Pizza Power Report 2007
By Tom Boyles

One of the most requested subjects of the year is the Pizza Power Report. Each year PMQ does what no other organization in the country does, which is collects as much data as possible from varied sources and then pours over it with the entire staff to determine what has happened in our industry over the past 12 months and attempt to make some predictions as to what the industry can expect during the next year. This year we uncovered a few surprises that you will be reading about in the next few pages. Before we get to our conclusions, we will present the numerical facts…actual numbers and averages for sales within the pizza segment. We will look at the industry as a whole and do various breakdowns for the independent and franchised segments. Then we will look at some of the trends and issues that we believe will affect our segment of the restaurant industry.

PMQ  began producing the Pizza Power Report in 2000 and over the course of the past eight years we have attempted to collect statistics for the same periods from year to year so that you can compare “apples to apples”?  We would like to thank everyone at InfoUSA, Technomic, NPD Crest and the National Restaurant Association (NRA) for their assistance in compiling this data. It is from these resources that we obtain specific information from each company and then combine all of it to create the most accurate portrait available specifically for pizza. State-specific data, store counts and sales statistics for the pizza segment were collected for the period between July 2006 and July 2007. National restaurant sales and unit count data was collected for the period between January 1, 2006 and December 31, 2006. So let’s dive right in and look at some stats.

The Industry as a Whole
Store Counts – Based on statistics provided by InfoUSA, the unit growth for the pizza segment between July 2006 and July 2007 was very active. The total unit count for the SIC Code representing pizza restaurant listings rose 4,913, which now gives the U.S. pizza industry a total of 74,299 units. This is a 7.1% increase in units from last year’s Pizza Power Report. According to the NRA, there were approximately 925,000 restaurants in the U.S. at the end of 2006, which means the pizza segment represents 8.03% of all restaurants in the U.S., as compared to representing 7.7% in last year’s Pizza Power Report.

Sales – Not only did the pizza industry increase its volume of units between July of 2006 and July of 2007, sales saw one of the most significant rises in a few years. During this period the pizza segment saw a 3% increase in sales in both the QSR** and the CD** segments, which equates to an overall increase of $936,433,802 and brings the total U.S. pizza sales for these segments to $32,150,893,862 according to NPD Crest. This $32.2 billion in pizza sales represents 6.29% of the total ‘eating place’ restaurant sales in the U.S., which according to the NRA was $511 billion in 2006.

Store Averages – For the period between July 2006 and July 2007, the average sales for all pizzerias in the U.S. was $432,723, which was a decrease of 3.8% from the previous year. The reason for a decrease in average sales where there is an increase in both units and overall sales can be explained by noting that there was 7.1% increase in units with only a 3% increase in sales. While the industry is healthy and growing, this growth appears to be creating more and more competition for the consumer dollars spent at individual locations.

The Independents
For this report, “independents” are classified as all pizzerias NOT in the Top 25 Chains. Once again, the numbers collected show that the independents are gaining ground on the big chains in the Top 25. For the third consecutive year, the independents were able to gain ground in the market share of total units and for the second consecutive year independents were able to also gain market share in the industry’s total sales.

At the time these numbers were taken (end of July 2007), independents comprised 66.51% of all the pizzerias in the U.S., which is up from the 64.81% of all U.S. pizzerias that was reported in last year’s Pizza Power Report. When it comes to overall industry sales, the independents also marched forward in this area and now earn 50.21% of the U.S. pizza industry’s sales, which is up from the 49.47% of total U.S. industry sales reported in last year’s Pizza Power Report. Average store sales for independents also rose to $326,478, which is up from the $323,411 that was reported in last year’s Pizza Power Report.

While the average store sales of the “mom and pop” locations is still behind the average store sales of the Top 25, the independents are continuing to chip away at the margin. When PMQ first researched the industry and compiled the first Pizza Power Report in 2000, independents owned 59.7% of the total stores in the U.S. and have increased that percentage to 66.51%. In 2000, independents owned 48.5% of all U.S. pizza sales and now own 50.21%. So as you can see, independents are making slow increases, but the Top 25 chains still have a solid grasp on total industry sales.

The Top 25
Ranking of the Top 25 pizza chains in the U.S. is based on sales. Compared to previous years, the Top 25 chains did not fare as well as they have in previous years. The Top 25 chains lost market share in both the percentages of total U.S. units and sales. In addition, average unit sales per location decreased from $682,746 to $643,782 per unit. Out of the Top 25, four chains showed decreases in sales from the previous year (Pizza Hut, Domino’s,  Pizza Inn,* and Greek’s Pizza*). There was also a lot of ‘dead weight’ cut with seven of the Top 25 showing decreases in units from the previous year (Pizza Hut, Sbarro*, Donato’s Pizza, Peter Piper Pizza, Mr. Gatti’s, Pizza Inn,* and Greek’s Pizza*).

The Big Four
Once again, Pizza Hut is the largest pizza chain in the U.S. with 7,532 units, which represents 10.13% of all pizzerias in the U.S. With these locations, Pizza Hut captures 16.01% of all U.S. pizza sales. An interesting note here, according to Technomic statistics, is that of the Big Four (Pizza Hut, Domino’s, Papa John’s and Little Caesar’s), both Pizza Hut and Domino’s showed declines in sales from the previous year. Pizza Hut also showed a decline in units, while Domino’s showed a modest 1% increase in units. Papa John’s had a good year with a modest 2.2 percent increase in units and showed an impressive 7.8% increase in sales from the previous year. And once again Little Caesar’s has proven it has turned the corner with a 7.3% increase in units and a 6.4% increase in sales. It was just a few short years ago that Little Caesar’s was closing stores and losing money at such an epidemic rate that I gave them a five-year shelf life…congratulations guys, you have proven me wrong.

With a major chain like Pizza Hut showing losses in sales and units, it’s no surprise that a new marketing leader would be named, which is exactly what happened on September 20, 2007 when Brian Niccol was named its new Chief Marketing Officer. Niccol replaced Bill Ogle, who was said to have left the company to pursue outside opportunities after holding the post for nearly two years. September also saw Domino’s appointment of Patrick Doyle, who was promoted to the newly created position of president, Domino’s U.S.A. , leading its Marketing, International, and Team U.S.A. divisions. In this role, Doyle will lead all domestic retail operations, including Franchise Operations, and Franchise Development.
So what is the difference? There are a few notable points. Both Pizza Hut and Domino’s began national promotion of online ordering in June and July of 2007 at most locations nationwide, while Papa John’s was already ahead of the curve. Another note is that Little Caesar’s offers the “Pizza!Pizza!” offering (buy one get one free), and most recently, the convenient, value-oriented HOT-N-READY® offering. The Little Caesar’s HOT-N-READY® offering includes a large, hot pizza that’s ready when customers arrive with no waiting or need to call ahead for $5 (selected offerings) at participating locations, which gives them an advantage in attracting families who are on the go.

State/Regional Outlook
Economic growth is expected in all U.S. regions, with all regions also projecting job growth in 2007. The Mountain region will again post the strongest sales growth at 6.7%, followed by the South Atlantic region at 6.2%, and the West South Central region at 6.2% due to having the fastest growth in local economies, disposable income and population. Nevada will lead the states, posting restaurant-industry sales growth of 8.1% in 2007, followed by Arizona at 7.6%, and Florida at 7.1%. For more information about the National Restaurant Association’s 2007 Restaurant Industry Forecast, visit  www.restaurant.org/forecast.

Trends
Food, like fashion, has trends and trends sell product. There are several trends to look at that have occurred in 2006 and 2007 and some to watch for in 2008. Let’s take a look at some of these. The NRA conducted a survey of 1,146 members of the American Culinary Federation in October of 2006 and here are some of their findings concerning what was hot, what is hot and what will be hot.

Mini Desserts
Bite-size desserts ranked number one on the National Restaurant Association’s list of hot food trends for 2007. Geoff Alexander, partner of  VTK, a Lettuce Entertain You restaurant, says VTK was on the cutting edge of the trend when it began serving bite-size desserts in 2003. The itty-bitty confections, including a “Passion Fruit Souffle,” a “Chocolate Beignet” filled with coconut cream and “Mango Rolls” in raspberry sauce, are served at lunch only. And sweeter still is the price of $1 to $1.50 for each dessert. “How can you say no to having dessert for a $1? Consumers drive trends like bite-size desserts,” says Nancy Kruse, president of The Kruse Company in Atlanta. “Both consumer demographic changes like the aging of the baby boomers or the growth of the ethnic population and consumer lifestyle or attitudinal shifts like the growing respect for the culinary profession and the impact of television chefs impact food trends,” she adds. These mini desserts have been featured on cable specials and even showed up in some of the reality TV chef programs…keep an eye in the Food Network and it may preview what will be hot.

Local and Organic Produce
Another trend that appears to have staying power is the increased use of locally grown produce, which was the second-hottest item on the National Restaurant Association’s list. “Local is the new food frontier,” says Renee Brooks Catacalos, University Park, MD-based co-publisher of the Local Mix newsletter and the www.realpeopleeatlocal.com website, which provide information on locally grown foods in the Mid-Atlantic region.  According to Catacalos, U.S. Department of Agriculture statistics show that farmers’ markets have grown more than 110% since 1994 allowing greater access to local produce and expanding consumer awareness. More chefs and local farmers are working together to satisfy consumers’ appetite for fresh, homegrown foods.

Organics has been a buzzword too. With the growing trend of trying to become more “green” and consumers becoming more health conscious, consumers are looking to more eco-friendly and healthy foods that are grown without herbicides and pesticides. The key here is to let customers know that you have organics or locally grown foods. Additionally, when “being green”, restaurants are increasing their environmental efforts. More than three out of four restaurants purchase products made from recycled materials, according to the NRA. I would also keep an eye on this gluten-free thing too.   

Online Ordering
As mentioned earlier, online ordering is the area where restaurants, especially those with delivery or curbside service is available, is becoming more and more popular. Customers who prefer to dine at home are looking for quicker ways to get in and out and back home. Also, with newer online ordering systems that can tap into your POS system, adding this option is becoming easier to integrate into your operations in addition to becoming cheaper to get up and running. Many POS providers now offer either their own version of an ordering system or have partnered with outside online ordering companies. Plus, consumer confidence is at an all-time high when it comes to spending on the Net.

Other Trends
Along with these trends, the NRA also cited these areas as places for restaurant owners to keep an eye on. Diners Like To Serve Themselves. Forty-six percent of Americans say they are likely to use customer-activated ordering and payment terminals if available in their favorite table service restaurant. Younger consumers are more likely to do so, as 71% of 18 to 24-year-olds, and 64% of 25 to 34-year-olds say they would. About half of all adults—and roughly two-thirds of those aged 18 to 34—say they would use a self-serve order and payment terminal at a quicks ervice restaurant if it was available.  Americans Are Starting To Take Back Their Mealtimes. Thirty-six percent of adults say they are eating on–the-go less frequently now than they did two years ago. In addition, 48% say they eat in their car less frequently.

PMQ’s 2007 Pizza Industry Enterprise
(PIE) Award Winner
We’ve looked at the numbers and we’ve looked at the trends, so now let’s take a quick look at who wins…the 2007 PIE Award. Last year we awarded the 2006 PIE Award to Villa Pizza. This year we looked at unit growth, sales growth, increases in per unit sales and then argued for two days. It was tough, but we finally came to the in-house consensus that Fox’s Pizza Den deserved the title. But, since the final two concepts we were looking at were fairly different from each other, we decided to take it a step further and see what PMQ online readers thought, so we interviewed Famous Famiglia and Fox’s Pizza Den. We then posted both full interviews online and allowed online readers to offer their views on who they thought was best. Online voting helped to support our decision. Both chains received a good deal of support but since there can only be one winner, this year’s winner is Fox’s Pizza Den.

Fox’s Pizza Den opened March 7, 1971. They currently have 298 locations, all of which are franchised. Fox’s locations are primarily located in rural towns. Jim Fox, founder, runs his franchise system with the belief that franchisees have a better chance of success when the parent company allows them to keep the cash flow in their business rather than paying it to the corporate office. To do this, Fox’s franchise fee is only $10,000 and royalty payments are just $300 per month. Franchisees are also free to handle their own marketing, but have programs and vendors they can use through the Fox’s system for printing and direct mail. “If a franchisee wants to add things to their menus that sell in their area, they can do whatever they want,” Jim Fox said. “All I require is that they keep the same logos and Fox’s sign out front. Different things sell in different areas, so I don’t believe in forcing them to stick to a standard menu when it may not work for them.” In 2006, Fox’s earned a total of $180 million. This is the second time Fox’s Pizza Den has won the PMQ PIE Award. Their first time was in 2005. If you would like to talk with founder Jim Fox and learn more about Fox’s, be sure to sign up for PMQ’s 2008 Pizza Cruise, where Jim will be a guest speaker…you’ll also probably be able to find him out relaxing by the
ship’s pool.      

* Technomic Estimate

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