Professor Christopher Muller, Ph.D
BY STEVE GREEN, PMQ PUBLISHER
Professor Muller has written the best analysis of pizza opportunity I have ever read. He has allowed us to reprint this work, which originally appeared in a European foodservice magazine. We are very proud to have Professor Muller associated with PMQ.
The restaurant industry is segmented in many ways – by price, or service style, or menu product category. There are low price restaurants, self-serve, full-serve, and hamburger or chicken offerings. One segment of the industry, which crosses all of these other lines, is pizza. Pizza is served by the slice from a single operator, in whole pie form by huge multi-national corporations, and in gourmet five-star full service restaurants. It is because of this incredible reach that a look at the pizza business can offer a model with valuable lessons for all industry segments.
A brief history
Pizza, as a distinctive product, dates back to Napoli and the Antica Pizzeria Port' Alba, which is still in existence. Legend has it that Queen Margherita of Florence was served a specially prepared "tomato pie" in her Neapolitan hotel room in 1889. She had come to savor the local customs, and became a frequent visitor after this simple meal. Her favorite, made with fresh tomatoes, mozzarella and basil is named in her honor and remains a popular choice around the world. See page 24 for a more detailed history.
Since that time, pizza has become synonymous with Italy and its customs. But pizza has also transformed itself into more than a simple Italian menu item. Wolfgang Puck, the Austrian turned celebrity American Chef, established his reputation for creative cuisine by offering his so-called "Gourmet Pizza" to trend-crazy Los Angeles in the early 1980's. His versions, topped with duck sausage or smoked Gouda cheese, quickly set the standard for innovative California menus. Today, some style of gourmet or signature pizza topping can be found in almost every kind and type of restaurant. Even McDonald's has had a McPizza on its menu board.
"Universality" of pizza
Pizza is today a universally understood market form. Even in China, where cultural food preferences limit the acceptability of eating cheese, there are Pizza Hut restaurants. In the United States, home to that other ubiquitous food item – the hamburger, the National Restaurant Association reports that more pizza is consumed annually than any other single food item. Pizza is actually America's national dish.
Pizza has also evolved from being Italian to being a "pan-ethnic" cuisine. Across the world pizzas are being topped by Mexican jalapenos, Chinese red-barbeque duck, Greek feta cheese, squid rings, chocolate sauce, or pineapple bits and ham. Pizza is eaten hot from the oven, at room temperature, or cold from the refrigerator the next day.
As is true with any broadly accepted product, it also has an incredibly diverse set of customer demand characteristics. Some people want it at a restaurant served by a waiter, others in the comfort of their own homes watching television. Some want anchovies, others only garlic and white cheese. The complexity of the pizza customer base is matched to an international array of pizza variations.
The universality of this food type offers an important benefit to operators of pizza chains. The product itself is now universally understood, so the management of multi-national pizza chains has become basically borderless – senior managers can fill their unit and corporate management ranks with individuals from any locality, of any nationality, because almost everyone understands the product and how it will be served.
Quality, convenience, price, and time
One model of the decision elements for restaurant consumers, especially for pizza restaurants, encompasses the following set of elements. Consumers seek out the level of food quality and service that satisfies their needs at a moment in time. Obviously, everyone wants the highest quality for his or her money, but defining the "highest" level of quality is a personal decision and one balanced by many other factors. Some restaurant offerings are sold only on the idea that they offer the "best quality" in town, others might offer the best table service or quickest delivery times.
A second essential decision element, which may occasionally be in conflict with quality, is convenience. We can define convenience in this particular instance as ease of use, with minimal constraints on consumer freedom or from external interference. Restaurants that are more convenient may be closer to a customer's home, there may be many more restaurant units in a market area to choose from, or the restaurant purchase process my represent less complication when used.
Price is the third element in this model. Many customers choose restaurant offerings only on low price, others may look at a high price as a sign that the restaurant offers more exclusivity or offers considerably better selection. Rarely can a restaurant enterprise compete on the dimension of high quality and low price, so most consumers intuitively know that they must sacrifice one for the other.
All restaurants compete on the dimension of time. In today's rapidly paced world, restaurants represent time saved as a substitute for meal preparation. Every time a consumer calls a restaurant for an advanced reservation or for delivery, time is a significant factor in the purchase decision.
PIZZA MARKET FORMS
The pizza segment can be used as a representative illustration of this model. Pizza as a consumer product is offered in three market forms:
As a whole pie, pre-cooked and served hot and ready to eat.
This form is traditionally consumed in a restaurant setting, which we will call "eat-in," as a meal taken out of the restaurant by the consumer to be eaten elsewhere, which we will call "take-out"; or for delivery by the restaurant to an off-site location.
By the slice, also pre-cooked and served hot and ready to eat.
When eaten by the slice, pizza is most often used as the basics for a meal alternative, commonly lunch or dinner, or on occasion as a simple snack.
As a whole pie, un-cooked, ready to be finished at another site.
When purchased as a raw whole pie, a pizza becomes an item, which will be cooked at home. In the past this was commonly sold as a frozen ready-to-bake product, but now appears as a fresh ready-to-bake item, as well.
PIZZA DISTRIBUTION CHANNELS
Combining information from both the restaurant elements and the market forms models, a more complex model can be created for looking at how pizza as a product is distributed to the consumer.
Traditionally, pizza is consumed by people at their local pizzeria. This is the "Eat-in" quadrant in the model, where it can be generally assumed that the simple "hot-from-the-oven" pie will represent the finest quality available. This is the place where consumers will seek the best taste, hottest temperature when served, highest service levels and most ambience of any distribution channel. Using the four elements described above, this segment can be said to have less focus on convenience, price or time than any other. The eat-in segment is the real "restaurant" experience for most people. Taking a cue from the Quality-Convenience-Price-Time model, this segment could be described as having a big "Q", small "c", small "p", and small "t".
Unfortunately, consumers like choice. Early on, they learn that the eat-in option might not be as convenient as they would desire, asking "Why shouldn't we be able to take the pizza home and eat it there?" In this quadrant of the model, consumers need to be active participants in the completion of their own meal – they need to go to the restaurant and pick up their pizza. Since the quality of a pizza declines rapidly as it cools, the success of a take-out purchase is very directly tied in to how nearby the restaurant is to the consumers home. The trade-off, in this case, is lower quality in exchange for the ability to stay at home and avoid the formality of a restaurant. In this channel, the customer looks for a big "C", with small "q", "p", and "t" elements.
Those consumers who are very price driven, meaning they seek the lowest cost for the products and services they buy, may look at the first two segments and consider them to be high priced. In order to remove some of the cost of doing business, the operator would not only need to have participation in the serving of the pizza, but also in its preparation. The only way to accomplish this is for the pizza to be sold to the consumer in an unfinished state, with cooking to be completed in the diner's home – the Cook-At-Home channel.
Quality is moderate, obviously the pizza is "hot from the oven" but it is also subject to lower cost ingredients and holding times in a freezer with limited freshness. Fully cooking a frozen, or even a fresh raw pizza, is time consuming and requires very active consumer participation. This quadrant of the model can be said to consist of big "P", with a small "q", "c" and "t".
Which leads to the last quadrant of the model, the Delivery channel. Time is the largest factor here, with price premiums associated with the cost of delivery, and quality being better than some, but still not the same as in the restaurant. A strong element in this channel is the ability of the consumer to have a pizza at any time, with no need to go to the restaurant, or even to store a pizza in the freezer. Delivery is certainly the easiest of all to use, and can satisfy even the most impulsive urges. But the need to "have it now" drives the quadrant. This channel is all about a big "T", with a trade-off to small "q", "c" and "p".
Taken at this level, the model suffers from a degree of over-simplification, clearly value in the consumer's mind requires an acceptable mix of all four elements. The pizza provider that can satisfy the Quality, Convenience, Price and Time elements will dominate market share.
LESSONS FOR ALL RESTAURANTS
What can we learn from the pizza business models discussed above which would apply to every restaurant? First, all meal preparation began as a "meal-at-home" experience. Some member of the family actually cooked a meal. Subtly, over the past few generations, meals in restaurants have gone from luxury to necessity as fewer people wanted to take the responsibility for this cooking activity. As this was occurring, the "meal-away-from-home" became socially desirable and restaurant dining grew in size.
Unfortunately, it is sometimes no longer convenient to either cook at home or dine in a restaurant, and modern families are now given many other options. The first is to take food that is prepared away from the home in a restaurant and bring it back to consume it in the home. This is "take-out". The second is to purchase food that is prepared in a restaurant, but is then served by that restaurant to the home in a ready-to-eat portion. This is "delivery".
THE QUESTION FOR OPERATORS
As you read this, consumers throughout the marketplace are considering their next meal. But instead of looking inside their home pantry and asking the age-old question "What's to eat?" they are asking themselves, "How am I going to eat today?" The choices that are offered to the dining public are almost overwhelming. Customers will usually only eat breakfast, lunch, or dinner once in each day. The choice they make today will have a significant impact on your business tomorrow. Your restaurant has to have an answer to the question "How am I going to eat today" for them.
Obviously, it is the consumer in the market who determines which of the four distribution channels will be relevant for him/her today. Every restaurant competes using the four Essential Elements of Quality, Convenience, Price and Time. At "meal time" today, both your customers, and your competitors, are present in all four corners. Are You?