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Pizza Franchise Industry Report 2010..........................................................................3 Introduction...................................................................................................3 History of the Pizza Industry in the US......................................................................3 Pizza Market..................................................................................................... Size and !a"ue................................................................................................ #raph 1$ %reakdo&n of Pizza Stores'.................................................................... #raph 2$ %reakdo&n of U.S. Pizza Sa"es(................................................................' Market........................................................................................................ ' )e*o+raphics................................................................................................ ( %usiness Mode"s................................................................................................ , 1.)ine In ..................................................................................................... , Fu"" ser-ice ..............................................................................................., .i*ited ser-ice /Fast food ................................................................................ , 0on12raditiona" .ocation................................................................................. , 2.2ake1out .................................................................................................... , 3.)e"i-ery .................................................................................................... , . 304 %ake2ake .............................................................................................., '. Mo5i"e .................................................................................................... 6 2a5"e 1$ )epicts the 2' franchises represented in this report and the type of 5usiness *ode" they are 5ased on$................................................................................................... 6 2he Market .eaders........................................................................................... 10 1.Pizza Hut.................................................................................................. 10 2.)o*ino4s.................................................................................................. 10 3.Papa 7ohn4s................................................................................................ 11 ..itt"e 8aesars..............................................................................................11 0e& 2echno"o+y 9 %usiness )e-e"op*ent.................................................................. 12 Pro*otions and Marketin+..................................................................................12 :rderin+..................................................................................................... 13 ;ner+y....................................................................................................... 13 2rainin+......................................................................................................13 Menu <daption.................................................................................................1
Franchise Infor*ation......................................................................................... 1' Franchise fees$.............................................................................................. 1' 2a5"e 2$ Franchise Infor*ation 8o""ected fro* the F))4s of 2' Pizza Franchises...................1' 2a5"e 3$ :n+oin+ Fees Re"ated to 2' Pizza Franchises$................................................ 1( .ocation.................................................................................................. 1( Site se"ection..............................................................................................1, 2erritory...................................................................................................1, 2..en+th of the Franchise <+ree*ent ..................................................................... 1, 3.Staffin+ and 2rainin+ .....................................................................................1, .Re+u"ations................................................................................................16 :ut"ook.........................................................................................................1= Sources......................................................................................................... 20
Introduction
Pizza is very much part of the $merican way of life, with $mericans eating appro%imately &'' acres of pizza each day, or (#' slices per second&. $lthough the pizza industry e%perienced a decrease in sales during the recession, the beginning of "'&' has seen an increase in sales. The development and implementation of new technology and mar)eting strategies has enabled the pizza industry to adapt to growing consumer demands for cheap, fast, and convenient products.
Pizza Market
Size and Va ue
The pizza segment of the food industry represents &&.:@ of all restaurants and accounts for more than &'@ of all foodservice sales. 3etween ?une "''9 and ?une "''- the US pizza industry recorded nearly A(: billion in sales(. $ccording to BPizza PowerC, P=D magazine0s Pizza =ar)eting Duarterly! $nnual .ndustry $nalysis, of the 5:,##4 pizza stores in the US, #-@ are independently6owned and control #&@ of total pizza sales. Franchises and chains account for 4&@ of the mar)et and for nearly half the sales4. The following pie charts were sourced from P=D0s "''- annual industry analysis and depict the brea)down of pizza stores in the US and a brea)down of US pizza sales.
Market
The pizza industry e%perienced a loss of mar)et share and sales during the recession as s)yroc)eting cheese prices and an increase in the cost of wheat and other pizza essentials drove up the cost of pizza. =cDonald>s and other hamburger purveyors gained mar)et share by attracting penny6pinching consumers with value meals, some with entrees priced as low as A& or less. .n an effort to revive sales, pizza businesses began to offer promotions to customers through varied mar)eting channels such as social media sites, the internet and direct mail. For e%ample, Pizza 7ut launched a A&' promotion at the end of "''- in Dallas which went nationwide earlier this year and helped the country>s largest pizza seller regain some of the sales it had lost to lower6priced chains. The promotion offered consumers any pizza, any crust and any toppings for A&'. This trend towards offering targeted discounts has proved a successful strategy as most pizza businesses have reported an increase in sales for the start of "'&'.
'
Due to the recession6driven Beating inC trend, pizza businesses have e%perienced an increase in ta)e6out and delivery sales. Ta)e6out and delivery has risen in popularity due to the fact that it is cheaper than eating out, as there are no additional e%penses li)e tips, drin)s and gas. The increase of at6home leisure activities has also been a )ey growth driver. 1ith new technology that allows for easier and faster ordering, the number of consumers ordering online or via te%t is forecasted to rise.
(e)o*raphics
Pizza is en2oyed by people from all wal)s of life and eating out at restaurants is an essential part of the $merican lifestyle. $ccording to the *ational Eestaurant $ssociation, 4#@ of adults say that restaurants are still a ma2or part of their lifestyle and that they will continue to freFuent their favourite restaurants :. $ccording to a survey completed by =intel9, -(@ of $mericans eat at least one pizza per month and "&@ of &9 G "4 year olds purchase pizza more than three times per month. This is compared to only :@ of those aged over 5# eating at least one pizza per month. Pizza also proved popular with parents. $bout "'@ of the parents surveyed said that they purchase pizza more than three times per month, compared to &"@ of adults with no children.
#usiness Mode s
The pizza franchise industry is Fuite a diverse and well developed industry. 1ithin the pizza industry there are many business models available to potential franchisees. The following is a brea)down of the "# franchises represented in this report and the different business models they offer.
1& (ine In
$ dine in establishment refers to an establishment where seating is available for the customers. Full service $ full service pizzeria is a sit down restaurant where the food is served to the table. =any full service pizzerias will offer ta)e6out and delivery services. Limited service /Fast food $ limited service or fast food pizzeria may not offer table service. .nstead the customer will order, pay and collect their food at the counter. There may be casual diner6style seating available. Non-Traditional Location These pizzerias offer products and services at non6traditional locations including office buildings, shopping malls, stadiums, toll roads, airports, zoos, convenience stores and similar retail facilities. *on6traditional locations will ordinarily only offer ta)e6out and delivery services but may have sit6down facilities depending on the location.
2& +ake,out
Ta)e6out pizzerias offer customized pizzas made and ba)ed for wal)6in or call6in customers to pic) up. For more information please see our report on Ta)e6out and Delivery.
-& (e i.ery
$ delivery service allows the customer to order custom pizzas, which are ba)ed and delivered by restaurant personnel. The customer can call, te%t or order online. For more information please see our report on Ta)e6out and Delivery.
%& Mo3i e
$ mobile pizza vehicle offers a ta)e6out service only. +a3 e 1" (epicts the 2% franchises represented in this report and the type of 3usiness )ode they are 3ased on" Name of Franchise 1. Ameci Pizza & Pasta, nc. Services Provided Fast food style serviceI limited service Ta)e Gout !. Arizona Pizza "o. nc. Full service
#.
$lac%&ac% Pizza
'.
$oston Pizza
(.
$uc%s Pizza
Delivery and ta)e6out also a small number of franchises now offer limited service Ifast food style service
).
-.
.omino/s
0.
12treme Pizza
Delivery and ta)e6out and limited service Ifast food style service
3.
Fi4aro,s Pizza
15.
6odfather Pizza
Fast food style serviceI limited serviceI non6traditional locations Ta)e6out and delivery
11.
1!.
Little "aesars
Ta)e6out
1#.
N9P.
1'.
Nic%-N-:ill+,s
Full service and delivery and ta)e6out and ta)e Hn0 ba)e
1(.
1).
Pa*a $ello
1-.
Pa*a =ohn/s
10.
Pa*a >ur*h+/s
13.
Pizza Fusion
!5.
Pizza 7ut
!1.
Full service
!!.
Sar*ino,s
!#.
Sha%e+/s
Full service
!'.
!(.
A*izza
Fast food style serviceI limited service and delivery and ta)e6 out
2& (o)ino2s
Domino>s Pizza, with over -''' units around the world, is one of the leading pizza delivery companies in the US and operates in #' other countries. Domino>s Pizza brand is one of the most widely6recognized consumer brands in the world. Strong brand image results in a loyal customer base and also helps the company leverage its brand strength to introduce new products. Domino0s recently revamped their pizza with a new recipe and denounced their old recipe through a fran) advertising campaign. The chain decided to start overhauling its recipes more than &9 months ago after mounting criticism from focus groups and on social media sites. The new pizza, which has a new sauce and cheese combination and herb6 and garlic6flavored crust, has proved to be a success as Domino0s more than doubled their fourth6 Fuarter profit last year. For the first Fuarter of "'&' sales surged &9.4@ to A(9&.& million in the US. .n the US, same6store sales rose &4.(@ compared to a &@ gain in the first Fuarter of "''-. Same6store sales refer to the difference in revenue generated by e%isting stores over a period of time compared to an identical period in the past. .nternational sales rose 4."@, down from a 5.5@ increase a year earlier.
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"Technology is becoming a bigger part of our business. The app is powerful in that users can do
it in their own time and it is convenient for them. It delivers a benefit for them as opposed to using the phone or ordering in store, because they are more relaxed while ordering."13 Pizza 7ut also used a new smart6phone application in order to boost sales. The Pizza 7ut application, which was released in ?uly "''-, was responsible for A& million in sales by the end of *ovember "''-. To capture budget minded consumers, pizza businesses are using tactics such as value meals and rebates. Oighty6five percent of pizza6chain sales are tied to promotions and discounts mostly acFuired through social media sites according to ,itigroup /lobal =ar)ets. Previously, coupons and promotions were sent via large mailing lists and were not targeted at a specific audience. Franchisees found it difficult to trac) the effectiveness of mailing lists as they provided no information on local trends or mar)eting
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information. Promotions on social media sites allow the pizza businesses to gather essential mar)eting information.
7rderin*
$n increasing number of online users in the US will order food online. .t is predicted that the internet, interactive TP and te%t6messaging will eventually overta)e telephone ordering of collection and home delivered foods as consumers grow more comfortable ordering and paying for products through multi6 media devices. Lnline and te%t ordering is now a Fuic) and simple process. This combined with the recession6driven Beating inC trend means ta)e6out and delivery sales are increasing, giving the pizza industry a huge boost.
8ner*y
*ot only are green initiatives important for consumers but they can also benefit a pizza franchise. *ew technology has now made it possible to centrally control certain systems li)e lighting, room temperature and )itchen eFuipment through a single networ). Lperators get vital insights that can save thousands of dollars per year in energy costs. =achines can be monitored for optimal performance, eFuipment can be relocated for most advantageous wor)flow and output, and heat and air is monitored for optimal efficiency&4. The potential for increased energy savings is one of the reasons Papa ?ohn0s .nternational .nc. began outfittting all of its U.S. company6owned stores with high6speed ovens. The oven ba)es (' percent faster than a normal conveyor oven, while reducing energy consumption by about "# percent. Franchises have not been reFuired to change to these new ovens although many have opted to do so as they shave up to " minutes off the coo)ing time.
+rainin*
=any franchises now offer e6learning as part of the franchise pac)age. 3efore the franchisee even attends the training facility they may be reFuired to complete online training or course wor). These training programs offer e%tra support and avenues for learning for both new and established franchisees.
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Menu 9daption
=any pizza businesses have launched new product lines and adapted their menus in a bid to reclaim customers. Pizza businesses selling non6traditional items such as sandwiches, pasta and chic)en, now offer the consumer a lower cost alternative to pizza. This allows pizza businesses to compete with low cost fast food chains. Pizza 7ut is doing 2ust that with its 1ingStreet concept. 1ithin a couple of years, the franchise hopes to have 1ingStreet outlets in 9#@ of its domestic Pizza 7ut stores. Domino0s have not only launched an BinspiredQ recipe for a new hand6tossed pizza, which was reformulated due to tough criticism from consumers, but they have also begun to offer oven6ba)ed sandwiches. .n selling toasted subs however, Domino0s is opening itself up to competition from large chains such as Subway and Duiznos.
Franchise Infor)ation
Franchise feesB
The table below provides an overview of the estimated initial investment reFuired to open a single unit of "# pizza franchises. .t also contains a detailed profile of each franchise which presents these costs in more detail. The profiles are e%tracted from the Franchise Disclosure Documents FDD! of the "# franchisors. +a3 e 2" Franchise Infor)ation Co ected fro) the F((2s of 2% Pizza Franchises&
Name of franchise
9ear 1sta;lishe d
Ameci Pizza & Pasta, nc. Arizona Pizza "o. nc. $lac%&ac% Pizza $oston Pizza $uc%s Pizza "a*tain Ton+,s Pizza .omino/s 12treme Pizza Fi4aro,s Pizza 6odfather Pizza 7un4r+ 7o8ie,s Pizza Little "easars Nic%-N-:ill+,s No;le <omans
&-9#
A"#,'''
A&((,"''
A""",9''
"''"
A(#,'''
A4'','''
A95#,'''
1'
Pizza N9P. Pa*a $ello Pa*a =ohn/s Pa*a >ur*h+/s Sha%e ,n, $a%e Pizza Fusion Pizza 7ut <ed $ric% Pizza Sar*ino,s Sha%e+s ?enuto,s @ld :orld Pizza A*izza &-95 A"#,''' A&95,#'' A"#:,#'' "''5 "''5 &-5: &--9 "''" A(',''' Paries A"#,''' A&-,--# A"#,''' A":,#'' A('#,('' A4#(,4'' A&:#,''' A&:9,(-# A:-4,''' A&5-,('' A4'#,#'' A",-#(,"'' A4--,''' A"(:,5-# A",&-4,#'' A"54,''' &--5 "''5 &-94 &--# A"#,''' A"#,''' A"#,''' A"#,''' A4"",5-5 A"'-,&&& A&&(,9"( A&:&,5## A#44,('' A(:-,9&& A#"-,&"( A(#(,""#
Name of Fee Eoyalty <easehold .mprovement <ocalI Eegional $dvertisement *ational $dvertisement Eenewal
4ocation $s with any food franchise, it is paramount to select the best location for the business. 1hen selecting a pizza franchise location, a franchisee will need to ta)e into consideration the local demographics, traffic patterns, par)ing, character of neighborhood, competition from other businesses within the area and the size and appearance of the site.
1(
Site se ection $ franchisor may or may not aid in the selection of a franchise site. .t will state in the FDD of each franchise how much assistance is given in the selection of a site. The prospective franchisee will need to submit a location proposal for the approval of the franchisor. .f the site location is not approved, the franchisee will need to select another site. +erritory $n e%clusive territory gives the right of the territory to the franchisee preventing the franchisor from appointing any other franchisees in the territory or from conducting businesses themselves in the territory. The boundaries and terms for each franchise will vary. For e%ample !un"ry !owies #i$$a will not operate restaurants or grant franchises within a one mile radius of the franchise. 7owever, this agreement allows that all !un"ry !owies franchisees can deliver into each other0s e%clusive territory. No%le Romans #i$$a, on the other hand does not offer the franchisee an e%clusive territory. The franchisee may face competition from other franchisees or from other outlets or channels of distribution that the franchisor may own. .f a franchisee is unable to find a suitable location, after a specified amount of time, this may constitute a default under the franchise agreement.
1,
Food Safety Sanitation *utritional <abeling =inimum 1age, Tips, and Lvertime $merican with Disabilities $ct ,hild and Teen <abor .mmigration Ta%es
The U.S. Food and Drug $dministration, the U.S. Department of $griculture and state and local health departments administer and enforce regulations that govern food preparation and service and restaurant sanitary conditions. $ franchisor may or may not provide assistance in determining the federal, state and local laws that affect the franchise. There are often variations in licensure reFuirements and regulations from state to state. .nvestigating, understanding and the application of licensure regulations is the franchisee0s sole responsibility.
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7ut ook
The outloo) for the pizza industry is positive. The increased usage of mobile internet devices and the popularity of social networ)ing sites have made it possible for pizza businesses to )eep up to date with the needs and wants of their customers. .t has also allowed them to launch new and more specialized mar)eting and promotional campaigns directed at local audiences. .n doing this the pizza industry has increased their sales for the first Fuarter of "'&' and the industry is set to continue to grow. Pizza franchises have shown that they have the foresight and ability to recognize changing consumer trends and adapt their businesses and mar)eting strategies accordingly.
1=
Sources
&
$bout Domino0s Pizza, Fun Facts; www.Domino0s.com. BPizza PowerC, P=D magazine0s Pizza =ar)eting Duarterly! Annual Industry Analysis ibid ibid ibid ibid *ational Eestaurant $ssociation, Research and Insi"hts, www.restaurant.org =intel, #i$$a at Retail, US, ?anuary "'&' 6 httpNIIbit.lyI-SEfi< BPizza PowerC, P=D magazine0s Pizza =ar)eting Duarterly! Annual Industry Analysis. Papa ?ohn0s Press Eelease, &ay 'rd 2010, httpNIIir.papa2ohns.comIreleasedetail.cfmREelease.DS45#9#"
"
&'
&&
Technomic, (op 100 )imited*+ervice #i$$a ,hains Restaurant Report, httpNIIbit.lyIa(T/El *ational Eestaurant $ssociation, Research and Insi"hts, www.restaurant.org Smartcompany, -ominos iphone success shows apps are movin" from novelty to sales "enerator, httpNIIbit.lyI--?c5i
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Pizza =ar)et Place, (en technolo"ies that ma.e for %etter %usiness, httpNIIbit.lyI-%D$.:
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