Pizza chains already suffering from stagnant sales growth may be facing a showdown with Jared, the Subway guy.
Earlier this year, the behemoth sandwich chain announced plans to offer 8-inch personal pizzas in about 13,000 stores in the United States. Subway operates more than 21,000 locations nationwide and did more than $7 billion in U.S. sales in 2005.
Subway isn't the only restaurant getting into the pizza game. Coffee and donut chain Dunkin' Donuts, already on an aggressive expansion tear, has been testing a pepperoni pizza that can be cooked in about a minute and a half.
And pizzeria operators are taking notice of the challenge.
"I've been following it pretty closely and my experience has taught me that it is something to watch out for," said Scott Anthony, owner of Fox's Pizza Den in Punxsutawney, Pa. "They are taking business from somewhere."
Anthony said the sheer number of Subway restaurants gives the company a strong advantage in the pizza wars (although Subway reps declined to comment). Even if each Subway restaurant sold one pizza per day, every day, the resulting $30 million in sales would be more than 1 percent of annual U.S. pizza sales, approximately $30 billion.
That's bound to be bad news for some of the country's largest pizza chains. Comparable-store sales growth in recent years has been sluggish at Pizza Hut, Domino's and Papa John's, which collectively control about 40 percent of the pizza market.
Sales at Ann Arbor, Mich.-based Domino's were relatively flat for the first six months of 2007, up less than one percent to $679.6 million. Comparable-store sales increased 2.1 percent for the company's second quarter, although comps had declined for five straight quarters prior to that.
Sales at Louisville, Ky.-based Papa John's International Inc. were up 7 percent for the first six months of the year, although comparable-store sales were off 0.4 percent.
And U.S. sales at Pizza Hut were down slightly in 2006 to $5.2 billion, a decrease from $5.3 billion the year before. Pizza Hut's sales have remained flat for at least five years.
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According to some industry analysts, the changes at Subway are just part of a changing landscape in the foodservice industry.
"What's happening today is that chains doing toasted subs have the ability to do personal pan pizzas with the equipment they already have," said Darren Tristano, executive vice president of Chicago-based research firm Technomic Information Services. "That is making it very easy for them to incorporate pizza without adding to their costs."
Impact may be overblown
It's not all doom and gloom for pizzeria operators, however. The product served by Subway and others is aimed at a different consumer than the typical pizza customer, Tristano said.
He doubts Subway's pizza rollout will have more than a minor impact on pizzerias.
"Most of what the QSRs are doing is of a single-serve nature, where pizzerias tend to be more of a family-occasion group dining, and takeout and delivery," Tristano said. "The worst I think will happen is that someone will think, 'Well, I had pizza for lunch so I'm not having it for dinner,' but that will be a minor impact."
Others in the industry compare Subway's pizza rollout to the introduction of frozen pizza in grocery stores. In fact, they said, it may actually boost the industry overall.
"When the big discount warehouses such as Costco started offering pizzas, many people thought it would have such a negative impact on pizza chains, but it never happened," said Lex Nepomuceno, chief marketing officer for Everett, Wash.-based Garlic Jim's Franchise International Inc., franchisor of Garlic Jim's Famous Gourmet Pizza restaurants.
Garlic Jim's operates 43 stores in five states and has units in development in four other states.
"Actually, it might end up being a positive because it introduces pizza as a daily food option for people who like to eat donuts and sub sandwiches every day," he said. "At some point, these people will want to try some gourmet pizza and go to a place like Garlic Jim's."
Turnabout is fair play when it comes to competing with a giant company like Subway, Tristano said. And operators who only sell pizza need to consider expanding their menu.
"Very simply, they can sell sandwiches," he said. "Having the ability to serve salads and sandwiches really puts them in a much more competitive position across the board."
Adding soup to the menu also is an easy option, he said. Developments in the packaging of prepared soups make them an easy menu addition.
"It is a big advantage for a pizza player to have those items, because not everyone is going to want pizza," he said.
Operators like Garlic Jim's also can hold their own by focusing on the basics, Nepomuceno said.
"We can defend our ground against a super-chain like Subway through product and service," he said. "These types of places will never be able to match us on the quality and types of products we offer our customers."
