Competition | March 2011 | By Daniel P. Smith

The Fall of Pizza

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According to industry analysts, pizza must continue hitting on value and convenience, two marketing mainstays. By and large, the segment remains a terrific value, offering the ability to feed a lot of people for not a lot of money. Furthermore, it remains a celebratory product; few people are upset when pizza’s laid on the dinner table.

“Ultimately, people eat pizza because it’s convenient and a good value, but I do fear that rising pizza prices could prompt consumer movement to other convenient dining options,” Saleh says. “Pizza has a real balancing act to pull off here.”

The category’s major players must respond to the restaurant industry’s wider evolution—hitting on convenience, value, flexibility, and quality in food as well as environment.

Pizza Inn, for instance, focused its efforts on new prototype stores launched at the end of 2008. The 4,000-square-foot, strip-center restaurants feature a 12-pizza buffet, salad bar, 150–180 seats, delivery, carryout, and red-and-white tabletops, an accommodating, fresh environment that resonates with a larger consumer base. The company also instituted initiatives to help franchisees succeed, including short-term royalty relief and a strategic companywide vision that includes a swelling focus on social media. Early returns show positive momentum: In fiscal year 2010, Pizza Inn opened more stores than it closed for the first time in 11 years.

“We’ve reinvented the concept and we’re growing again,” Morrison says.

For additional optimism as well as a plan of action, pizza may look no further than the burger segment, another staple of the American quick-service landscape.

A seemingly tired item, the burger has been resurrected by chains such as Five Guys and Smashburger, two concepts that surpassed traditional quick-service offerings and kicked competitors into innovation overdrive. The new concepts, fresh menu offerings, and line extensions appeal to recession-era diners who are trading down from fast casual, yet unwilling to skimp on quality. With the emerging wood-fired pizza craze, specialty pizzas with high-quality, gourmet ingredients, and advances in cooking technology allowing for pizza to be an individual occasion, the segment could have its own opportunity to rebound and follow burger’s lead, Saleh says.

And much like its burger brethren, some pizza chains will likely investigate a barbell pricing strategy wherein value items sit on one end of the menu and gourmet offerings on the other. Many will also pursue the upsell strategy, offering a $5 pizza as the hook and upgraded offerings or complementary products, such as appetizers or desserts, to raise the average ticket.

“The price competition over the last year has been unbelievable, but I’m not convinced it can continue down this road. We have to think about things differently—the dough, the toppings, the pricing,” Pizza Inn’s Morrison says. “We’re at the point where we all have to figure this out.”