NEW YORK -(Dow Jones)- Pizza chains are kicking off 2010 with a heated battle for consumers’ dollars.
Yum Brands Inc.’s (YUM) Pizza Hut, Domino’s Pizza Inc. (DPZ) and Papa John’s International Inc. (PZZA)–respectively, the three largest players based on sales and numbers of locations–enter the year with optimism although they expect consumer sentiment to remain glum amid high unemployment.
The three companies are looking to build investor confidence and build on share-price gains from 2009, during which Domino’s share price nearly doubled, recently trading at $11.34. Papa John’s shares have risen almost 62% to $25.18. Yum’s shares are up a more modest 26% from the past year to $36.28, with gains trailing the major indexes on rising concerns about Yum’s fast-food brands.
The current dour consumer sentiment puts more pressure on the companies to focus on building market share to expand sales, with the coming weeks of cold weather and high-profile television events like the Super Bowl shaping up to be a critical period.
“The competitive environment has heightened as consumers have hunkered down,” Brian Niccol, Pizza Hut’s marketing chief, said.
Domino’s is making the biggest splash so far, with a revamped pizza recipe with new dough, cheese and sauce. Though the launch has been at the butt end of late-night jokes, Domino’s executives have been optimistic that the new product will be a near-term sales driver.
The chain is backing the launch with an offer of two medium, two-topping pizzas for $5.99, a low-price offer intended to get the phones ringing. Domino’s hopes a beefier marketing budget this year will yield positive customer traffic in the U.S.
“In this environment, restaurant operators need to focus on traffic,” Telsey Advisory Group analyst
said. “If you’re not getting the traffic, you don’t have an opportunity to up-sell.”
Pizza Hut intends to push harder on value this year, after struggling over the past year, including a 13% same-store sales decline in the latest quarter. Niccol said the chain will try to offer items in more affordable offerings, like its any-size, any-topping pizza offer for $10 and has brought in a new ad firm, the Martin Agency, which counts Wal-Mart Stores Inc. (WMT) as a client, to help refine its message.
Papa John’s is getting on the radar in another way, signing on as the official sponsor of the National Football League and the Super Bowl, a day it plans to sell 750,000 pies, up to 40% more than on other Sundays, Papa John’s President and Operating Chief
said. Its focus will come at a higher price point than competitors, with the main offer now $11.99 for a four-topping, extra-large pizza, as it has traditionally focused on quality over having the lowest price. Backed by a marketing campaign featuring its founder and chief executive, Papa John’s saw same-store sales fall 0.2% at company-owned stores through the first three-quarters of 2009, and it now projects the key metric to be between down 1% and up 1% at U.S. stores in 2010.
“We want to build on that 2009 momentum and keep playing that same kind of card but in fresh places,” like the Super Bowl, Thompson said.