- WHITE PAPERS
Happy summer, everyone. We are officially half way through the year and you can pat yourselves on the back for making it through one of the most brutal winter sales periods ever. Of course, for some delivery concepts, the notorious polar vortex provided a bottom line booster as they were called on by consumers not willing to brave the cold.
For chains and independents alike, and for better or for worse, the unusual weather has been one of the top stories so far this year in the restaurant industry. We’ve decided to take a look at the other big stories to mark the halfway point of 2014.
If you’re in the pizza business, you rely heavily on cheese. If you rely heavily on cheese, this year has not been kind. Cheese reached record highs in the beginning of the year and remains somewhat elevated mostly due to the California drought and the Midwest winter, both of which have held back production growth.
To make matters worse, the protein markets are also extremely volatile. Beef, in particular, is higher than anticipated with high grain costs and a reduced herd; while pork supplies have been compromised by a vast PED virus that has caused an estimated 7 to 9 million hog deaths.
Wheat costs were near record lows in the beginning of the year, but have since jumped by more than $1.
Franchising and growth
High food costs are certainly not affecting concepts’ expansion this year, however, with flood gates opening to international and domestic markets alike. As the big players plant their flags in emerging markets overseas (Domino’s debuted in South Africa and Paraguay, for example, while Pizza Hut entered Iraq), the story at home is being written by fast casual, top-your-own brands.
Here is just a snapshot of openings and agreement deals that have happened so far this year alone:
Kansas City, Mo.’s SPIN! Pizza grew its California presence; Flippin’ Pizza also entered California, as well as the Middle East; while Pieology eyed Colorado.
Pie Five grew in Florida and Virginia; Brixx is looking at Denver; and Flippers continues to grow in Florida. Pizza Studio has 20 units coming for just the Phoenix market. Fired Pie plans to double its store count by the fall. Carmela’s, Solo’s Pizza Café and Custom Fuel just announced franchising plans, while MOD Pizza secured $15M in capital for its franchising efforts.
Marco’s is one of the top five fastest growing concepts in the entire restaurant industry, with a focus on Denver and Florida, to name a few.
Hungry Howie’s is expanding in Michigan and New York; Russo’s is in Texas, Oklahoma and Arkansas; Mellow Mushroom continues to grow it Southeast footprint, including in Georgia and Florida; and PizzaRev hopes to tackle more of California.
Then there’s Blaze Pizzeria, with deals for Florida, Tennessee, Kentucky, California, New York, Washington, D.C., etc. The company claims it is opening a new location every six days.
Uncle Maddio’s expects 35 new units this year, including in Texas, Colorado, Nebraska, North Dakota, North Carolina, Florida and Alabama.
And PizzaRev leveraged a partnership with Buffalo Wild Wings for its goal of reaching 65 locations by next year, with new deals for California, Nebraska, Utah, North Dakota, Texas and Missouri.
... And so on, and so forth.
These brands’ stories very much support the recent reports from the International Franchising Association and FRANdata, which predict that franchise units will increase by more than 12 percent this year, the highest rate of increase since 2009. The top driver is the increase in accessibility to capital.
Speaking of capital, many brands are experiencing significant sales lifts from their digital ordering platforms. There appears to be no end in sight for this growth trajectory, with Papa John’s and Domino’s claiming their digital orders are nearing 50 percent of total sales. In China, Pizza Hut generates 70 to 80 percent of sales from digital. Of that number, according to CFO Pat Grismer, 25 to 30 percent come from mobile, which is up from about 10 percent last year.
"We've put significant resources behind it. We believe [digital ordering channels] both grow top line sales and improve profitability for a number of reasons — including savings on labor and increase in average spend," he said. "When consumers are in complete control of their ordering process, they tend to spend more."
With the commitment of "significant" resources behind this trend, these companies are coming up with some innovative ordering capabilities as part of their digital presence. In the past few months, Domino’s has added a group ordering feature, a voice activation ordering feature on its mobile platforms and a 3D feature to its iPad app. It also integrated Google Wallet with its Android app.
Pizza Hut’s new apps are GPS enabled to offer deals based upon user location. And, Kevin Fish, senior manager of eCommerce Technology, said the company is also "just beginning to unlock the potential" of its Xbox ordering app and other console-based applications.
Even regionals and independents are realizing digital benefits. Hungry Howie’s, for example, just added Revention’s HungerRush Online Ordering platform, and anticipates a double-digit increase in sales within the next 12 months.
Kansas City, Mo.-based Minsky's Pizza recently introduced online ordering, which is now "going gangbusters." The two stores that have been online the longest — since August 2013 — are experiencing continual 10 to 15 percent growth of online orders, on top of their 10 to 15 percent growth in months prior. Owner Gregg Johnson said the feature is also adding to ticket; Minsky’s has sold more desserts and delivery beverages than ever.
"It is a necessary evil you have to have today. You either get on board with the technology program, or you get left behind," Johnson said.
On the menu
We can’t talk about restaurant trends without taking a look at the menu. For pizza operators, it seems as though flavors are getting hotter and crusts are getting more exciting. Pizza Patron made the news this year with its sales record-breaking La Chingona, which turned up the heat with proprietary jalapeño stuffed pepperonis and diced jalapeños. PizzaRev came up with a zesty taco pizza, which is topped with Cholula hot sauce.
Papa John’s also got "zesty" with its double cheeseburger pizza, featuring a "savory combination of zesty burger sauce," according to a company release. The brand also kicked up its Greek pizza with some banana peppers.
With beef prices skyrocketing, many concepts turned to chicken, including Hungry Howie’s and its three new specialty chicken pizzas. Pie Five created a jerk chicken pie, while Papa John’s promoted its new sweet chili chicken pizza.
Pizza Hut began pushing its WingStreet concept through national marketing this year, the first time ever. And after a full year of no new product news, Domino’s launched its specialty chicken line, featuring boneless chicken bites that are lightly breaded and available in four flavors – crispy bacon and tomato; spicy jalapeno-pineapple; classic hot Buffalo; and sweet BBQ bacon.
Finally, crust innovation is clearly a focus this year, with Pizza Hut’s, Boston’s and Stevi B’s thin crust launch; Mazzio’s stuffed crust launch, including a jalapeno option; and Pizza Inn’s triple cheese stuffed crust launch.
Other stories of note
We’d be remiss not to mention the other top pizza stories coming to a boil so far this year, including the fight over the minimum wage, a broader focus on beverage platforms, and the ongoing fight over value promotions. Cheers to the next six months!
Photo provided by Pixabay.