Competition | September 2013 | By Sam Oches

Pizza’s Arms Race

Long dominated by delivery and takeout players, the pizza industry is in the midst of a fast-casual revolution. And everyone wants to be the Chipotle of pizza.

Blaze Pizza has 150 units in the pipeline.
Blaze Pizza, created by Wetzel's Pretzels founders Rick and Elise Wetzel, has 150 units in the pipeline. Blaze pizza
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All Rick and Elise Wetzel wanted was to have some pizza for lunch.

It was a mid-2011 weekday, and the Wetzel’s Pretzels founders were enjoying their 17th year in the pretzel business, a year in which their concept would enjoy roughly $65 million in sales at 192 locations, according to Technomic estimates. The two weren’t exactly planning to expand their foodservice portfolio to include a national fast-casual pizza joint, but … they wanted pizza for lunch. And with no obvious restaurant suitors in their Pasadena, California, hometown, the pair ended up at Chipotle on that fateful day.

“It was sort of this ‘aha’ moment when we looked at it: ‘Why can’t we do this to pizza, do what Chipotle did to the burrito or Mexican food?’” Rick Wetzel says. “That was sort of the spark that went off.”

That spark quickly grew quite literally into a blaze: Blaze Pizza, the Wetzels’ fast-casual pizza concept, debuted in 2012 and will have 15 stores open by the end of this year, with 150 stores in the pipeline. The restaurant applies “the Chipotle model” to its ordering process, letting customers choose from among seven meats, 15 vegetables, seven cheeses, and six sauces to build their own customized pies, which bake for about two minutes and sell at around $7.

The Wetzels were hardly alone in realizing that pizza was the next fast-casual frontier. In the last few years, new pizza brands have sprouted up across the U.S. (especially in Southern California), all with the lofty aspirations of being the national “better-pizza” leader. But while it’s common for new operators to pay lip service to their pie-in-the-sky goals, fast-casual pizza can actually put its money where its mouth is; the fledgling category is built on the backs of industry veterans with resumes as long and varied as the toppings bars inside their restaurants.

Take Matt Andrew as an example. The cofounder and former president of Moe’s Southwest Grill launched Atlanta-based Uncle Maddio’s Pizza Joint in 2009 after two years developing the menu and an airtight, 10-year business model. Andrew says he assembled an executive team with more than 50 combined years of franchise experience—a team including other former Moe’s execs—and is using their expertise to “sprint toward” top-dog status in the fast-casual pizza space.

New Kids On the Block

Several brands are competing to be the national fast-casual pizza leader.

Blaze Pizza

Uncle Maddio’s Pizza Joint

The Pizza Studio

PizzaRev

Live Basil

Pie Five

Project Pie

800 Degrees

MOD Pizza

“It happened before in the better-burger category, it happened in the better-sandwich category, [and] the better-coffee category when Starbucks came on the scene,” Andrew says. “Being in the better-pizza category and being the trailblazer in the better-pizza category is a very appealing proposition.”

The rest of the better-pizza category is littered with familiar faces, fat wallets, and operational know-how. Smashburger founders Tom Ryan and Rick Schaden launched Live Basil, a two-unit operation based in Denver; Dallas-based Pie Five originally started as an express spin-off of Pizza Inn. 800 Degrees out of Los Angeles is owned by Umami Burger parent Umami Restaurant Group, while cross-town peer The Pizza Studio is headed by former Baja Fresh and Burger King executive Ron Biskin and fellow L.A. brand PizzaRev is financially backed by sports-bar giant Buffalo Wild Wings. Another California-based brand, Project Pie, was founded by James Markham, who previously conceived MOD Pizza and Pieology.

And Blaze Pizza doesn’t just have the Wetzel’s Pretzels success to tout; executive chef Bradford Kent is one of the most highly acclaimed pizza chefs in the country, and the brand counts former California first lady Maria Shriver, basketball superstar LeBron James, Boston Red Sox chairman Tom Werner, and Panda Express founder Andrew Cherng among its investors.

“Those guys have lots of help, lots of connections. They also have helped put a spotlight on the brand, so I kind of can use them like endorsement deals without having endorsements,” Wetzel says. “We’ve done this before; I’ve done Wetzel’s, and some of these investors are with Wetzel’s as well, so we assembled it and were able to go out and put together a top-notch headquarter team.”

With strong financial support and operational systems in place, fast-casual pizza brands are rushing to secure top-shelf, multiunit franchisees and grade-A real estate locations. Despite the fact that no brand has even cracked the 30-unit mark, the better-pizza category already accounts for hundreds, if not thousands, of units in development across the country. Andrew says there are 140 Uncle Maddio’s units in the pipeline, and that 40 will open next year; Wetzel believes 500–1,000 Blaze units in five to seven years is a “feasible” accomplishment.

The better-pizza players have several other things in common. Their executives all toss around the words artisan, choice, and control and regularly reference other fast-casual categories, like Mexican, sandwich, and burgers, in conversation. The stores all boast a wide range of crusts, toppings, sauces, and cheeses. They all bake their pizzas in specialized ovens in just a few short minutes. Most are focusing on a personal-sized, Neapolitan style of pizza—characterized by a light, thin, flaky crust—and offering a laid-back, modern dining room and beer and wine services.

And they all want to be the Chipotle of pizza.

“Everybody’s saying this is the Chipotle of pizza. I’m really getting tired of that,” says Randy Grier, CEO of Pie Five parent Pizza Inn Holdings, with a laugh. “But I think it’s a reference that maybe helps consumers understand the concept.”

Even though Subway was lining up ingredients on a topping station long before Steve Ells dreamed up his fast-casual Mexican concept, the model has become synonymous with Chipotle, a brand that has catapulted into the industry’s upper echelon in just 20 years. Companies new and old are taking cues from Chipotle’s use of high-quality ingredients and customization, but more importantly, they’re realizing the potential that fast casual offers in reinventing an American staple.

“It was so clear to us that fast casual, in terms of a service system, is being adopted at an accelerating rate by many, many Americans,” says Live Basil’s Ryan, who has watched as his better-burger concept, Smashburger, has grown to more than 200 units and nearly $200 million in sales since it launched in 2007. “It seems to be the right balance of service, convenience, speed, and quality, if you will, that just makes the whole fast-casual segment, regardless of the product, very popular to consumers. It fits into their lifestyle.”

Live Basil is taking a slightly different route than its better-pizza peers, growing only through corporate-owned stores and at a slow, calculated rate. The brand is following in Smashburger’s footsteps by offering market-specific menu items, and where Smashburger’s signature was its smash cooking technique, Live Basil’s is a basil plant at the order counter that can be used as an ingredient.

Much like its burger counterpart, Ryan says, Live Basil is thriving on customers’ desires for new, bold flavors in a familiar format; one of the company’s best-selling signature pizzas is topped with truffle mushrooms, arugula, and mascarpone. “Ten years ago, people didn’t even know what truffle was, and here we are, it’s one of our top three selling pizzas,” Ryan says. “I think that just reflects the kind of flavor diversity that people are actually looking for these days.”

People are also increasingly looking for fast-casual brands that allow for maximum meal customization. Younger demographics are especially flocking toward dine-out options that give them the ability to try new things and build their own culinary masterpieces.

“This new generation, Millennials, they’re used to getting everything their way,” Grier says. “It’s just a customized world they’ve grown up in; they haven’t known anything different. They’re used to directing what they want because of the technology they’ve grown up with, and having those options and choices … we think is a big win.”

But it’s not just Millennials who are flocking to these better-pizza brands. Wetzel says he sees everyone from grandparents, families, and first dates dining at Blaze. And Andrew at Uncle Maddio’s says his chain’s casual atmosphere and range of menu items—which also include paninis and salads—is similarly attracting a diverse consumer base.

“We cater to all walks of life, all demographics, all genders, and up and down the socioeconomic scale,” Andrew says. “What’s cool is people get to be individualistic; it’s all about being yourself, and I think today that’s been more and more accepted as people want to express themselves even outwardly.”

None of this success would be possible without the advent of new technologies that press and bake pizza in a few short minutes. Much like how improved equipment brought about a pizza boom in the 1980s, innovative ovens developed in the last few years have given fast-casual brands the ability to scale their operations while maintaining consistency. Many of the better-pizza players use open-hearth ovens at enormously hot temperatures (800 degrees, in the case of 800 Degrees) that keep the total order time at less than four minutes.

Ben Pote, an R&D chef at San Francisco–based menu development consultant The Culinary Edge, says pizza is a very labor-intensive process, which has always prevented pizza brands from speeding up preparation methods. He adds that the dough used for the thin-crust Neapolitan style bakes much quicker than traditional crusts.

“For fast-casual restaurants, people are coming in and they want to get that same high-quality pizza dough that they’re looking for, but they don’t want to wait a half hour for it to be made and topped and turned in the oven and then rested and then cut,” Pote says.

Irv Zuckerman, founder and co-CEO of PizzaRev, says the streamlined process by which fast-casual pizzas are made improves the overall customer experience. He says guests want to watch their meals being made, want to see it go in and out of the oven. But the fact that the new brands have crunched a long process into a short time frame, he says, will leave a lasting impression on the way Americans eat pizza; much like the Wetzels in 2011, many people want pizza for lunch.

“We think the paradigm shift to lunch for pizza is a major element in the success that we are having and will continue to have,” Zuckerman says. “Because when you can get an item like pizza—which is America’s favorite, basically—at lunch without having to take 45 or 50 minutes total, but you can actually order a pizza, choose all your ingredients, and then have it go oven to you in three minutes or less and be quality—not roller grill oven, but high-end, stone-hearth oven—people appreciate that.”

This fast-casual pizza paradigm shift is hitting at an opportune time: The broader fast-casual space is the lone bright spot in the post-recession restaurant industry, while pizza languishes as an American staple with little by way of innovation or excitement.

According to market consultant The NPD Group, traffic within the fast-casual industry—which accounts for 5 percent of outside-the-home eating—increased 8 percent between March 2012 and March 2013. In the two years prior, traffic increased 6 percent each year. In that same time, traffic at quick-service restaurants was essentially flat.

“The restaurant industry overall is forecast to grow only 4 percent in a 10-year period, so less than a half a percent a year,” says Bonnie Riggs, restaurant analyst at The NPD Group. “But one [segment] that is forecast to grow at a double-digit rate over the 10-year period is fast casual.”

Pizza, meanwhile, is in a sort of holding pattern. The industry hauled in $33.5 billion in 2012, a 4.4 percent gain over 2011, but continues to be dominated by delivery, takeout, and buffet brands. Only six pizza brands made it into the QSR 50 this year—Pizza Hut, Domino’s, Papa John’s, Little Caesars, Papa Murphy’s, and CiCi’s—and the three fastest-growing outside-the-home pizza categories are C-stores, grocery stores, and price clubs, according to The NPD Group.

Sources interviewed for this story are torn on whether the rise in fast-casual pizza brands will affect major players like Domino’s and Papa John’s. While most believe this new crop of concepts will force those companies to improve their quality and experience, many say the better-pizza angle is different enough that it will create a new dine-out occasion. Much like McDonald’s, Burger King, and Wendy’s have survived the onslaught of better-burger brands, the experts say, major pizza companies will continue to fit their own niche audience.

“It’s a much better experience than the traditional way, and I think everyone is going to have to adapt,” says Samit Varma, cofounder and president of The Pizza Studio. “[But] Domino’s and Papa John’s and the delivery guys, they’re not going anywhere. That is a different product; that is a different business. I would go right next to Domino’s if I could. I think those two customers are completely different; the uses are completely different.”

Rather than worry about competing with the pizza elite, the fast-casual pizza brands may have to worry about competing with each other. The better-pizza executives all speak highly of one another and wish each other success, but just like with any other restaurant category, too many competitors in the same markets will leave someone out in the cold.

The NPD Group’s Riggs says the winners in the better-pizza category will be those brands that best create a unique position in the marketplace.

“Within the other segments of fast casual, there have been winners and there have been losers, and it’s those that best address the needs [that succeed],” she says. “So those getting into this market really need to do their homework and really need to understand what consumers are looking for from their concepts and who their target buyers are.”

Grier may not like the constant comparisons between fast-casual pizza and Chipotle, but as he looks ahead to Pie Five’s potential success—the company has deals for 38 stores in place, and has analyzed the top 50 markets in the U.S. for potential growth—he can’t help but pine for that brand’s position among the fast-casual Mexican field.

“The question is going to be, How is it going to shake out? Who’s going to be the Chipotle, who’s going to be the Qdoba, who’s going to be the regionals?” he says. “Or, Who’s going to be Five Guys, who’s going to be Smashburger? Each category seems to play out with a large player, a strong competitor, and then the regionals.”