1981 1,073 Take-out only

7. Sbarros Italian Eatery 1956 1,040 Quick Serve

8.Godfathers Pizza 1973 656 Quick Serve

9. CiCis Pizza 1985 631 Buffet

10.Hungry Howie's Pizza 1973 575Take-

out/Delivery

Source: Adapted from PMQs Pizza Magazine September 2008

Trends

Healthier OptionsThere is increasing demand among consumers for healthy meals and healthy

kids meals. Consumers are also more interested in where their food comes from

and how it is produced, with a growing demand for locally produced and organic

ingredients. Pizzeria operators are responding by producing dough with healthier

fats, offering whole wheat pizza crusts, healthier vegetable based toppings and

salads.

ValueAs consumers increasingly look for value, pizzeria operators are expected to respond with lower prices and promotions.

Falling commodity prices will enable more aggressive pricing. Consumers have less to spend, but they still want to dine out

for convenience and enjoyment. By responding with value pricing, specials and combo-deals, pizza franchises will meet this

ongoing consumer need.

Technology TrendsThe major pizza players are offering online ordering and some are now offering text ordering from mobile phones, PDAs

and other web enabled mobile devices. Major pizza chains are using social networking sites like Facebook and MySpace as

platforms to build a loyal customer base and to facilitate ordering directly from the sites.

With an increased focus on green initiatives in the restaurant industry as a whole, pizza operators are introducing energy

efficient equipment such as high speed ovens.
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Territory

The majority of pizza franchises come with a protected territory although some franchisors reserve the right to open

outlets within a given territory in certain circumstances.

Earnings Claims

It is difficult to predict what the future financial performance of a franchise unit will be. Earnings claims are contained in

about 25% of franchisors FDD. They are accompanied by so many disclaimers that they only give you a very general

indication of what money you might make. In our sample of pizza franchises, one small family style pizza franchise gave a

potential revenue estimate of $800,000 and a net income of $160,000.

Outlook

The pizza franchise sector, like most industry sectors, faces the challenges of a weak economy and stagnant or declining

sales in 2009. Tight cost control, falling commodity prices and management efficiencies will help offset the intense

pressure on margins from price competition and flat or declining sales. There will be positive outcomes for franchise

operators who enhance their levels of service and food quality while delivering value to the consumer.

Trends within the Pizza Industry

Expanded Menus

Traditionally, pizza franchises have only offered pizza and closely related items like

breadsticks and other Italian dishes to their customers. But in recent years, many pizza

franchises have increased their menus diversity by launching new product lines to further

compete with other lower-cost food chains in a bid to retain or gain customers.

A favorite amongst a demographic similar to pizza eaters, chicken wings, is one of the foods

that has found its way onto the menu of many pizzerias. For example, Dominos, a company

not afraid of making changes, introduced their latest permanent menu items in early 2011

boneless chicken and wings. The chicken fare, which was promoted in a grand manner very

much like their reformulated pizza, joined Dominos diverse menu that features pasta, oven-

baked sandwiches, and desserts along with their trademark pizza. Salads have also proved

to be popular amongst pizza franchises looking to expand their respective menus. Among


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the many outlets that give patrons the option of a salad bar at their restaurants are Cicis

Pizza and Pizza Hut.

The addition of healthy items, like salads, to pizzeria menus can be largely attributed to an

increased focus on healthy eating that has overtaken the marketplace in recent years.

According to a National Restaurant Association (NRA) survey, seven out of 10 consumers

say they are trying to eat healthier when eating out now when compared to when they ate

out two years ago. That finding is mirrored by restaurant

operators where two-thirds of respondents to the same

NRA survey said their guests are ordering more healthy

items and paying more attention to the nutritional

content of their food than just a couple years ago.6

Also,

in response to the renewed focus on healthy eating,

pizzerias have taken steps to cut trans-fat from their

food and begun providing options to patrons such as low-carb and gluten-free items.

Its important to note that the expanded menu options in pizza franchises arent restricted

to just food. Recently, a number of Pizza Hut locations began applying for a license to sell

beer at their restaurants illustrating that pizza franchisors are looking at every angle to

expand their operations and provide consumers with what they want in one place.7

Increased Technology Integration

Pizza, of course theres an app for that. Mobile phone usage has skyrocketed in the United

States, particularly the usage of smartphones. Smartphones made up 54% of mobile phone

sales in the first quarter of 2011, and this development in consumer behavior hasnt gone

unnoticed within the pizza industry.8Several pizza franchises have developed applications in

the past few years to reach consumers no matter their location in order to capitalize on thegrowing population of smartphone users. Pizza Hut created the industrys first mobile app

(for the iPhone) in 2009, and announced in May 2011 that they were updating their original

iPhone app and introducing two more free mobile ordering applications for Android

smartphones and the Apple iPad.9Pizza Hut has been followed into the market by others
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like Dominos, which in June 2011 generated over $1 million in sales from its new mobile

app in the first week of its availability.10

To capture the attention, and subsequently the dollars, of consumers, pizza franchises have

also turned to social media. Social media has become very important to the [entire

restaurant] industry and social media users are much more active and likely to dine-out, to

connect with restaurants online and post reviews, says Hudson Riehle, senior vice

president of the Research and Knowledge Group for the National Restaurant Association.11

By utilizing websites such as Facebook and Twitter pizza franchises are able to more

effectively market to and broaden their customer base through special promotions along

with the back-and-forth interaction social media was designed for. For instance, Pizza

Streetza, which uses Foursquare to connect with customers, offers free garlic bread when

customers check in.12
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Pizza Franchise