NAPICS '13: State of the pizza segment

The now-$30 billion pizza segment is on a path of steady growth and has shown resiliency since the height of the Recession in 2009.

However, much of the segment's growth has come from the top five companies — Pizza Hut, Domino's, Papa John's, Little Caesars and Papa Murphy's — while No. 6 through 10 (CiCi's, Sbarro, Chuck E. Cheese, Round Table and Godfather's) dropped.

"Those smaller companies can't invest as much, particularly for advertising. And in recent years, that's led to the big getting bigger and the smaller chains getting smaller," said Darren Tristano, executive vice president of market research firm Technomic, during his keynote address Sunday at the North American Pizza and Ice Cream Show in Columbus, Ohio.

Tristano broke his "State of the Pizza and Ice Cream Industries" presentation into categories including consumer mindset, industry players to watch, pizza consumer demands and menu trends.

Consumer mindset

Although economic recovery is well underway, consumers remain cautious with their spending. However, according to Tristano, they feel better about their own situations and less consumers admit they're struggling.

"The better news is consumers are more optimistic about 2013 by about 4 percent more than they were last year at this time," he said.

Consumers' primary concerns are gas prices (27 percent), which Tristano said could provide a boon for pizza delivery places, grocery costs (26 percent), and their own financial health (26 percent).

"Grocery prices are rising faster than restaurant prices, so for consumers, restaurants are now actually a better value," Tristano said.

While consumers are more optimistic for the New Year, operators have the opposite mentality. The big concern is commodity prices.

"This year we expect a big spike in beef, so we'll see more veggies and chicken, as well as operators who plan to take price increases. Fifty-four percent say they will raise their prices this year. They don't want to, but most will have to," Tristano said. He added that all eyes will be on McDonald's. As the chain bumps its value offerings from $1 to $1.29, it makes other brands more comfortable to inch up prices as well.

Tristano also pointed out that while sales are rebounding from the economic fallout, they're still well below pre-Recession levels. For example, the restaurant industry as a whole experienced 13.5 percent growth in 2007 versus 3.6 percent expected for 2013.

"It will likely take until 2020 to achieve 2007 levels," Tristano said. "But we're headed in a positive direction and that is better than a decline."

Health-halo descriptors

Tristano outlined emerging menu trends in the pizza segment, including a bigger focus on chicken as a topping, particularly as barbecue chicken and buffalo chicken offerings. Not only is chicken more cost effective as the price of beef rises, it is also adaptable.

He also said more pizzerias are experimenting with seafood toppings such as shrimp.

"Fresh toppings" requests have risen 6 percent since 2010. Diners also want a large quantity of toppings and cheese, a variety of toppings from which to choose, and new and innovative toppings.

Consumers are also seeking out more premium ingredients than they were in recent years.

"They want more health-halo descriptors such as all-natural, locally-sourced, healthier components like whole wheat crusts, organic, artisan, gluten-free," Tristano said. "This is good news because it means they're willing to spend more."

Other pizza menu trends include:

  • Ethnic toppings moving into the mainstream, such as Papa Murphy's Thai Chicken deLite.
  • Artisan and upscale; pushed into the mainstream by Domino's artisan line. "This allows you to sell pizza at a higher price point," Tristano said.
  • Pizza providing a platform for other comfort foods, such as meatloaf pizza and mac and cheese pizza.
  • Breafast. Some pizza chains, such as Chicago-based Rosati's, are offering morning options to add sales. "This also gives them an opportunity to innovate and will add value to the bottom line," Tristano said.
  • Gluten-free is still growing fast. Chuck E. Cheese mainstreamed gluten-free last year, allowing groups to easier choose where to eat if one person is on a gluten-free diet.
  • Combo meals have emerged, particularly from Pizza Hut with its Big Dinner Box. "They generate value and put that value in front of the consumer," Tristano said.
  • Restaurant to retail. Donato's and Noble Roman's are two examples of brands that have added a take-and-bake line for grocery stores.
  • Adult beverage. Tristano said there is a shift toward brewpubs and craft beer. Adding these options to the menu provides a "big opportunity to attract younger consumers with a high-margin item."

Off the menu, consumers want pizza available from a convenient location, good-tasting pizza and pizza at a value.

"Convenience is the primary traffic driver, but it won't provide a strong edge if you don't have a better-tasting pizza," Tristano said.

Pizza players to watch

Tristano pointed out some concepts that stick out for their differentiation, including Homemade Pizza Company, a take-and-bake brand that focuses on higher-end ingredients and a higher price point. The Chicago-based company goes after affluent customers, which makes it unique from Papa Murphy's in the growing take-and-bake space.

Pizza Fusion is another concept that Tristano said has ideal positioning at the moment because of its fresh, organic (healthy-halo) messaging. "They communicate a better for you, better for the environment message and they're really going after a lifestyle, which is what people want now," he said.

Consumers are gravitating to Anthony's Coal Fired Pizza because they increasingly want a coal-fired flavor, Tristano said. "It's a well-done pizza and it is a point of differentiation," he added.

Finally, Tristano said pizza is rapidly moving toward a fast casual format.

"We're starting to see a 'better pizza' category (similar to the 'better-burger' category created by Five Guys, Smashburger, etc.). These pizzas are made in 3 minutes and they're made to order and this is really an area pizza hasn't seen before, but it's what consumers want," he said. "This will be very strong especially at lunchtime."

Consumers are driving the emergence of "better pizza," artisan and gourmet concepts as they demand more bang for their buck.

"Value-conscious consumers are making judgments about pizza based on what they're actually getting," Tristano said. "Quality is more important than ever."

Read more about pizza trends.


Photo provided by uıɐɾ ʞ ʇɐɯɐs.

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