Pizzerias face threat from Walmart, others

Nov. 17, 2008
If pizzeria operators didn't have enough to worry about with rising commodity prices and a weakened economy, they could be facing a challenge from Goliath.
Grocery retailers, using every trick they can muster to grow business in a down economy, are aggressively marketing take & bake pizza as a low-cost alternative to delivery.
Retail giant Walmart began promoting its take & bake pizzas during broadcasts of the Beijing Olympics earlier this year. The ads made the case that Sam's Choice Take & Bake pizzas can help families save hundreds of dollars a year compared with the cost of a delivered pizza.
And pizzeria operators are taking notice. During Papa John's third quarter earnings call, for example, CEO Nigel Travis warned that the company faced increasing pressures from low-cost competitors.
"The recent and ongoing crisis in the housing and financial markets only serve to further curtail consumers' discretionary spending and drive them to focus much more on pure value than they have previously," Travis said. "The competitors include the Subway $5 footlong sub promotion, targeted value comparisons made by Walmart regarding its take & bake pizza and similar value comparisons made by frozen pizza brands."
Earlier this year, Walmart set up a Web site, www.makeyourdollarstretch.com, and hired a family finances expert to advise consumers on how to save money. The company has also experimenting with a grocery concept dubbed Marketside, which it says offers restaurant-quality food at low prices.
"We have a number of initiatives going to reach out to customers," said Walmart spokeswoman Melissa O'Brien. "We know there are elements in people's behavior right now that are changing."
Prepared meals on the rise
Experts say the economy has been steering consumers to retail-prepared meals and away from restaurants. According to an October report from foodservice consulting form Technomic, three out of five consumers - 62 percent - who report purchasing more supermarket prepared meals than a year ago are doing so at the expense of fast-food restaurants.
The survey of more than 1,500 consumers found that family-style and casual-dining restaurants also were impacted, albeit to a somewhat lesser extent. Convenience was cited by 86 percent as the reason for buying more retailer meal solutions.
"Retail food chains, eager to recapture share-of-stomach, have been actively developing retailer meal solutions with strong consumer appeal, allowing retailers to reposition themselves as competitors to restaurants," said Darren Tristano, executive vice president of Technomic. "The economic downturn may alter consumers' food sourcing habits. To stay in the game, retailers and restaurant operators will have to continue to adapt their value equations to meet the market's changing needs."
If you can't beat em
It may not be all doom and gloom for pizzeria operators, though. Columbus, Ohio-based pizza chain Donatos began testing take & bake kiosks in Kroger grocery stores in 2005. Today, the kiosks are in 99 Kroger stores in Ohio, Michigan, Indiana, and West Virginia.
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Papa Murphy's, the largest player in the take & bake segment, admitted a similar partnership with Walmart hadn't worked as well, however. The chain began opening locations inside Walmart stores in 2004, but many have since closed.
Grocery stores grab a bigger slice of the pie •More than half (55 percent) of consumers surveyed think that retailer prepared foods have greatly improved over the past three years. •More than 80 percent reported buying at least one prepared meal from a retailer in a typical month. More than four in ten (41 percent) consumers purchase four or more retailer meals per month. •Taste and freshness of food are the most important factors in choosing to purchase a retailer-prepared meal, cited by 89 percent and 87 percent respectively. However, offering fresher menu items was an area noted as needing improvement for many retail establishments.
Some pizzeria operators have responded by developing their own product for retail sale. Slightly more than 1 percent of California Pizza Kitchen's revenue comes from licensing fees from the line of frozen pizzas the company developed with Kraft.
And Patty Phillips, president of gourmet take & bake pizza shop Patty's Presto Pizza in Santa Monica, Calif., is launching a new healthy kid's line of frozen pizzas in Whole Foods markets in Northern California.
Still, she said, she expects operators will feel the effects of Walmart's actions.
"With all the big supermarkets like Walmart trying to tap into the food industry, eventually it's just going to hurt everybody," she said.

Topics: Marketing , Operations Management , Papa John's , Papa Murphy's Take 'N' Bake Pizza

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