The pace of fast casual pizza accelerates in 2014

| by Alicia Kelso
The pace of fast casual pizza accelerates in 2014

Recipe overhauls and crust experimentation were popular in the pizza space this year. But the biggest stories from the segment were off the menu – anchored by a growing legion of top-your-own concepts and stubbornly high cost pressures. 

Here is a look at 5 of the top (non-menu) trends from 2014:

Fast casual pizza

For the second year in a row, this subsegment of create-your-own concepts is a top story not only in the pizza space, but in the restaurant industry as a whole. Startups continue to emerge while more established brands continue to sign big deals, leaving some wondering if and when there will be a shakeout.

In the meantime, don't expect the pace of brands such as Blaze Fast Fire-d Pizza , PizzaRev, MOD, Pie Five, Pizza Studio, Pieology, Your Pie, Project Pie, Uncle Maddio's, Fired Pie, etc. etc. to slow down anytime soon.

Uncle Maddio's, for example, has more than 225 units in development, while Pie Five has more than 400 units under contract in 16 states and Washington, DC. Blaze is backed by investors such as Lebron James and Maria Shriver, and PizzaRev received the backing of Buffalo Wild Wings in the spring, in what was called the "Deal of the Year." 

Even more traditional players are jumping into the space, with Sbarro, UNO and CiCi's among the companies testing a fast casual format.

Digital commerce

Another top story carrying over from last year is the acceleration of digital commerce, a path paved by big-named pizza players, with more of the smaller guys getting on board this year. More than 60 percent of Americans now own a smartphone and brands are scrambling to get their attention directly through their device. This year saw a lot of activity in mobile, buoyed by giants such as Papa John's and Domino's adding mobile payment capabilities via Google Wallet.

The digital arena has officially generated more than 50 percent of sales for Papa John's, with Domino's close behind, and Pizza Hut investing heavily to get there as well. 

"Technology has made it easier for customers to order and we've seen this have a significant impact on consumer engagement. Less time answering phones empowers employees to focus on the quality of the pizza and making customers happy," said Founder/CEO John Schnatter.

Mobile is just the tip of the iceberg for digital innovations: Domino's jumped into new territory in the fall when it launched its Tracker on Pebble Watch devices. Domino's also added a group ordering feature, voice ordering and an iPad ordering app this year. 

Pizza Hut plans to accelerate its digital presence in 2015, and for now offers its customers the opportunity to order via Hulu. Last year, the chain developed an ordering function through Xbox, which hit the $1M sales milestone in early '14.

Realizing the potential for sales lifts, smaller chains are getting into the digital space as well. For example, Donatos invested in a mobile-friendly site with ordering, while Piezoni added a mobile payment app. Minsky's reported "exponential sales growth" after its online ordering rollout earlier this year. 

Commodities, cost pressures

What a tumultuous year for bean counters, as cheese and beef prices both hit all-time highs, and pork skyrocketed due to a widespread pig virus. Although cheese has since tempered a bit, most expect the cost of beef to remain stubbornly high until at least 2016.

Couple these pressures with the lingering minimum wage debate, menu labeling and health care regulations and the National Labor Relations Board's ruling that franchisors are responsible for franchisee actions, and the headwinds in the restaurant industry are strong

For pizza operators specifically, there is also a rise in competition from every direction – Subway and Chili's both added pizza recently (Chili's has since removed the item to simplify its menu); c-stores such as 7-Eleven and Casey's are enhancing their pizza platforms and adding delivery; and grocery stores and retail outlets are adding take-and-bake options.

"As a small business, right now is a very difficult time and a lot of operators are treading water. These trends are why so many mom and pop restaurants close," said Rosati's Pizza CEO Marla Topliff.

But, with every cloud there is a silver lining and most restaurant operators consider that positive to be continuously falling gas prices. Gas is at its lowest level since the fall of 2010. Not only is this trend a boon for pizza delivery companies, but it also puts more money into consumers' pockets. According to economists, consumers habitually spend more eating out when they are spending less to fill up their cars.

"Looking forward, restaurant operators are increasingly optimistic about continued growth, and the underlying economic fundamentals point toward an improving business environment in the year ahead," said National Restaurant Association Chief Economist Bruce Grindy,

Franchising and growth

Additionally, the headwinds are also being somewhat offset by improving sales and traffic, as well as more capital than in recent years. In response, many brands are expanding their footprints, both overseas and stateside. After hitting a 10-year high in global net openings in 2013, and its 1,000th international location, Papa John's hasn't slowed this year, with a recent focus on India, the UK, Russia, the Middle East and Latin America.

Marco's also extended its presence in India, while Sbarro grew in Bolivia and Brazil and Round Table headed to Bahrain. Domino's eyed Paraguay, South Africa, Norway and Kenya this year, while Pizza Hut debuted in Iraq and South Africa.

Domino's CEO Patrick Doyle considers international to be critical, as the restaurant business is a game of scale. "Those tapping into international markets are in the best position for the future," he said.

Still, there is plenty of activity domestically as well. An example of concepts expanding in the US this year include Giordano's, Marco's, Grimaldi's, Flippin' Pizza, Russo's, Sarpino's, Villa Italian, Flippers, Hungry Howie's, Pizza Ranch, Mellow Mushroom, Carmela's Pizzeria, Pizza Inn Express, Pizza Patron and more. These players are proving that customized fast casual pizza isn't the only pizza in demand from American consumers.

IPO/private equity activity heats up

With 288 deals and $95.2 billion raised, 2014 will end with record activity in the US IPO markets, according to an EY Global IPO Trends report. As of December, the number of listing was at its highest point since 2000 and is a 27-percent increase over 2013. Restaurants were very much at play with this trend. Notable filings this year include Papa Murphy's, El Pollo Loco and Habit Burger.

In addition, as stock markets have been trending higher, IPOs have been outperforming market indices. Companies that have listed on US exchanges in 2014 have averaged year-to-date returns of 27.8 percent, compared to the S&P 500 at 12.2 percent. One of the stock market's top performers this year has been Domino's Pizza, which has turned in seven straight weeks of lifetime highs and is trading 3,000-percent higher than it was in 2010.

This year has also been a boon for private equity investments in the restaurant industry, including Apollo Global Management's acquisition of Chuck E. Cheese's in February.


Topics: Chuck E. Cheese's Pizza, Domino's Pizza, Food Cost Management, Franchising & Growth, Online / Mobile / Social, Online Ordering, Operations Management, Papa John's, Papa Murphy's Take 'N' Bake Pizza, Pizza Hut



Alicia Kelso
Alicia has been a professional journalist for 15 years. Her work with FastCasual.com, QSRweb.com and PizzaMarketplace.com has been featured in publications around the world, including NPR, Good Morning America, Voice of Russia radio, Consumerist.com and Franchise Asia magazine. View Alicia Kelso's profile on LinkedIn

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