If you can't beat 'em …

Dec. 6, 2009
DiGiornos' recent gains are enough to make any itchy entrepreneur get into the frozen pizza biz: First came October's announcement that the frozen pizza brand had scored seven consecutive quarters of double-digit sales growth for its otherwise ailing parent company Kraft Foods Inc. 
Then came Ad Age's recognition of the brand's pioneering "DiGiornomics," lauding them for being the first in the segment to position itself as a cheaper but viable competitor for big delivery guys.
But for those who believe frozen pizza's competitive edge is merely recession driven and price oriented, consider structural changes in our eating habits that have been a long time coming. 
NPD's Harry Balzer, author of various reports on eating patterns in America for the market research company, said 2009 marked the near-culmination of our decade-long return to eating at home – and that nobody has benefited from that more than the frozen pizza industry. 
But pizzerias have figured out a way to benefit from the movement as well, with an increasing number of them entering the retail space to "diversify their portfolio," as Donatos' Tom Krouse put it.
Several things have contributed to frozen and other retail pizzas' surge of popularity. Some of the most fundamental are significant shifts in our eating patterns.
According to Balzer, we've always eaten a majority of our meals in-house. But whereas we may have gotten more of our takeout food from restaurants prior to 2000, we have increasingly reached for supermarket shelves since then due to a couple of major demographic changes: First, Balzer said, the percent of working women reached its peak in 2000 and has declined every year since then – so median household income has been basically flat. Second, the United States has an aging population, and the older you are, the less likely you are to eat out.
This return to home eating is a huge driving force for frozen pizza's popularity because of the food's specific traits: It's an incredibly convenient, one-stop meal solution and nothing you're going to have to wrestle with your kids over eating.
These changes, coupled with the growth of private label frozen pizza and even the success of the closely related take ‘n bake segment, means that quality retail pizza is a delivery/takeout contender that's in it for the long haul.  
Jumping into the fray
Pizza's popularity in the retail space is actually an opportunity for pizzerias, according to Technomic's Darren Tristano. He said it's been a major industry trend to take advantage of people's at-home eating habits by hatching a total foodservice strategy. Tristano cited White Castle, Brinker prepared foods and TGI Friday's appetizers as examples – and that pizza is a great opportunity for restaurants to move into the frozen food sections of local supermarkets. The take ‘n bake format has its own freshness-emphasizing benefits, he added. 
"Typically, (these places) are licensing their brand and recipe to suppliers for a royalty," Tristano said. "I believe it is a new channel for restaurants and provides brand awareness potential for (them), provided they have local units."
Tristano stressed that branded products would do better in supermarkets, pointing to the success and visibility of Starbucks and Dunkin' Donuts products in that space.
Tom Krouse, president of expansion brands for Donatos, echoes Tristano's enthusiasm for a total foodservice strategy. The 44-year-old company has just announced the expansion into the retail sector via Jane's Dough Foods and already has a successful Donatos-branded take ‘n bake option at select Kroger stores.
"We only have one Donatos branded product, so (Jane's Dough Foods') other channels are mostly private label," Krouse said. "Whatever the brand is, if a company is looking to develop their own brand, we have ability to provide a real high quality product for them in grocery stores, convenience stores, airports, stadiums … we're also looking to potential frozen pizza opportunities." 
Krouse said the retail expansion was a no-brainer for the company, which was able to utilize its home office dough production facility to start making take ‘n bakes for Kroger's Great Lakes division five years ago. More recently, Krouse said it just made more sense to expand that centralized dough plan operation – allowing for the retail expansion while driving down costs for restaurant franchisees.
"We believe there is a viable market for high-quality pizza, whether on the restaurant side or in the retail side," said Krouse, who compared the Jane's Dough Foods expansion to diversifying the company's portfolio. "Right now if people decide they want to eat out less, we're in grocery stores; if more, (they can visit) our restaurants." 
Of course, there are built-in benefits to well-known restaurants moving into the retail space, such as the name recognition. But don't overlook the expensive research and development it takes to make the best-tasting product. Krouse said it took a significant amount of time to develop dough that could withstand retail conditions, like being thrown into a cart, and the reality of moisture transfer.  
Donatos also had the opportunity to roll out its retail offerings near stores to make sure buying occasions were different enough to prevent the retail product from cannibalizing restaurant business.
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Little guys bank on local
But smaller companies have found the retail expansion useful to their concept's fiscal health as well. Thomas Jerome, owner of Goodfellas Pizza in West Fargo, N.D., launched his move into the retail space last year when the economy got bad. Now the owner of the 90-seater pizza joint said frozen pizza sales are going so good they can't make enough to keep up with demand in local and surrounding counties.
"The economy had been horrible so we figured we've already got dine-in and take ‘n bakes; we've got every avenue of pizza except frozen – so we gave this a shot," Jerome said. 
When product initially hit shelves, some retailers were "leery about taking on a no-name product," Jerome said " But that resistance quickly gave way to favorable impressions. 
"We had to push the fact that we're local and independent, and people around here appreciate that," he said. "It's not easy, but it's very well worth it. Anything well worth it generally isn't that easy."

Topics: Operations Management

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