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BRISBANE, Australia — Australians are a voraciously competitive people addicted to sports and consumed with betting on any recreational contest using a ball or a bridle.

But their love of contests isn't limited to games. Some of the fiercest battles waged Down Under occur in its pizza industry. Though some might find it hard to believe, the price war here is arguably more bitter than that fought in the United States. The struggle for market share resembles trench warfare; even large chains can close as many units as they open each year.

Worse yet, the pizza armies rarely reap the spoils; those go to customers conditioned by the now 11-year-old conflict to get pizza bargains all day, every day. When it comes to price, the question of "How low can you go?" remains unanswered as $4 (U.S. $2.80) 12-inch pizza deals aren't unusual. More common are the $5 (U.S. $3.50) unlimited carryout pie sales on Mondays and Tuesdays.

Chain operators hate it, but customers love it, and that ensures the stalemate will continue for some time to come.

The market: small yet significant

Despite abundant land (larger than the U.S. mainland) and temperate weather, just 20 million people live in Australia (15 million less than in California). Current and broad-ranging data on its pizza segment is equally scarce; the most reliable figures are at least a year old and they don't account for the independent market.

According to BIS Shrapnel research, large chains (including Pizza Hut, Domino's Pizza, Eagle Boys Pizza and Pizza Haven) accounted for 870 units in 2002. According to sources at some of those chains, that number was closing in on 950 stores by mid-2004.

None of the sources PizzaMarketplace spoke to, however, could confidently estimate the number of Aussie independent operators, though all agreed that the majority of them are located in the country's Southeastern state of New South Wales, home to the cities of Sydney, Melbourne and Victoria.

"There are some especially strong independents in Melbourne," said Malcolm Stirling, sales director for JL Lennard, a distributor of Lincoln ovens and Aladdin delivery bag systems. "There are a lot of Italian and Greek immigrants living there with Mama, Papa and their sons running the restaurants. These people are very serious about the product. ... They grow fresh herbs

What's Important

Australia's pizza price war is in its 11th year, and there's no sign of a cease fire.

A 12-inch "large" pie sold by major chains costs $9 (U.S. $6.30) on average. Except for chicken and seafood toppings, the number or choice of toppings does not increase the price. Addtionally, all pizzas ordered after the first typically cost $1 to $2 less.

The competition, many here say, has forced Aussie operators to run their businesses smarter, faster and more cost-effectively.

behind their restaurants."

Queensland, which covers Australia's northeast, is just the opposite, said Stirling. "There are very few independents there. It's dominated by chains. There just isn't the same number of immigrants there who want to run their own place."

Queensland is home to the major city of Brisbane, and where both Domino's Pizza Australia and Eagle Boys are based. Tom Potter, managing director at 150-unit Eagle Boys, agrees with Stirling's assessment of that market's players: "You'll not see too many independents here. This is prime territory for chains."

Despite its popularity, chain pizza likely accounts for less than $500 million in annual sales. Additionally, if sales at independent pizzerias accounted for half of that again, pizza still would account for only 15 percent of the estimated $7 billion (U.S. $4.9 billion) in sales racked up annually by the entire Aussie fast-food market.

Two basic reasons will all but cap that number for the foreseeable future: Australians are having fewer children than ever (to encourage family growth, its government pays bonuses to residents having children), and immigration standards are extremely tight.

"This isn't at all like America, where it's much easier to get in," Potter said. "It's much tougher here, and I'm not sure why that is. All I know is you're not going to see a population boom anytime soon."

Weapons of war

The pizza battle here is a harsh one to be sure, said Don Meij, CEO of Domino's Pizza Australia, but he insists price is not the only weapon brought to the front.

"It's marketing, it's service, it's operations; it isn't just price that makes it a difficult market," said Meij, also the master franchisee for Australia and New Zealand. "The price war is really a media thing, not a real thing."

Eagle Boys' Potter disagrees.

"To anyone who says that, I say they're full of crap," said Potter, who founded his chain in 1987. "Pizza prices haven't gone up in this country for at least 10 years. How can he say that when, this week, in Cairns, (northeastern Australia) Domino's was dropping flyers advertising $4.44 pizzas."

Meij said Domino's does make steeply discounted offers to spur customer interest, but that the promos are short-term efforts lasting three to seven days — simple skirmishes, in other words, in the overall conflict. Those offers don't represent Domino's overall pricing strategy, he said.

"If this is about price wars, then why has the price of pizza overall increased over the last four years as a whole?" said Meij, who oversees 296 stores in Australia and neighboring New Zealand. "You can't just say it's all price."

Again, Potter objected, pointing to Eagle Boys research quoted by BIS Shrapnel: A two-pizza, garlic bread and soda offer that cost $19.90 in 1995 sells for $19.95 today. When accounting for the rise in the Australian Consumer Price Index, that same deal should bring in $26.38 in 2004.

Danny Diab, CEO of The Diab Group, a large Sydney-based Pizza Hut franchisee, agrees with Potter. "The price of pizza has fallen off for the past five years. ... It's the biggest challenge operators are facing in this industry, and I don't think it's sustainable for the long term."

Andrew Morris, national direct business manager for Curtin Global Food Equipment (a distributor of Blodgett Ovens and CookTek delivery bag systems), said Meij's line of thinking is correct, but only to a point. Price slashing started the pizza war, he said, but improvements in the way pizzerias are run has made operators tougher competitors, which has served to lengthen the struggle.

"Pizza Hut started the two-for-one deals and Pizza Haven jumped right in," said Morris. "That forced pizzerias to become more production oriented because people were paying less for more pizzas."

Morris said the fastest conveyor ovens of that day could produce only 80 pizzas per hour — not nearly enough to meet the flood of orders generated by low-price volume deals. Oven manufacturers moved to boost capacity with new models, he said, while operators learned to produce dough faster, make pizzas faster and get them to customers quicker.

"That strain made them focus on improving service," Morris said. "If you couldn't put the pizza in the customer's hands in 30 minutes, you needed to change."

As happened in the U.S., the core hardware of the pizzeria evolved to meet the rising demand. Morris said Blodgett's latest model, the 3870, can cook 250 12-inch pizzas per hour, and Stirling said Lincoln's X-2 can cook closer to 300 in the same time.

Demand Down Under for heated delivery bag systems also has soared in the past few years, but as pizza prices decreased, operators placed a carryout-only mandate on bargain deals. Consumers adapted, and

start quoteThe price of pizza has fallen off for the past five years. ... It's the biggest challenge operators are facing in this industry, and I don't think it's sustainable for the long term.end quote

-- Danny Diab,
CEO, The Diab Group, a large Pizza Hut franchisee

pickup lines at pizzerias grew steadily.

To speed pickup and improve quality, holding cabinets have been installed in some Domino's units, while Eagle Boys has taken that concept a step further. Its "two-minute instant pizza system" allows customers to choose from a limited menu of four pizzas, pay for their orders and leave in two minutes — or it's free.

The system centers on baking a set number of pizzas ahead of time and starting a lighted timer as each pie is boxed and placed in the cabinet. Over the next 30 minutes the light will register green (optimal quality), orange (acceptable) and red (expired).

"When you look at our competition in the whole fast-food category, it's obvious we're too damn slow," said Potter, speaking of the broad pizza industry. "Nobody goes to a McDonald's and waits 20 minutes, but we've all grown up believing that's OK with pizza. It doesn't have to be that way, and we're proving it."

No humble pies

Other than Pizza Hut, few U.S. chain menus are as heavy on specialty pizzas — essentially "themed" pizzas with flavorful flourishes — as those in Australian chains. BBQ, satay (peanut base) and tzatzki (yogurt and cucumber) sauces reflect Western, Asian and Greek influences, and squid and shrimp toppings signal the country's love of seafood. Though pepperoni and sausage can be found on nearly every Australian pizza menu, more popular are toppings like fresh egg, pineapple, ham and jalapenos. One Eagle Boys' pizza, based on the American cheeseburger, blends ground beef, onions, tomatoes, pickles and a swirl of mustard.

These kinds of pizzas, said Meij, push Aussie pizzas a step beyond those found at most American chains.

"Australians, I believe, have a better developed palate than Americans when it comes to pizza," he said. "Those flavors and those innovations have grown out of the desire for specialty pizzas, which is something the chains have driven."

Except in the case of chicken or seafood, the number or choice of toppings doesn't change the price of a pie, which averages about $9 ($6.30 U.S.) for a 12-inch (the one size sold by all majors. Many independent operators not only sell three sizes — 10, 12 and 14 inches — their prices hover nearer $15 per pie.)

"Let's face it, it doesn't really cost all that much more to throw on the extra toppings," Potter said. "Volume makes up the difference in the end."

And volume purchases are encouraged strongly. While the first pizza might cost $9, all subsequent pies are $1 to $2 cheaper. Anticipating such multi-pizza orders, Eagle Boys developed and patented a tall pizza box that holds two pies. After the first pizza goes in the box, a cardboard "shelf" is inserted above it to hold the second.

Innovation at every level, not price, will drive the industry forward, Diab said.

"We may agree and disagree on who has better-quality pizza, but the fact is we do have similar types of pizza," said Diab. Pizza Hut Australia, he added, is examining whether the 4forALL pizza, a smash success in the U.S., will work here. "We launched the Big New Yorker here two years ago, and it was hugely successful. That kind of innovation is the secret to our success in the future."

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