Competition | March 2011 | By Daniel P. Smith

The Fall of Pizza

The last decade was a struggle for most major pizza players. Can the segment’s leaders reverse their falling fortunes?

What’s happened to pizza’s major players?

In 2000, the QSR 50 Report, this magazine’s annual ranking of the nation’s top quick-service brands, showed a robust American appetite for pizza, a category trailing only burger joints in representation. With pizza chains claiming four of the list’s top 15 slots and 12 of the top 50, the segment seemed poised to maintain its spot as a 21st century quick-service staple.

Over this century’s first decade, however, pizza’s momentum slowed—first to a jog, then to a crawl, and, for a time, some observers contend, even into reverse gear. In the most recent QSR 50, pizza chains held only four of the top 25 spots and seven of the top 50, with no fresh-blooded pizza chains even threatening to crack the list. More telling, the chicken category supplanted pizza as the runner-up to burgers in representation.

While the pizza category is far from extinction or irrelevancy, the segment’s decade-long decline paired with the acceleration of other quick-service categories (Mexican, sandwiches, and snacks, to name a few) threatens pizza’s standing as a quick-service heavyweight. It also doesn’t bode well for its future prospects, which challenge the segment’s major players to consider bold, even risky decisions to keep pace with a fast-evolving industry.

As last century closed, many of the nation’s largest pizza chains seemed poised for growth despite rising commodity costs and the segment’s heated rivalries. Yet as the 2000s unraveled, pizza’s major players traded marketing, menu, and price-warring jabs, a persistent clash that failed to produce any clear winner in a segment some call the restaurant industry’s most competitive.

Lucky number 13 on the QSR 50 report in 2000, Little Caesars dropped 1,000 outlets and $600 million in sales over the last decade. Chuck E. Cheese’s, once a top 25 player, has fallen into the background of other “eatertainment” options. Described as a “dynamo” in the 2000 QSR 50 with AUV approaching $1.9 million, Pizzeria Uno watched its parent company, Uno Chicago Grill, file for Chapter 11 bankruptcy protection in January 2010. Sbarro remained relatively stagnant, a product of ownership changes and declining mall traffic, while larger regional operations such as Pizza Inn, a one-time QSR 50 member, face consistent challenges from deeper-pocketed national brands and local independents.

Segment champion Pizza Hut claims 500 fewer units today and flat sales. In 2009, the Yum! Brands entity watched its sales fall 9 percent despite a new ad agency, upgraded online ordering, and a flashy $10 pizza promotion.

In 2006, CiCi’s Pizza, one of the category’s biggest up-and-comers and still a hard-charging player, projected it would crack the 1,000-unit barrier in 2010 with the addition of 400 new outlets. Four years and one recession later, CiCi’s store count remains in the mid-600s, a sign of just how much the recession slowed even those with promise, passion, and a plan.

Although some chains have bucked the trend—the always ambitious Papa John’s added more than 500 units and $700 million in sales over the last decade, while Papa Murphy’s Take ‘N’ Bake doubled both its unit count and sales since 1999—the 2000s remain a decade in which pizza’s major players largely lost industry standing.

One has to wonder: Was pizza’s fall due to increased competition? The low-carb craze? Management missteps? The general ebbs and flows of business? Or all of the above?

While the economy’s fallout stands as an easy excuse to rationalize pizza’s fall, the segment has historically withstood economic downturns by surviving as a family’s primary take-out item, which suggests that the crux of the segment’s slump exists elsewhere.

To be certain, consumers expanded their culinary horizons, and fast-casual outlets like Chipotle and Panera grabbed share over the last decade, which diluted some of the bigger pizza chains and created a modern quick-service landscape filled with shiny new places.

There were chains not on anybody’s radar a decade ago grabbing share … and greater competition for people’s money with less of it to go around,” Domino’s spokesman Tim McIntyre says.

Peter Saleh, a restaurant industry analyst with the Telsey Advisory Group, says many of the large pizza operations took their eyes off traffic in pursuit of higher check averages by raising menu prices and losing touch with the value equation so important to pizza consumers.

“There simply wasn’t as much focus on retaining customers and driving in new customers,” Saleh says. “Over time, this will come back to bite you.”

Toss in a compelling new age in retail offerings, including gourmet frozen pizzas and take-and-bake supermarket options, as well as a collection of more convenient meal solutions and even dietary fads, led by the no-carb craze, and pizza chains faced formidable, effective assaults on their supremacy.

“Marketing, product, and service all worked against the pizza category,” says NPD Group restaurant analyst Bonnie Riggs. “And overall, pizza got lax and lost ground.”

In some cases, complacency and questionable leadership decisions sparked a downward spiral. Consider Pizza Inn, which in the late 1990s began shedding its own locations, adversely impacting the brand and dropping store counts from 800 to about 300 today. The company’s debt load climbed, management troubles and litigation mounted, and franchisees expressed discontent and frustration.

“We lost our way as a company,” says Pizza Inn CEO Charlie Morrison, who’s been with the Texas-based company since 2007. “Opening a few stores and closing a lot is not a recipe for success.”