OPINION: If you think fiction's interesting, take a look at reality in the pizza news

Nov. 11, 2003

A look at this week's news ...

* Much like the war in Iraq—oh, I forgot, the actual war ended months ago, right?—the pizza price war will not abate. Perhaps the bloodiest skirmish of late is in the Southern Michigan, where Little Caesars' "Hot and Ready" promo (a large, one-topping carryout pizza) sells for $5. Many others have fired similar volleys, including Cottage Inn Gourmet Pizza, which shaved $6 off its regular $11 price (see related story Michigan pizza outlets in price war).

Could that be called "marginocide"?

Here in Louisville, the most interesting entrant in to the bargain-basement fray is Papa John's. The

Steve Coomes, Editor

company recently launched a "buy one large, get a second large for 99 cents" promo in selected markets.

For years, founder, CEO and President John Schnatter resisted up-front price discounting such as $5 larges, but this get-a-second-one-on-the-cheap initiative clearly signals some new credence given to price incentives.

Steve's two cents: I hate the whole discount game; after more than a decade of it, the I'm not the only one who believes that many in the pizza industry have all but turned their core product into a commodity through price slashing.

As a consumer, I have to look at operations like Cottage Inn and wonder, "Hmm, you used to charge me $11, but now you're charging me $5. Were you gouging me for six bucks back then?"

I know discounts drive volume, and that volume is a wonderful salve for wounded sales. But in the long run, is such a cure worse than the disease? If customers are trained to buy pizza on the cheap, will you ever convince them to pay more for it again?

I know I wouldn't.

* Anybody been watching Pizza Inn lately? The company's stock, I mean. Year to date, it's up nearly 107 percent ($1.33 to $2.75), while the chain's sales have been flatter than its buffet counters. Its 3Q comp-sales, for example, slid 4.8 percent, and unit growth overall is just about zero.

Doesn't excite you either, huh?

Well, somebody's paying attention.

A few days ago Newcastle Partners, which holds a 35.4 percent stake in Pizza Inn, suggested in an SEC filing that Pizza Inn's shareholders elect two new board members—hand-picked by Newcastle (see related story Largest Pizza Inn shareholder wants to expand board with two pizza veterans). Interestingly, both men, Robert Page and Barry Barron, have extensive pizza industry experience with Papa John's and Pizza Hut.

Steve's two cents: Does anyone sense a private takeover afoot?

Since the SEC filing was reported, Pizza Inn's stock is up 8.8 percent—for company that isn't doing all that well (see broader report).

Stock watchers I've talked to won't say they're certain a takeover is on the way, but they agree that a lot more than bargain hunting is going on.

* The discussion of McDonald's partner brandsone of which is 180-store Donatos Pizzeriais back in the news. On Nov. 4 Reuters reported that McDonald's CEO Jim Cantalupo has placed Mats Lederhausen, 39, over its non-hamburger brands (which also include Chipotle Mexican Grill and Boston Market) to "determine how (they) fit into McDonald's future growth."

Steve's two cents: I certainly wasn't alone in predicting Donatos' imminent detachment (see related story The sale of Donatos Pizzeria: rumor or reasonable speculation?) from the Golden Arches, but I may be alone in believing it'll still happen.

Especially in light of McDonald's recent sales reinvigoration, Donatos and Boston Market appear to be dead weight on McDonald's bottom line, while Chipotle is the lone partner-brand contributor.

Is that Donatos' fault? I don't believe so. The pizza company was solid when McDonald's bought it in 1999. In my opinion, the folks in Oak Brook just haven't figured out how to change it to their liking.

Perhaps it didn't need changing at all.

* Delivery area redlining has reared its ugly head again. In Dania Beach, Fla., pizza operators won't deliver after dark to at least two areas of town home to many blacks. According to a Sun-Sentinel report, the neighborhoods are well kept and local law enforcement officials say that, of late, crime in both areas is low.

As you might expect, the residents believe the redlining is racially motivated and want the delivery policies changed.

Steve's two cents: In so many situations, perception is reality, and Dania Beach's black residents perceive their denial of delivery to be discriminatory.

Well, the perception notion cuts two ways. Perception also is reality when a driver goes into a neighborhood with a reputation—be it current or past—for crime. Residents should not only understand drivers' perceived (or real) fears, they should do something to change them.

One pizza operator I know threw a free pizza party to promote good will in a crime-ridden community that was in danger of being redlined. The community responded positively, and ultimately put burglars on notice that they'd be reported if the drivers were harmed.

The pizza operators in Dania Beach could do this as well. Not only would it build good will, but it likely will build some business, too.

But I also suggest the members of these communities do the same for the delivery drivers. Perhaps the residents could throw a party for them, a daylight gathering that would allow residents, operators and drivers to meet each other. Here again, perception equals reality, and when each side sees the other as humans rather than customers or operators bound only by products and services, each finds it harder to be angry and progress is made.

Call me Pollyanna, but it might work.

Topics: Commentary , Little Caesars , Marketing , Papa John's , Pizza Hut

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