Last Updated on June 25, 2021
The $160 billion-plus global pizza industry is not for the faint of heart. Major chains account for roughly a third of the industry globally (and more than 50% in mature markets like the U.S.), and costs—including labor, rent, and commodities—will likely continue to rise. However, success stories are still possible in pizza as operators find ways to continuously innovate with technology.
In many ways, this foodservice segment may serve as a precursor for other QSR categories, where the larger players continue to gain share but smaller players embracing new technologies to level the playing field.
Here’s everything you need to know about the pizza industry.
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Pizza Industry Statistics
- The global pizza industry represented $160 billion in sales in 2020, $85 billion of which came from the QSR category
- There are more than 245,000 pizza restaurants in the world, with around 77,000 in the U.S. alone
- From 2012–2019, 6,000 new pizza restaurants were opened in the U.S.
- The U.S. pizza category employed more than 830,000 people prior to COVID-19
- U.S. consumers spent more $20 billion on QSR carry-out pizza in 2020, and another $14 billion on pizza delivery
- Connecticut had the largest number of pizza places per capita in the United States in 2019 with 3.65 units per 10,000 people in 2019; Pennsylvania (3.62), Rhode Island (3.59), New Jersey (3.54), and Iowa (3.44) round out the top 5
- Norway consumes the most pizza in the world on a per capita basis, with each resident eating about 11 pounds annually
- More than 5 billion pizzas are sold worldwide each year
- Gennaro Lombardi is generally credited with opening the first pizzeria in the U.S. in 1905
- Among the three largest pizza chains in the U.S., Pizza Hut is the oldest (founded in 1958 in Wichita, Kansas), followed by Domino’s (1960 in Ypsilanti, Michigan) and Papa John’s (1984 in Jeffersonville, Indiana just outside of Louisville)
- On average, chain pizza brands generate average unit volumes (AUVs) of $656,000, while independent pizza businesses generate AUVs of $385,000
- According to Domino’s, there are 34 million possible pizza combinations on its menu
- The average pizzeria uses about 55 pizza boxes per day
- The top 5 highest-grossing pizza sales days in the U.S. are Super Bowl Sunday, New Year’s Eve, Halloween, Thanksgiving Eve, and New Year’s Day
- More than 70% of Domino’s orders come through digital channels
- Most publicly traded pizza company franchisors allocate between 2%-3% of revenue annually for capital expenditures (including technology investments)
Emerging Markets Offer Opportunity Away from Saturated U.S.
The U.S. pizza industry is among the most saturated in the world with one pizzeria for every 5.1k people. That’s not slowing down chains with hustle though. In fact, the fast movers are cannibalizing others with a ferocity that should be cause for alarm for those not investing in the arms race that is shaping up.
Growth in these mature markets is slow. On the contrary, markets with low saturation are expected to post high growth rates for the pizza segment: in Asia Pacific and Latin America, pizza sales are expected to grow 1.4x as fast as the restaurant industry in general.
Both Pizza Hut and Domino’s have their sights set on these emerging markets. Domino’s is pursuing expansion in Brazil, India, Russia, and China. Pizza Hut is pushing growth in Sub-Saharan Africa, where it plans to have 250 units across 25 countries by 2020. In May 2018, it also announced a partnership deal with Telepizza that gave the Spanish company master franchise rights in three European countries, Latin America (excluding Brazil), and the Caribbean. This alliance will put Pizza Hut in first place in the latter two geographies.
Pizza Industry Trends: What to Expect in the Next Five Years
We’re currently seeing a whole host of pizza chains (from the household names like Domino’s and Pizza Hut to the rapidly expanding fast-casual players) racing toward the same finish line. The sheer amount of pizza businesses is a signal that some likely won’t finish the race, falling by the wayside as more competitive chains forge ahead.
These are some of the trends the pizza industry will face in the next few years:
- The pizza industry in the U.S. is likely to experience lower growth than the foodservice industry overall (while Food Away From Home sales have grown, on average, 6.2% annually over the past three years, the pizza segment is expected to experience a CAGR of 4.6% in current dollars).
- The weaker concepts and chains will be gobbled up or lose share as the segment continues to grow crowded. (For every Cici’s and Sbarro pizzeria that closed, we’ve noted 1.2 Domino’s pizzerias have opened.)
- The biggest players will continue to unveil innovative ways to order, forcing independent operators to increase their investment into tech (but not without putting plans in place to ensure its efficacy).
- Labor, rent, and commodity costs will force chains to enact plans farther in advance than they have historically.
- Seismic shifts in technology and convenience will see pizza chains compete against non-traditional players and segments. Change will occur at a much faster pace than ever before.
Below, we outline a handful of hurdles facing pizza chains today, and how restaurants can best begin to tackle them
New Concepts Keep Cropping Up, But Growth Won’t Be Enough to Support Them All
Like the Better Burger segment, the pizza market is becoming crowded with a slew of similar concepts. A potential pizza industry bubble doesn’t mean pepperoni and cheese pies will go away. Nor will Domino’s, Pizza Hut, or Blaze fade into obscurity any time soon. But with some fast-casual concepts growing at rates of more than 100% (pre-Covid), and newer players continuing to pick up funding (Blaze, for instance, touts investors including LeBron James and private equity firm Brentwood Associates), cannibalization is naturally on the horizon.
Those in the most danger will be the independent pizzerias not keeping up with modern technology, as well as chains not offering anything unique enough to distinguish them from the pack. The shift from independent pizza businesses to pizza chains in just a ten-year window is striking (in the last decade, American independents have lost 21% market share in terms of sales and 19% market share in terms of units to chains) — but it’s likely to grow at an even more rapid clip.
Competition is Not Only Coming from the Big Pizza Chains
Historically, pizza chains saw huge shares of revenue being driven by delivery or carry-out. But gone are the days when the only two delivery options were pizza and Chinese food. The danger of competitors has grown and a slew of tech-savvy, energetic concepts have emerged. As a result, share is no longer just being stolen by “the big guys,” but from entirely new segments, a range of restaurants with mobile apps, and third-party delivery apps, like the Uber Eats and Grubhubs of the world. As delivery expands and more convenient options become ubiquitous, innovation will continue to take a toll on low-tech operators.
But just because the U.S. market doesn’t necessarily need another pizza restaurant (unless it’s incredibly distinct), doesn’t mean there’s no untapped opportunity. Emerging markets (including the Gulf Cooperation Council, Brazil, China, India, some parts of Africa, and other parts of Asia with booming populations and fragmented foodservice) offer enormous potential. Of course, there are international players, as well — 800 Degrees, for instance, has outlets in Dubai and Tokyo as well as the U.S. — but there remain numerous opportunities around the globe.
There Will Be Consolidation in the Pizza Industry
The bulk of pizzerias see within $600K and $1M in Average Unit Volume. On the high end, California Pizza Kitchen has an AUV of $2.8M, explained largely by a higher check average. Cici’s and Sbarro sit on the opposite end of the spectrum, characterized by low ATV (and high traffic) – a model that doesn’t appear to be as successful as it once was, considering both chains saw negative growth over the last five years. Domino’s, Papa John’s, and Pizza Hut, meanwhile, compete at similar values of Average Transaction Value and traffic.
People won’t stop eating pizza, but there will be consolidation, with weaker players getting gobbled up. A lot of chains in the mature part of the life-cycle are already ripe for consolidation. For private equity firms looking to invest in a restaurant concept, the opportunity abounds. There’s also an increased need for firms to help rehabilitate and improve those mature brands that have not kept up with the times. Through the proper investment (plus help from a seasoned expert), firms can provide the necessary capital and management insights required to reimagine a future for an older brand, and seed relevance within the increasingly competitive pizza category.
Commodity, Labor, and Rent Costs Will Also Rise
The restaurant industry faces a slew of challenges, including the fluctuating costs of commodities and rent and labor inflation. There was a period of time when commodity costs were relatively low. Pizza chains will be especially impacted by higher dairy, wheat, and flour costs.
Expect major inflation to impact commodity costs, especially more premium items like steaks and higher-end seafood. Already in 2021 (YTD) corn, chicken wings, and pork have gone up more than 30% compared to last year.
For some, commodity price increases will be manageable in the overall context of a business. But for others, the impact will be felt in a deeper sense (though proper planning can provide a better cushion).
Even if rising costs aren’t yet impacting chains, restaurant companies should plan ahead — we expect to see rent and labor costs spike within the next five years. Rising wages and lower unemployment rates will prove especially potent for the industry. Minimum wage hikes have already taken effect in more than two dozen states and municipalities, with plenty more expected to follow suit soon enough.
Pizza Chain Technology Is Growing and Becoming A Requisite Part of the Industry
We’ve written before about how tech is killing off independent chains — but even some well-known, yet dated, chains are at risk of falling into irrelevance.
For decades, restaurants grew accustomed to the notion that they were the convenient choice — stealing share from grocers and growing fat and happy in the process. In recent years, some grocers have redeemed that share and other, even more convenient options, have crept in, too. The speed and breadth of communication is such that the modern consumer has a need for instant gratification, leading to mounting pressures for restaurants to provide convenient delivery options and launch digital-ordering platforms.
For still-burgeoning concepts, success will start with defining a brand’s purpose and promise, and ensuring every touchpoint of service goes back to that purpose. Startups will be forced to confront a hard truth: Do they offer something that would put them among the top pizza news nationally, and a journalist would consider newsworthy? Even the most brilliant concept can fail, particularly if it tries to solve a problem that doesn’t exist, and lose simple truths of hospitality along the way.
As great as technology is (and as important as it will continue to be), a tech-heavy chain that doesn’t offer the most ingrained aspects of service — speed, convince, quality, etc. — won’t resonate with consumers. Even a single-location restaurant can attempt to microwave too much, too quickly, placing ego over EBITDA in the pursuit of quick success.
Seismic Shifts (in Technology, Convenience, and More) Will Occur at an Even More Rapid Pace
Today’s business environment is a survival of the fittest. The weakest chains and concepts will have a limited life span; poor planning could spell the difference between distinct and extinct.
We’ve seen the fate that awaits those who take a wait-and-see approach. While Amazon continues to dominate the retail industry, companies like Sears and JC Penney have suffered. Many restaurant chains (particularly those in the pizza segment) will face similar challenges. Those who wait too long risk missing the path toward recovery.
The most dramatic reshaping of the industry to happen in decades will occur over the next five years, and complacency will be a death knell for restaurant concepts. Restaurant guests don’t expect chains to innovate as rapidly as Apple, but they are growing more and more accustomed to convenience and the tools that enable it.
On the one hand, chains have to work from the inside-out — a holistic approach that our firm has long touted. On the other hand, though, working from the inside out requires an outside-in approach. Restaurant chains must start with looking at their own company: their promise, their people, their processes. But if they really want to understand why they’re struggling, they must start at the widest, most global levels, determining which forces are bearing down on them and how they’re being re-shaped as a result.
The world doesn’t need another pizza place. What it does need is something new — a unique promise and positioning strategy that will resonate with consumers. Chains that can bake that unique promise into their pies, and top it off with all of the non-negotiables (convenience, service) will be rewarded with a larger slice of share.
Pizza Technology Fueling Growth
The big story over the past decade has been Domino’s pizza technology and rightly so: its turnaround was so successful, it contributed to the pizza segment’s industry-leading same-store sales (SSS) growth for much of the past 10 years and especially during COVID.
Pizza and Limited-Service Chicken were the strongest segments in the year of the pandemic. Pizza was up a median of 11.6% (considering U.S. chains with more than $1B in sales — but sales were also up for independent pizzerias). The impressive growth in digital sales and drive-thru sales (led by Domino’s years ago) is a case study for how new product and profit center innovations present an opportunity to lift average unit volumes.
Back in 2011, Domino’s AUV was similar to that of Pizza Hut — actually, it was 1% lower. However, the product turn-around and the implementation of tech to improve convenience gained the chain such growth that Domino’s AUV is now 30% higher than that of Pizza Hut.
In 2016, sales from Domino’s digital channels were growing 13.8 times as fast as non-digital sales. Once consumers experience this greater convenience, it’s hard to go back. That force is reshaping market share, moving billions of dollars into new categories and channels. Domino‘s has fully committed to in-house digital development, investing over $100M into CAPEX in 2018 alone, which goes to both tech initiatives and central commissaries that ensure consistent quality across the heavily franchised system. In comparison, Papa John‘s and Pizza Hut are investing less than half that amount.
Domino’s leaned in — way in — and the results have been plain for all to see.
The Domino’s Tech Turnaround
One of the best modern examples of tech enabling an epic foodservice company turnaround is that of Domino’s. Sure, some of the recent success stems from advantages of systemization, standardization, scalability and standard operating procedures (SOPs) — the processes, designs and training that enable rapid and profitable growth. Another element is brand recognition and awareness — with over 5,000 units and a series of tremendously successful publicity campaigns, Domino’s had an enviable platform from which to launch its turnaround.
With product improvements, a renewed and reinvigorated company culture committed to industry-leading innovations and strong leadership, Domino’s has restored its brand to one that everyone not only recognizes but has started to trust again; consumers and investors alike.
Technology was unquestionably at the heart of the Domino’s turnaround. The CEO went so far as to say, and I’m paraphrasing a bit here, ‘We don’t see ourselves as a pizza company. We’re a technology company that sells pizza.’ Domino’s put its money where its mouth is – and the results of this new mantra have grabbed enough market share to help them and a handful of other big chains to absorb an additional 11 percent of segment sales that were previously going to independents.
Domino’s pushed the limits on brand revitalization and started by acknowledging they had some problems. Between driverless vehicles and drone deliveries (at least one of which sounds like science fiction), the company made a commitment to not just to digital/social/mobile and other tech advances, they sought to instill the commitment to pursuing disruptive innovation into the company culture. It’s clear that the mandate wasn’t just to swing for the fences, but to fly a drone over it with a pizza attached.
Domino’s Top 10 Pizza Innovations
Since 2013, Domino’s stock (DPZ) has risen from $60 per share to more than $400 per share, an increase of more than 550%. Innovation, especially when it comes to cutting-edge delivery technology, has become the number one driver for a company that started with one shop in Ann Arbor, Michigan in 1960 and has grown to more than 14,000 locations in 85 countries.
More than anything, Domino’s success stems from a first-mover advantage. The company has proven time and again that it’s not afraid to introduce new innovations or take chances with its brand. If an idea doesn’t work, the chain pivots and tries something else; and when it does work, the pizza giant goes all in. Domino’s has become the leader that everyone else shadows.
Following are the top 10 innovations that have helped Domino’s grow to become America’s leading pizza chain.
The Top 100 Pizza Chains Represent $45.6 Billion in Sales
The largest pizza chains in the U.S. account for more than $45.6 billion in global sales and some 60k stores. There are clearly two leaders in this category that dominate sales. Domino’s and Pizza Hut represent 56% of sales among the top 100 pizza companies — largely because of their presence in international markets.
- Domino’s Pizza: $16.1 billion global sales in 2020, almost equally split between the U.S. (52% of sales) and internationally. Domino’s was founded in 1960 and has more than 17,600 stores in more than 90 markets. The company’s success has largely been linked to the development of its own tech stack. In 2020 more than 70% of U.S. sales were achieved via digital channels.
- Pizza Hut: $12.0 billion global sales in 2020 with more than 17.6k restaurants. 45% of Pizza Hut’s sales take place in the U.S. and more than 30% in Asia (including China and India).
- Little Caesars’ Pizza: $4.8 billion in sales in 2019. The company has restaurants in more than 25 countries and territories including Latin America, Europe, and Asia.
- Papa John’s International: $3.5 billion in sales in 2019 with ~5,400 restaurants in 48 countries and territories. About 60% of the company’s footprint is domestic.
- Papa Murphy’s International: More than $800 million in sales in 2019 with ~1,400 restaurants.
The fast movers are cannibalizing others with a ferocity that should be cause for alarm for those not investing in the arms race that is shaping up.
Pizza Today publishes the rank with the top 100 every year.
What Are the Best Pizza Companies (Besides the Traditional Players)?
One could argue the largest pizza companies are the best ones. However, there are several pizza companies that stand out for different reasons (besides their scale).
- New Haven Pizzerias: there are three top pizzerias in New Haven that are renown for their pies and probably in the top ten best pizzerias in the United States. These are Frank Pepe Pizzeria Napoletana, Sally’s Apizza, and Modern Apizza.
- Dodo Pizza: Russian based pizza brand, this company has beaten several international benchmarks in terms of growth. Same-store sales growth reached 5.4% in 2020, outperforming Domino’s international segment (at 4.4% SSS growth). Over the last eight years (2012-2020) it has grown faster than one of the fastest-growing restaurant companies in the U.S.: Wingstop. While Dodo Pizza opened stores at a 74% CAGR Wingstop’s growth was 12% annually.
- Maestro Pizza: This has been one of the fastest-growing restaurant chains in the Middle East. Based in Saudi Arabia, the company has more than 150 locations
Technology Is Helping Pizza Chains, But Killing Off Independents
In 2016 we published a viral hit on the state of the industry: How Tech is Killing Off Independent Pizzerias. And it’s about more than dough, sauce, quality ingredients, and toppings that make the difference for performance. Here, we’ll take a broader view of how things are shaping up for the global pizza market and some thoughts on where it is likely to head.
A few highlights of our findings:
- In the last decade, independent pizzerias in America have lost 21 percent market share in terms of sales and 19 percent market share in terms of units to chains. Put more plainly, that’s about 7,800 restaurants that have closed-up shop (and that’s before factoring in the impact of COVID-19).
- Digital and online ordering is growing 300 percent faster than dine-in ordering (again, this means billions of dollars in the U.S. alone will shift from dine-in to delivery in the years ahead).
- The gap between independent average unit volumes (AUVs) and chain AUVs correlates almost directly to the volume of sales that chains are processing on the digital platform – about $328,500.
- America’s three (3) largest pizza chains process nearly 15 percent of all revenue via their digital platforms (this equates to roughly one-third of the total industry market share shift that has occurred in the decade since the big guys first started processing orders online).
- 51 percent of all mobile searches on Google are for restaurants, yet by some estimates as few as five percent of restaurants have mobile-compliant websites.
In the Pizza Industry, Gains are Coming at the Expense of Competitors
The largest 50 U.S. pizza chains have increased their market share in the last few years, mostly thanks to the new brands that entered the rank.
While those brands remaining among the top 50 between 2010 and 2016 increased their market share (from 51% of the pizza market to 55%), the new brands (many of which are fast-casual) took market share from the dropouts and smaller competitors. These new entrants claim a 7% share — 5 percentage points more than the exiting brands did in 2010.
This ongoing battle helps illustrate just how competitive the pizza industry — and nearly every category of foodservice — is these days. Gains for one almost always come at the expense of another.
One case in point: between 2014 and 2016, Domino’s opened five stores for every four Pizza Hut stores that closed.
Pizza Industry Marketing: Investments in MarTech Helping Drive Growth
The investments required to follow in Domino’s footsteps may seem daunting — to aspire to forge an even more ambitious path forward may seem downright dubious — however, the prize for getting it right has already proven well worth the risk.
In 2011, Domino’s Pizza was growing by 13.5% internationally. New stores and increases in same-store sales equally accounted for that growth. In contrast, the chain grew by 16.2% in 2017, the majority (~75%) of which came from new units.
This has stimulated the pizza category chiefs to stoke their systems (and inspired other categories and segments of foodservice) with stronger marketing budgets, largely into the convergence of marketing and technology, or “MarTech.”
Based on franchisee contributions, the largest chains allocate an average 3.9% of sales to marketing. Quick-service companies go above and beyond this number, spending a median 4.6% of sales on marketing. Among QSR brands, some of the largest pizza chains — such as Papa John’s, Domino’s, and Little Caesars — have the heaviest spend as a share of sales.
And while these companies are exerting their global ambitions, they are clear that the fight for dominance will also play out on a block-by-block, delivery-zone-by-delivery-zone basis. Pizza chains are focusing more than a third of their efforts on local-store marketing, with pizza franchisees contributing an average of 6.5% of sales to both local and national efforts.
These chains’ focus on marketing underlines the fact that the battle for share of stomach isn’t just about tech gadgetry. It’s also about connecting with guests to develop the kind of brand loyalty that keeps systems vibrant in the long term. Another proof point: in order to boost sales in the UK, Pizza Hut isn’t turning to promotions or discounts; they’ve hired a new marketing leader who can help develop targeted campaigns.
10 Cool Pizza Restaurant Design Ideas
From edgy brick walls to sophisticated chandeliers, these pizzerias differentiate their restaurants with creative design and interior branding. Check out these 10 cool examples of pizza restaurant design.
What do you do with an edgy location? If you’re a pizzeria named Dough, you pull the edge inside. Dough establishes itself as a well-worn part of its urban community with exposed brick walls, concrete floors and pasted-up posters. The result? Raw. Simple. Relaxed.
The UK city of Plymouth is home to the Royal Navy. It’s also home to Pizza Express, which has doffed its hat in the form of a maritime theme. Here, you’ll find wavy walls, shiver-me-timbers timber, and a large rose “tattooed” right on the woodwork.
Right smack in the heart of Shanghai, you’ll find Matto Bar and Pizzeria, a mash-up of the organic and the industrial, the dark, and the playful. The idea? Create an environment as surprising and comfortable as the food.
Subtle colors and lacy chandeliers create quiet sophistication at the Dutch pizzeria Fabbrica. But this place doesn’t take itself too seriously. Ladders up to personal tree-house-like pods bring unmistakable whimsy.
If they see it, they will come. That’s the logic behind the Domino’s Pizza restaurant revamp. New store design plans include a viewing area in which pizza lovers can see the art of the dough, first hand.
Another way to freshen up a look: freshen up the menu. San Francisco’s Patxi’s Pizzeria recently added unexpected new small plates including a pickled pepperoncini chop salad.
If you’re known for your adventurous signature pizzas, a 50-foot whimsical mural by a local Florida artist becomes part your new pizzeria prototype. The Loop Pizza Grill also boasts huge windows, big beams, and 4000 square feet of warehouse space.
Want your guests to remember the unmistakable aroma of your freshly baking dough long after they’ve gone home? Take a cue from this Canadian pizzeria: offer Eau de Pizza Hut.
Enter Australia’s Pizza Farro, and you’ll see a ceiling of vintage wooden rolling pins. Hundreds of them. The effect is homey and unstudied, rustic, warm, and sentimental. Which is exactly what the stylists intended.
A no-nonsense, ready-to-feed-you vibe starts with the tomato sauce can walls at Shumis Pizzeria in Israel. It’s a funky visual aesthetic that gives new life to the term “pizza joint.”
Effective Pizza Marketing Campaigns
It’s been established that pizza concepts have a higher-than-average marketing budget, but it doesn’t always take big dollars to create an effective promotions campaign. Here are some of the most effective pizza marketing campaigns we’ve seen.
Domino’s proved their dedication to customer interaction by creating the Ultimate Delivery Vehicle contest for design aficionados. With over $50K in prizes at stake, designs ranged from practical to fantastic as contestants from around the world progressed through individual and collaborative rounds. Students, amateurs, and pros all threw down as the global design community set about finding the coolest way to bring dinner to your door.
U.S. retailer Let’s Pizza, founded in 2009, introduced one of the first pizza vending machines. Save your quarters and you’ll get 24/7 access to $6 pizza piping hot from the lobby or break room.
Seeking to attract young male viewers, French television channel created pizza TV. The French MTV, MCM, has set aside music videos for adolescent shows. And for each show they’ve made a matching pizza. For the monster trucks, double everything. For the zombie show, all bloody meats. Car wash babes pizza? Hot spicy sauce and white cream.
Texas pizza chain, Pizza Patron, took a unique approach to pizza marketing when they offered customers a free pizza if they placed their orders entirely in Spanish. The controversial marketing tactic was launched at a time when political candidates were advocating fences and troops on the border. Pizza Patron, which also accepts pesos for payment from its 75% Latino customer base, answered by reaching out. The lesson? Controversy can sometimes sell pies.
Can’t decide between pizza and burgers? Pizza Hut started a pizza marketing campaign that offers Middle Eastern customers “hybrid” pizzas. The stuffed crust design features a dozen mini cheeseburgers baked into the crust of the pizza. Other offerings from Pizza Hut worldwide include a chicken sandwich hybrid pizza, a chicken/cheese stick combination, and, in the U.K., a hot dog stuffed crust pizza.
Domino’s wanted to hear it all! The chain decided to start a pizza marketing campaign where they post all customer reviews — good, bad, or indifferent — on their 4,630-square-foot billboard in Times Square in real-time, no edits, no hiding.
Then Domino’s doubled down on their pizza marketing with brand transparency when they allowed consumers to post pictures of their unretouched, recently delivered, “naked” pizzas right on the brand’s website. The theory behind this “real beauty campaign” was to give customers a Photoshop-free look at how the chain’s menu items actually look upon delivery.
Pizza is the compulsive web browser’s dinner of choice and the battle for those tech-savvy dollars is raging online. Pizza Hut recently began a pizza marketing campaign that placed a series of special offers directly onto Yahoo News’ mobile website. Utilizing GPS targeted tagging, viewers were allowed to order delivery from their nearest Pizza Hut by clicking on the ad. Domino’s answer was a 50% discount for any browser ordering via the company’s mobile platform. Papa John’s entered the fray with an online expansion of their popular Papa Rewards program. Online or smartphone orders receive one point per $5 spent. 25 points equals a free pizza.
Domino’s escalated the pizza marketing battle with their “Pizza Hero” game which makes a pizza chef of anyone with an iPad. Using the app, customers build a pizza from the dough up on their tablets then send it as an order to their local Domino’s. Perfect for those long commutes home when both dinner and the Xbox seem so far away.
Domino’s took a charitable approach to their pizza marketing when they solicited donations for Saint Jude Children’s Research Hospital via SMS text messaging. The text code was printed on pizza boxes, flyers, and more. Once a customer sent the code in via text messaging, their donation was charged to their phone bill.
The mother of all pizza marketing loyalty programs sends special offers, coupons, and social media posts directly to customers’ phones. Papa Murphy’s expanded their text messaging club from one test market to 26 different states and, in doing so, grew their list of opt-in users to over 100K. This mother of all loyalty programs sends special offers, coupons, and social media posts directly to customers’ phones. Regular data rates may apply but regular ad rates do not.
Midwest pizza chain Minsky’s offers started a pizza marketing campaign that gives patrons the chance to win big prizes by scanning QR codes found at the restaurant. Users can download a special smartphone app and scan codes found on tabletops and signage. Winners get free pizza and appetizers.
Domino’s teamed up with Foursquare (okay, we know this one is dated but it was cool) to promote foot traffic to its locations. Those who “checked-in” the most using the social media app earn the title of “mayor” and win a free small pizza.
Dubai’s Red Tomato Pizza issued a “VIP Magnet.” The refrigerator magnet includes a push button that will order a pre-selected pizza after it is pressed. The button works via a Bluetooth connection to a smartphone app, which then sends a confirmation text message. Minutes later, your push button dinner arrives at the door.
While some European authorities are concerned that soundless electric scooters are a hazard to pedestrians, Domino’s has taken it upon themselves to create a solution. Their soundless scooter randomly emits a recording, shouting “Pizza!” and “Domino’s!”
Pizza Industry Events, Conferences, and Trade Shows
Given the breadth of the pizza market, it makes sense that there are several industry-specific events held throughout the year. Here are highlights of some of the most popular:
An international conference that takes place every year in the U.S., including keynote speeches from industry experts, demos and best practices workshops, and a large floor of vendors for equipment and other supplies. It hosts more than 13k attendees and more than 550 vendors.
The annual Pizza & Pasta Northeast trade showcases more than 200 top suppliers and exhibitors to over 2k qualified buyers. This event is also organized by International Pizza Expo.
This event gathers around 200 exhibitors, 1k brands, and 4k buyers. There are also seminars and competitions.
Public Companies that Have Embraced Technology Are Being Rewarded with Valuation Premiums
Through the 1990s and early 2000s, publicly traded pizza companies generally traded in line with their peers with enterprise value/EBITDA (EV/EBITDA) multiples in the low-double-digits and price/earnings (P/E) multiples in the high-teens. However, in the mid 2000s, pizza chains were some of the earliest players in the restaurant industry to move more aggressively to a franchised structure, with Domino’s moving to 99%, Pizza Hut going to 95%, Papa John’s moving to north of 80% (in North America). With CAPEX responsibilities shifting more to franchisees, these chains took on more debt — many moving to more than 5 times debt/EBITDA rations — and using proceeds to buy back shares (thus increasing the ownership stake of existing shareholders).
During the Great Recession of 2008–2009, this strategy worked against the publicly traded pizza chains and investors became more concerned about their high leverage positions. While the entire restaurant industry traded down amid concerns about consumer spending, pizza chains like Domino’s were hit disproportionately hard with shares trading for a few dollars per share in some cases.
Restaurant valuations recovered faster than other industries out of the 2008-2009 recession due to a combination of consumer stimulus packages, low interest rates (which allowed other restaurant franchisors to follow the pizza companies franchising and leverage playbook), and new approaches to value. By 2011, the pizza category was largely back to historical valuation multiples. However, as Domino’s and others accelerate their investment into digital ordering technologies—driving a rebound in transaction growth and franchisee returns—the market started rewarding many pizza operators with higher valuations because of their technology assets.
Instead of EV/EBITDA and P/E multiples in the low-double-digits, it was not unheard of for pizza companies to trade at EV/EBITDA multiples in the high-teens and P/E multiples greater than 30 times or more. Because pizza chains have generally remained ahead of the curve with respect to technology investments, the market has generally rewarded these chains with higher valuation premiums the past several years (especially as the coronavirus pandemic highlighted the importance of digital ordering and other delivery-focused technology assets).
Investments in Guest-Centered Innovation Key to Future Success in Pizza SegmentWhat can be deduced from all of the data and information available on the pizza industry? Here are five key takeaways for leaders across foodservice segments:
1. Global Growth
Category leaders will increase their global footprint and market share. The speed of emerging brands and scale and strength of established systems are both contributing to a shuttering of small mom-and-pop pizzerias and a siphoning of share from middle-market players not aging well.
2. ConsolidationIndependent operators that fail to differentiate their brand (product, packaging, positioning, value proposition, and so on) will be forced to close or suffer painfully thin profit margins. Chains will continue to cannibalize independents in the foreseeable future. Among the chains, those that have figured out the formula for international development and made MarTech investments ahead of what was required will reap the most bountiful harvests. The divide between the leaders and laggards will continue to widen, leading to collapse for some of the tired brands among the top 50.
3. ConvenienceThe story of the pizza industry is not about delivery or technology. It is about engineering greater convenience — we call this Convenience Engineering™ — into the business. This should first be guest-centered, but it should also ripple out to all essential constituencies (employees, investors, members of the media, and more) as well as the modernization of the internal systems and infrastructure that move the most important commercial levers within the business.
4. InnovationDomino’s has innovation in its corporate DNA. They invented the cardboard box, the plastic pizza table that keeps the top of the pie from being crushed, the original 30-minute guarantee, and even a pizza-centered automobile and autonomous delivery vehicles. The real strategic lessons of the Domino’s case studies are often lost in the sensationalism of the tactics surrounding technological investments and successes (or a sharp criticism of the product). The company has cycled through many of the same challenges any decades-old business must eventually face. It is interesting though to consider for a moment how easy it is to throw around the term innovation, yet how much more it requires to accomplish it. Easy to say, hard to achieve. What Domino’s teaches us is that all innovation must relate to the brand’s unique value proposition. Domino’s is the world leader in pizza delivery, and every new invention, technology, or marketing push is designed to keep that position secure.
5. InvestmentMargins will fluctuate with commodity costs, market share will ebb and flow among those with hustle, and growth in mature markets can be challenging, but pizza is not a waning beanie baby–type fad; it has staying power. Significant capital is required to retool and refresh the relevance of aging pizza brands, but there is clear evidence that those investing in innovation are being rewarded on levels rarely seen in foodservice.
Frequently Asked Questions About the Pizza Industry
Pizza Hut is among the eldest of all foodservice chains in the U.S., and the oldest pizza chain. It was founded in 1958 in Wichita, KS.
Domino’s became the largest pizza chain in the world when it surpassed Pizza Hut in 2018. According to the company, they sell more than 500 million pizzas each year, globally.
The global pizza industry is worth $160 billion in annual sales. The biggest market is in Western Europe, with $60 billion in annual sales, followed by North America (U.S. and Canada with $56 billion).
The pizza industry is growing, but the growth rate can be very different based on the geography. For example, Eastern Europe and Asia Pacific are among the fastest growing pizza regions in the world, with CAGR higher than 5% over the last five years. On the other side, mature markets like North America and Western Europe are only growing around 3% annually.
Yes, the pizza industry is highly competitive because there are very low barriers to entry and the product can be easily replicated. However, large chains have been able to dominate. In the U.S., the two largest chains (Domino’s and Pizza Hut) account for 56% of the sales among the top 100 pizza chains.
The coronavirus pandemic created a lot of opportunity for pizza off-premise consumption. In the U.S., pizza was the fastest-growing segment in 2020 with a median same-store sales growth of 11.6%
Past Pizza Industry Insights
About Aaron Allen & Associates
Aaron Allen & Associates works alongside senior executives of the world’s leading foodservice and hospitality companies to help them solve their most complex challenges and achieve their most ambitious aims. We have helped clients with deep-dive corporate intelligence, portfolio optimization strategies, data-driven diagnostics, advanced analytics, and holistic approaches to business and brand strategy.
Our clients span six continents and 100+ countries, collectively posting more than $200b in revenue. Across 2,000+ engagements, we’ve worked in nearly every geography, category, cuisine, segment, operating model, ownership type, and phase of the business life cycle.