Dec. 29, 2008
With sales expected to reach $566 billion across 950,000 locations, the restaurant industry is a driver of the U.S. economy. Because consumer confidence is reflected in how often those consumers eat out, it's also true that the economy drives the restaurant industry. Not surprisingly, then, the depth and longevity of the recession will be the big news for restaurateurs in the New Year.
By many estimates, 2009 promises to offer mixed blessings for pizzeria operators. No. 3 pizza chain Papa John's has already said it expects comparable-store sales to be flat to negative for the upcoming year, while Yum! Brands, parent of the Pizza Hut brand, projects U.S. comps to increase about 3 percent, bolstered in large part by its Tuscani Pasta offerings.
On top of flat sales, operators are preparing to deal with two minimum wage increases, which will raise the lowest hourly wage to $7.25 by July.
There is some good news for operators, however. Commodity prices have fallen dramatically, with cheese nearly $1 lower than this time last year, falling to as low as $1.29 per pound on the Chicago Mercantile Exchange from a high of $2.29 in May. The price of wheat and most pizza toppings has fallen as well.
Pizza Marketplace talked to industry experts about the top trends expected to impact pizzeria operators in 2009. Here's a look at our top five:
1. Commodity costs to moderate. According to the National Restaurant Association's 2009 industry forecast, gas prices and other commodities affecting consumers' wallets will moderate in 2009, giving consumers more disposable income.
The Department of Agriculture also has reported the moderation of dairy costs. Dairy costs have been driven up by diminished supplies and overseas demand; however, dairy production is expected to recover in Australia and New Zealand, which were hit by drought conditions in 2008.
The United States' wheat supply also is expected to increase in 2009, as Europe's exportable supply is set to recover and record supplies are forecast for the Ukraine and Russia. Australia's crop also should return to pre-drought levels.
2. Casual and upscale dining falter. For 12 consecutive years, the NRA has reported growth for the casual and upscale dining sectors. For 2008, however, the association turned expectations downward. The financial downturn and tighter credit will add to the pressure as the financially strapped consumer eats out less.
Pizzeria operators are expected to benefit as consumers trade down from casual dining to a less expensive alternative.
"If you read a lot of the trades you see some of that happening," said Mark Strickler, VP of brand marketing for take & bake chain Papa Murphy's. "If times are tough and money is tight, people are going to look for that. But you still need to have a great product and great value."
3. Social networking becomes even more important. Only recently have social-networking sites like Facebook and MySpace begun to play an important role in the restaurant industry. Next year, they will be so interconnected to location-based networking that any restaurant could become a success – or a failure – merely by connecting with the right platform.
In 2008, several major pizza chains launched Facebook pages. Papa John's Facebook page signed up more than 170,000 fans in its first week, while Pizza Hut unveiled an application that let customers order a pizza without having to leave the Facebook site. By the end of 2008, Pizza Hut's Facebook page had signed up more that half a million fans, while Papa John's and Domino's' pages had each drawn about 200,000.
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The phenomenon will gain additional momentum as more consumers adopt Web-ready mobile devices. According to Nokia, 250 million such phones will be on the street by 2010.
4. Healthy and sustainable gain more ground. Sure, these have been hot topics for some time now, but it seems that when green took hold, healthy took the back seat. And when green and eco became something else, the term sustainability sprung into the market. As a result, 2009 will be the year businesses really begin to meet the demand for sustainability and quality that yields healthy and enriched ways of consuming food.
Pizzeria operators will be searching for ways to meet the demand for healthier offerings, if they haven't already done so. Papa John's introduced a whole wheat pizza crust in mid-2008, and Pizza Fusion, which markets itself as an organic pizza chain, grew from two restaurants at the beginning of 2008 to 16 by the end of the year. Other operators also are seeing increased demand for toppings that are perceived to be healthy.
"Vegetable pizza and BBQ or Buffalo Chicken pizza are our number one sellers," said Ed Martino, owner of Carminuccio's Pizza & Subs in Newtown, Conn. "And for those who like to stay healthy while enjoying great taste, we offer an Insalata Pizza with mozzarella, red sauce and topped with a fresh garden salad that I see becoming even more popular in 2009."
5. A triple shot of new products, aggressive pricing and strong promotions. The major pizza players are likely to increase discounting in 2009 as they seek to grab a bigger slice of the pie.
"Gas is down, cheese and meat are down, so the people who deliver can be a little more aggressive with their pricing," Papa Murphy's Strickler said. "I think you are going to see a lot of companies duking it out for market share."
Along with that, new product introductions are likely as companies try to spur sales. And while he hasn't yet seen increased spending on advertising, Strickler expects to see that as well.
"Generally when times are bad you do all three: introduce new products, lower prices and boost your media," he said. "I'm waiting for that third one to come along."