The Fall of Pizza

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

    Above all, perhaps, many of the major brands struggled with an ill case of “the sameness,” dizzying consumers with similar products and promotions. The copycat syndrome led many brands to focus attention solely on pizza competitors, thereby neglecting a broader view of the entire quick-service category, its evolution, and changing consumer preferences.

    “We know we’re competing with Papa John’s, Pizza Hut, and Little Caesars,” McIntyre says, “but sometimes we forget we’re competing with the likes of Chipotle and Qdoba as well.”

    Domino’s ignorance, McIntyre says, remained in place until 2008 when, amid declining store traffic and a faltering economy, Domino’s executive team faced two choices for a company that turned public just four years before: woe is me or innovative, intrepid action.

    “For 48 years, we were doing the same thing with a slight tweak here or there, and something had to give,” McIntyre says.

    Eighty percent of Domino’s menu options weren’t around in 2008, with new items including pastas, oven-baked sandwiches, and gourmet pizzas.

    “That’s created fresh opportunities, particularly with lunchtime consumers and those looking for something different,” McIntyre says.

    Along with Domino’s, other competitors are taking a proactive approach to their slowing segment. For a time, many industry insiders wondered if Little Caesars was on its way to a slow, painful death. Stores closed and sales lagged. Yet on the way to extinction, the now 51-year-old, Detroit-based pizzeria began reversing course. The numbers swung upward, and today the brand is reestablishing itself as an industry player with inventive franchising programs and determined, strategic new market expansion.

    Both Little Caesars and Domino’s are enjoying a recent resurgence.

    In early 2010, the latter unveiled a new pizza recipe, among the boldest moves a major restaurant chain has ever attempted, that reinvigorated the brand. Combined with innovative advertising and store-level execution, Domino’s recipe shift sparked double-digit sales growth at its outlets and spirited responses from competitors.

    Since mid-2009, Saleh says, analysts have noticed an increased focus among the major pizza chains on retaining customers. The new strategy is often the simplified promotion, such as Pizza Hut’s $10 any size, any crust, any toppings offer, as a way to generate traffic and hit on the value proposition.

    “In this way, consumers know what they’re getting,” Saleh says, reminding that such aggressive promotions lean on the cooperation of commodity markets and franchisees.

    The segment’s struggles also steered concept leaders toward menu development to drive traffic, a trend likely to accelerate in the coming years to fend off still-mounting challenges from retail and to advance recent gains with the lunch crowd.

    For now, at least, pizza’s moves appear to be working.

    Among the major quick-service chains, pizza’s on the uptick, according to NPD Group numbers. After seeing traffic decline 7 percent and 4 percent in the final two quarters of 2009, major pizza chains enjoyed a 6 percent traffic increase in 2010’s first quarter, just as marketing initiatives and incentives took shape. In the second and third quarters of 2010, major-pizza-chain traffic grew 4 percent and 5 percent, respectively. While the numbers enliven corporate executives, they just as importantly excite franchisees, the backbone of any system.

    “When you wake up and take note of what’s around you, the competitive landscape can change in a hurry,” Riggs says. “That’s certainly the case with pizza and helps explain its most recent progress.”

    With recent success fueling the segment, the question arises whether it can maintain its new pace.

    NPD’s recent industry forecast shows only a marginal outlook for pizza, dampened prospects given an aging U.S. population, steep discounts that establish a “new normal” on pricing, and pizza’s sluggish performance over the last decade.

    “But forecasts aren’t set in stone,” Riggs says, “and the outcomes can shift.”

    Now & Then
    Over the last 10 years of the QSR 50, pizza chains have gone from comprising 12 of the nation’s top quick-service brands to just seven.