“Digital disruption” has become something of a buzz phrase in the pizza business in recent years, but that term only tells part of the story of an industry that’s evolving at a dizzying pace. We’ve written at length about the online ordering revolution in past Pizza Power Reports—you know the drill by now, and if you haven’t made your peace with it yet, there’s no time like the present. Beyond that, pizzeria owners are contending with an entirely new crop of opportunities and challenges, from the startling rise of third-party aggregators to the surging popularity of plant-based proteins and the mysteries of a colossal consumer demographic known as Generation Z (yes, another younger generation to figure out).
At least the robots haven’t taken over—yet. But Domino’s is working on it. The chain has said it will roll out its first delivery bot (not so cleverly named the R2) at one of its Houston stores by the end of this year. Robotic delivery could give Domino’s additional advantages over independent pizzerias that are already struggling to keep up with technology. “The opportunity to bring our customers the choice of an unmanned delivery experience—and our operators an additional delivery solution during a busy store rush—is an important part of our autonomous vehicle testing,” said Kevin Vasconi, Domino’s executive vice president and chief information officer, in a statement in June.
In fact, according to the National Restaurant Association’s 2019 State of the Restaurant Industry Report, technology matters more than ever to customers, especially if it makes ordering food easier. “A majority of consumers say they would like to see restaurants incorporate more technology with a focus on improving customer service, making ordering and payment easier, and offering more convenient takeout and delivery options,” the NRA report states. Diners are particularly interested in service-enhancing tech, such as tablets at the table, self-service kiosks and wearable technology for servers.
Diners are particularly interested in service-enhancing tech, such as tablets at the table, self-service kiosks and wearable technology for servers.
But if tech is a consumer turn-on, mass-produced foods are a big turnoff. The NRA reports that “local sourcing, healthy options and eco-friendly food are increasingly important to consumers, and a majority of them say the availability of these options factors directly into their choice of a restaurant.” And if you think you’ve got that covered with your veggie pizzas, think again: According to research firm Technomic, 50% of consumers eat vegetarian or vegan dishes at least once a month, but only 27% of those consumers say restaurants provide vegetarian/vegan options that taste good.
So, there’s a lot to figure out in 2020. Even if you’re staying on top of customers’ technological demands, there’s no Star Trek-like scanner that can make sense of their ever-changing palates. But take heart: They still dig pizza, and they’re still spending their money on it. Now let’s move deeper into this year’s Pizza Power Report, starting with a look at the industry numbers and where all that money is going.
The Challenge for Independents
This year’s national sales figures reflect a continuing trend that will be unsettling to independent pizzeria operators. All in all, the numbers look good: According to CHD Expert, pizza industry sales are up slightly for the year ending September 2019. Pizza restaurants racked up sales totaling $46,337,969,390.42, an increase of about 1.33% over the previous year’s sum of $45,733,656,011.07. More pizza stores opened as well, totaling 77,724 units, which is up 1.34% over the previous year’s figure of 76,993 total units.
Independents still lead the chains in total number of units nationwide, but CHD Expert says that lead is shrinking. The chains saw their number of units rise to 36,151 (from the 2018 total of 34,967), while independents lost a little bit of ground with a total of 41,573 stores (compared to 42,026 in the previous year).
The worse news for independents, as CHD Expert reports, is that they continue to lag behind the chains in total sales. Independents saw their sales drop by 1.33%, from $18,780,796,296.57 for the previous year ending September 2018 to $18,531,653,875.99 for the same period in 2019. As in years past, the pizza chains showed some growth, from $26,952,859,714.50 in the previous year to this year’s total of $27,806,315,514.43, an increase of 3.17%.
The independents’ average sales per unit also declined slightly, from $446,885 last year to $445,761, but the chains didn’t fare any better: Their average sales per unit fell from $770,808 last year to $769,171. These aren’t dramatic numbers by any stretch, but they do suggest a maturing and tightly competitive pizza marketplace with little margin for error in the coming year.
“A Radical Transformation”
Digital disruption isn’t confined to the pizza segment, of course. In a November 2019 report titled “Restaurant Industry 2030: Actionable Insights for the Future,” the NRA said the restaurant business as a whole is in the midst of a “radical transformation.” Even the definition of “restaurant” will change over the next decade, as technology and data become integral to marketing and managing a foodservice operation. Over the next 10 years, the NRA report stated, “a greater proportion of meals will no longer be cooked at home, lending to the continued rise in delivery, virtual restaurants, subscription services and grab-and-go at retail locations.” Online-only delivery brands with so-called “cloud kitchens” (kitchens shared by multiple restaurants) will cater to customers’ demand for speed and convenience, and “the restaurant of the future will be smaller in size…[with] more automated kitchen equipment” and revised layouts.
That’s the long-term picture in a nutshell. In the short term, the NRA earlier this year projected a record-high $863 billion in U.S. sales for 2019, an increase of 3.6% over 2018. In fact, 51% of all consumer spending on food in the United States goes to restaurants, and about 90% of consumers say they like to spend money in restaurants. To get them to spend more, the NRA predicted operators will allocate more of their resources toward technology, particularly customer-facing technology like—you guessed it—digital ordering, both online and via apps, and delivery management.
Worldwide, Euromonitor International forecast $150.3 billion in total pizza commerce in 2019 (including takeaway/delivery, full-service and fast-food outlets) and predicted growth to continue over the next four years. Globally, Euromonitor estimates the largest annual growth rate through 2023 will be seen in Eastern Europe (23.54%) and the Asia Pacific region (23.41%), while Western Europe and North America will see much lower rates of growth at 6.45% and 9.01% respectively.
The worldwide pizza market is projected to hit $233.26 billion by 2023, according to ResearchandMarkets.com’s “Global Pizza Market Report: Insights, Trends and Forecasts (2019-2023).” That report attributes the growth to several factors, including growing urban and youth populations, rising disposable income and more entrepreneurs joining the ranks of pizza franchisees. Online ordering is also surging worldwide, along with the use of social media advertising.
Authenticity in the Digital Era
Restaurateurs in the United States are certainly feeling the impact of digital marketing and sales technologies. According to a June 2019 report by The NPD Group, restaurant digital orders—via mobile app, the internet or text—have grown by 23% over the past four years and now account for 3.1 billion visits and $26.8 billion in sales. Mobile apps represent 60% of all digital orders, and NPD forecasts that digital orders will keep growing by double digits through 2020 in all service modes, including delivery, on-premise and carryout. Importantly, a 2018 study by Valassis Local Solutions found that 42% of customers said the ability to place an order online would make them choose one restaurant over another.
The problem with digital ordering, some believe, is that it moves us one step closer to dehumanization, a potential pitfall in an era in which many consumers place a premium on authenticity even while wanting to place their orders quickly and efficiently. Washington, D.C.-based &pizza, a small but growing fast-casual chain, has a remedy for that—and it’s relatively low-tech. Founder Michael Lastoria last year introduced the Pizza Plug, a text-based hotline for customers who want to “talk” to a real person without, you know, having to talk to anyone. Patrons can text the Pizza Plug number and get real-time responses to their most burning questions, complaints or concerns from a live &pizza employee.
“Text is not a new technology, but it’s still the fastest, easiest, lowest-barrier communications platform between individuals,” says Vanessa Rodriguez, head of brand for &pizza. “It’s how we all communicate with our peers, and we wanted to be able to talk to our guests in that same way—not to use text as a mass-marketing tool but as a way to build that one-to-one connection with them.”
The chain’s Digital Shop is staffed with several &pizza employees (or “tribe members,” as the company calls them) with strong customer service skills. They answer questions via text from 11 a.m. to 11 p.m. seven days a week. “We treat it just like we would any of our shops,” Rodriguez explains. “It has its own P&L, a shop leader and shift managers to staff up as needed based on historical data so that we can ensure total optimization. We pull from the same pool of tribe members who work out of our brick-and-mortar shops so they really understand our guests and know how to drive a really great experience, whether it’s in person or via text.”
Meanwhile, &pizza employees can even text Lastoria himself directly when they’ve got a problem or a suggestion for improving business. But surely Lastoria, whose company operates nearly 40 locations in D.C. and six states, doesn’t answer each text personally? “He actually does, and he loves it!” Rodriguez says. “It’s as powerful for the tribe to be able to reach the CEO as it is for the CEO to get that direct feedback from the tribe. It’s a key component to living our values of transparency and really ‘walking the walk’ when it comes to text.”
Generation Z: A “Seismic Force”
The Pizza Plug hotline sounds tailormade for younger consumers, and it could—and probably should—serve as a model for other restaurant companies looking to burnish their hipness factor and youth appeal. And that will be crucial in 2020, because if you thought millennials were the most digitally connected generation in history, you ain’t seen nothing yet. There’s a new kid in town—actually, tens of millions of new kids, known collectively as Generation Z. And they were born connected. These digital natives, brought into mortal existence starting in 1997 through around 2014, never knew a world without the internet, smartphones, texting and Netflix. They’re also socially conscious, careful with their money (most of them remember their parents’ struggles during the Great Recession) and serious about sustainability and clean foods.
Fortunately, they love to dine out, too. According to The NPD Group, Gen Z consumers made 11 billion restaurant visits in the year that ended July 2019. That accounts for 24% of all foodservice traffic, NPD Group notes. “Although we’re just getting a peek at what Gen Z will bring to our culture, economy and society, this generation will be a seismic force as they emerge into adulthood under more prosperous economic circumstances, yet with their own differentiating set of values,” NPD Group food industry advisor David Portalatin said in a press release earlier this year.
According to Forbes, Gen Z’s spending power is presently estimated at between $29 billion and $143 billion, but it will increase as they get older. That makes Gen Z a veritable motherlode for restaurant marketers who can figure out how to connect with them. So what’s the secret to that? “To attract a Gen Zer, you need to think like one and ask yourself, what social networks do they feel most comfortable using?” says Andreea Dobrila, an online marketing expert for GloriaFood. “In our case, the answer is pretty simple: Gen Zers like Instagram and Snapchat. They enjoy consuming this type of visual, bite-sized content. It’s a key trait of their generation.”
As digital natives, Gen Z also puts a lot of trust in online reviews. According to a survey conducted by digital marketing company Square, 41% of these consumers said Google Reviews is their favorite source for online reviews. Not surprisingly, online ordering is “extremely important” to Gen Z, Dobrila notes, adding, “Some people were born with a silver spoon in their mouths, and Generation Z was born with a smartphone in their hands.
“Gen Zers are, above all else, ethical consumers—they are big on sustainability,” Dobrila says. “They’re keen on positively changing the world. And they don’t want their food choices to jeopardize it in any way. Considering their youth, they will be the ones to experience negative global changes, probably more than any other generation.”
As digital natives, Gen Z also puts a lot of trust in online reviews. According to a survey conducted by digital marketing company Square, 41% of these consumers said Google Reviews is their favorite source for online reviews.
Nick Salvagni, the national director of marketing for American Dining Creations, agrees. His company specializes in culinary, catering and corporate dining for colleges and universities, among other markets. “With easy access to information via the internet, this generation is more aware, both politically and environmentally, than ever before, resulting in a strong, values-driven population that understands the importance of sustainable, local and organic foods,” Salvagni says.
As a demographic of diners, Gen Z is a well-traveled and sophisticated bunch, Salvagni believes. If you want to appeal to their sense of authenticity, you’d better do it right, “because Gen Z, unlike previous generations, truly understands the taste, texture and experience of true authenticity,” he says. “For example, if they prefer to order a Neapolitan pizza over a deep-dish or even a New York-style slice, they have an image of what that Neapolitan pizza should be like, not just because of what they saw on TV or experienced from chain retailers. Instead, it’s likely that they’re expecting the equivalent of the pizza they experienced in Napoli, where they took the time to visit the most sought-after pizza maker.”
But Gen Z, while partial to pizza as well as chicken and burgers, doesn’t always want to sit down for a meal. Technomic reports that 23% of them would rather build a meal out of appetizers or snack foods. They are, in short, a “portable generation,” Salvagni says. “Many avoid being tied down or committed to one thing—we see this in Gen Z job trends and their lack of brand loyalty. They enjoy the ability to up and leave at a moment’s notice, so food that forces them into a standstill is often contrary to the inherently generational need for flexibility and variety. With full schedules and less free time, the food Gen Z reaches for has become a byproduct of their busy day, making snacking ideal. Some eat to live, some live to eat—Gen Z desires the best of both!”
Meet the New “Meats”
Many customers will also want the best of both meat and vegetarian/vegan menu options in 2020, and marketers have a name for them: flexitarians. Although largely plant-based, the flexitarian diet is for those diners who want to be “more vegetarian” without giving up meat. A flexitarian might eat meatless meals—including plant-based meat alternatives—periodically throughout the week but still keeps bacon in the fridge and doesn’t feel guilty for ordering a pepperoni pizza when the craving strikes.
Only about 5% of American adults identify as vegetarians, while 3% say they’re vegan, according to a 2019 Gallup poll. But the number of flexitarians is on the rise. The NPD Group has estimated that about ¼ of Americans eat and drink plant-based foods along with animal proteins regularly. Many say they want to add protein to their diets, but some also express concerns about animal welfare and perceive plant-based protein as a “clean-meat” alternative that’s better for the environment.
Consequently, many leading chains have responded with more plant-based menu items. A recent example: Boston-based UNO Pizzeria & Grill, which unveiled its “Love All, Feed All” menu in October. The supplemental menu highlights vegetarian or vegan-friendly options—some of which already existed, some new—along with items for gluten-sensitive, dairy-free, calorie-counting and carb-conscious diets. Jim Ilaria, UNO’s president and CEO, says it’s “truly a game-changer for us, our first major overhaul in decades, and it’s an acknowledgement on our part that consumers these days are eating in different and more conscious ways.”
The new menu, which was inspired by a phone call between Ilaria and David Byer of People for the Ethical Treatment of Animals (PETA), includes the option to make any pizza vegan with the use of Daiya cheese. But the big news was the rollout of UNO’s Classic Beyond Burger, made with plant-based Beyond Meat. “The skyrocketing popularity of plant-based proteins like Beyond Meat tells us this is only the beginning,” Ilaria says. “The food industry is evolving quickly, and we need to keep up with the changing and growing needs and demands of consumers.”
In fact, Beyond Meat and its rival, Impossible Foods, have been making news all year. Little Caesars introduced its Impossible Supreme pizza, topped with plant-based sausage from Impossible Foods, in three test markets earlier this year. The product was custom-seasoned for Little Caesars and crafted with the texture of traditional pizza sausage, the company said. “This is likely just the beginning of plant-based menu items from Little Caesars,” David Scrivano, the chain’s president and CEO, said at the time.
Meanwhile, Pizza Hut is trying out its own plant-based sausage from MorningStar Farms. The country’s No. 2 chain began testing its Garden Specialty Pizza, featuring Incogmeato Italian sausage, in Phoenix this fall. But fast-casual chain Pieology has gone further than most, rolling out three plant-based protein toppings that mimic the flavor and texture of Italian sausage, beef meatballs and diced chicken. “We’re looking to continue to be an innovator and appeal to untapped verticals,” Chad Bailey, Pieology’s vice president of marketing, says.
Pieology developed its own plant-based meat analogs—which cost an additional $1 per ounce—rather than partnering with one of the leading brands. Bailey notes that plant-based meats have improved over the years. “Even a few years ago, a ‘veggie burger’ was the most common denominator for a lot of vegan and vegetarian guests,” he says. “Bland flavor, odd texture and a general lack of visual appeal were common in the space. Today, there’s a growing segment of high-quality, all-vegetable products that offer the opposite, with bold flavors, great visual appeal and a texture that would make even the most loyal meat-eaters do a double-take.”
So what do Pieology’s customers think about the new options? “They love it!” Bailey says. “We’ve received a lot of feedback around how unique our offerings are and how well they simulate their meat counterparts. Even today, only a small amount of plant protein offerings have that high-quality experience, with a bite and chew that’s similar to traditional meat. We’re proud to showcase what we have, as we believe it’s heads and tails above any competitor in the space today.”
Ilaria says UNO’s new vegetarian- and vegan-friendly menu has gotten a similarly enthusiastic response from customers. “Even our own team members around the country are excited to be offering a more inclusive menu to those who dine with us,” he says. “We’re committed to keeping up with the desires of our customers and to continue experimenting with innovative ways to incorporate plant-based proteins into new menu items.”
It’s Not Always About Profits
There’s nothing wrong with turning a profit, but a growing number of independent and chain pizzeria operators are just as concerned with addressing social issues. Perhaps the best known is MOD Pizza, a mission-driven company that also happens to be the fastest-growing restaurant chain in the U.S. MOD Pizza’s impact-hiring policy emphasizes inclusivity, providing jobs for people who have struggled with physical or developmental disabilities, mental illness, homelessness, substance addiction and incarceration. MOD’s loyalty rewards program even lets customers donate their reward points to Generosity Feeds, a nonprofit that provides meals to children who face food insecurity.
Smiling With Hope Pizzeria, a single-unit independent in Reno, Nevada, has made headlines both for its good deeds—providing jobs and training for people with developmental disabilities—and its equally good pizza. Owned by Walter and Judy Gloshinski, Smiling With Hope in October topped a Business Insider list of the best-reviewed U.S. pizzerias according to Yelp. Meanwhile, Denver-based Pizzability, which also employs the disabled, has garnered glowing coverage from national and international news outlets, including the BBC and Canada’s CTV. And Mozzeria, a San Francisco independent that exclusively employs deaf people, received millions from a social venture fund to expand to Washington, D.C. These success stories point to a bright future for purpose-driven pizza businesses.
The Third-Party Effect
Pieology, like &pizza, is one of those innovative fast-casual pizza chains that have made life a little too interesting for independents as of late. Once focused primarily on taking over your lunch business, some of these companies have moved into delivery in a big way, adding large 14” pies to appeal to families and large groups. In September, Seattle-based MOD Pizza, which boasts more than 450 stores in 28 states and the United Kingdom, announced an exclusive delivery partnership with third-party giant DoorDash. MOD followed its closest rival, Blaze Pizza, which signed a deal with Postmates, another third-party leader, in 2018. Blaze expanded its delivery offering to include DoorDash earlier this year.
Backed by celebrity investor LeBron James of NBA fame, Blaze was recognized by Technomic in 2017 as the fastest-growing restaurant chain in history. Although it trails MOD Pizza in total number of stores, Blaze has positioned itself as the small but scrappy David to Goliath-sized Domino’s, with third-party delivery as the deadly rock in its slingshot. “We are ready to take on Domino’s, yes,” Blaze co-founder Rick Wetzel told Yahoo Finance earlier this year. In a separate interview with Restaurant Business, Wetzel said, “We built our network with DoorDash and Postmates nationwide. We’ve really beefed up for it. We’re leaning in hard.” He added, “I think third-party delivery is gonna take down the legacy pizza players—I really do.”
But many independents worry these fast-growing third-party giants could take them down as well. Although third-party delivery companies open up new opportunities for pizzerias that never offered delivery before, they carve out a big chunk of every ticket—up to 30%—for themselves. And restaurant operators have accused some third-party providers, such as Grubhub, of shady business tactics. The New York Post reported in June that Grubhub and its subsidiaries, Seamless and Menupages, had purchased more than 34,000 domain names that were similar to those owned by existing restaurants, often changing a dot-com to a dot-net. The copycat sites even use the restaurants’ logos while pointing customers to Grubhub or Seamless to place their orders. The sites also display the restaurants’ full menus, but prices listed are sometimes higher than those on the restaurants’ own sites, the Post said.
Grubhub told the Post that it purchased the copycat domain names “as a service” to the restaurants. The company also said it had put an end to the practice—often termed “cybersquatting”—by the time the Post story ran. “It has always been our practice to transfer the domain to the restaurant as soon as they request it,” Grubhub told the Post.
The Post also reported Grubhub was charging restaurateurs for customer calls that didn’t actually result in orders. For example, Enoteca, an Italian restaurant in Brooklyn, New York, complained that it was charged $9.07 for a call from a customer who asked if they offered gluten-free pasta. In December 2018, Munish Narula, owner of an Indian restaurant in Philadelphia, filed a class action lawsuit seeking $5 million in damages for what he said was “at least seven years” of phantom orders spread out across Grubhub’s network of 115,000 restaurant partners.
Rick Drury, owner of Precinct Pizza in Tampa, Florida, has experimented with many of the leading national third-party companies. Pizzerias that use them, he has pointed out, don’t have to worry about hiring, training and insuring drivers and can save money on advertising, since third-party companies do that for you. But operators also risk losing that personal connection with their customers and have no control over their product once it leaves the store.
Third-party aggregators are a topic of raging controversy on PMQ’s Think Tank, with many pizzeria owners lamenting that the fees cut too deeply into their profit margin. In one thread, Joe Irick, owner of Station 34 Pizza Pub in Mt. Prospect, Illinois, urged his pizza industry colleagues to carefully integrate third-party delivery into their overall sales plan. “My advice is to not rely solely on their business, but to use them to add sales to your day, especially during the slower times,” Irick posted. “If you…can get another 10 to 20 orders a day using the same amount of labor that’s already on-site, you can profit from these third-party services.”
How to Compete in 2020
Our industry’s ongoing transformation is the proverbial opportunity disguised as a problem. The pizza business is rooted in long-cherished traditions, but technological progress often shoves tradition aside in its inexorable forward march. Fortunately, pizzeria owners have been adapting to change for decades, as younger generations step up to take over family businesses and adopt the marketing tools shunned by their parents and grandparents. At the beginning of this century, pizzeria websites were barely even a thing, and Facebook was just a glint in Mark Zuckerberg’s eye. Twenty years later, digital restaurant marketing is a field unto itself.
To fully seize the opportunity, you’ll have to be open to change and prepared to get proactive. We’ll wrap up this year’s Pizza Power Report with some tips to keep in mind:
- Keep it clean. “Clean” and “healthy” have become synonymous in many consumers’ minds. Work with your suppliers to source as many clean ingredients—organic, sustainable, local/regional, non-GMO and free of artificial flavors or colors—as you can. Promote your clean-label offerings on your printed menu, website and social media.
- Add plant-based proteins. Just because your customers aren’t clamoring for them yet doesn’t mean they’re not interested. Get ahead of the curve—and the local competition—on this fast-growing trend. Start small by testing a limited-time specialty pie featuring plant-based sausage or chicken or try out a plant-based burger. Solicit feedback from your customers and move forward from there.
- Experiment with delivery. If you don’t offer delivery, 2020 is probably the year to take the plunge, and third-party companies can help you get started. If you already offer it, you might find that supplementary third-party services can boost your sales and delivery reach. Worried about high commissions? Try to negotiate a better rate or work with a smaller local third-party company.
- Develop portable options for younger customers. Add a grab-and-go section if space allows or create snacks-to-go for your menu. Shoot mouthwatering photos and short, snappy videos about these items and promote them to Gen Zers on your Instagram page.
- Manage your online reputation. It doesn’t matter how you feel about online reviews—many customers trust them, especially younger ones. There are more and more digital tools and companies that can help you take better advantage of these review sites. If you can’t afford them, put the time in yourself or assign the job to a trusted manager. Online reviews are the new word-of-mouth, and they’ve got an increasingly wide reach.
Rick Hynum, author of the 2020 PMQ Pizza Power Report, is PMQ’s editor-in-chief.
Related: Compare and contrast this year’s Pizza Power Report to the 2019 edition located here.