The modern-day pizza industry offers a prime example of how tech can re-energize an entire segment. Pizza’s been around for decades but, rather than strictly ordering by phone, the top chains are offering their product via Amazon Echo, Twitter, chat-bot, autonomous vehicle, and pizza-making delivery vans. Some of the modern modes of ordering are gimmicks, of course, but others are likely here to stay. And by investing early, chains like Domino’s have lured back customers, stolen share from rivals, and mophed into almost entirely new companies (ones that look more like tech companies than restaurant chains). Need proof that investment into convenience and technoloy can completely overhaul a business? Below, we’ll look at how pizza restaurant technology has revolutionized a segment.
Domino’s: A Case Study for the Importance of Pizza Restaurant Technology
Domino’s wasn’t always the tech darling it’s known to be today. In fact, once upon a time, the chain was struggling. It was the same thing it had been for years — the business seemed dated and, frankly, the pizza wasn’t very good. Back in 2011, Domino’s Average Unit Volume was similar to that of Pizza Hut (more specifically, it was 1% lower). However, the company’s focus on overhauling its product and implementing tech to improve convenience gained the chain such growth, that Domino’s AUV is now 30% higher than that of Pizza Hut.It’s safe to say that digital sales are driving Domino’s growth. As of 2016, the sales from digital channels were 52% of the global sales, and growing by 19% (over 2015) – 13.8 times as fast as non-digital sales growth.Two pizza operators are among the top publicly traded restaurants when it comes to Return On Assets: Domino’s (8.3x the industry median) and Papa John’s (5.0x the industry median) — two chains that, not coincidentally, invest largely in tech. Starbucks and Yum!Brands (with 15% of sales corresponding to Pizza Hut) are also highly efficient at managing their assets to generate earnings.
The Fast-Casual Pizza Segment is Growing, Too
There are 23 Pizza brands among the top 250 US chains. Despite the much-hyped success of Domino’s, there are three fast-casual pizza chains with even higher sales-per-unit (as of 2016): the family-owned Donatos Pizza (+19%), Blaze Pizza(+7%), and Pieology Pizzeria (+2%).Fast-casual pizza is still a fairly new concept, though it’s already grown by leaps and bounds. Currently, pizza comprises the largest sector of fast-casual chains, at 37%. Even Sbarro, the chain most well-known for its mall food court units, is taking the plunge into fast-casual pizza, with plans to open 15 locations of its Pizza Cucinova concept in Japan.
How the Pizza Industry Compares to Other Segments
Large restaurant chains (those with more than $1 billion in revenue) saw a weak median same-store sales increase of 0.6% during Q3 of 2017. But that’s not the case with pizza. In fact, Domino’s, Burger King (the Carrols franchise as well as Restaurant Brands International), Del Taco, and McDonald’s were among the top performers. On the other hand, Casual Dining chains Chili’s, IHOP, Ruby Tuesday, and Applebee’s, and QSR Sonic had the worst comparable performances.When examining the top 100 chains in America — chains that run the gamut from pizza to drive-thru burgers — the effect of tech investment can be seen even more clearly. The top 100 foodservice chains in the US have a median sales growth of 3.5% (2016). Among those, the top 30 (in terms of growth) see a growth of more than double that rate (8.8% as median). While most of these top growers have driven sales via units expansion, some chains like Chick-Fil-A, Panda Express, Starbucks, and Domino’s saw larger percentage increments in Average Unit Volume rather than in units.Overall, pizza is nothing new. But it’s also not a flash in the pan, as time has proven. Chains have been open to new ideas, with the largest and most powerful ones cleaning up their menus in an effort to appease health-minded consumers (Pizza Hut removed artificial flavors and colors in 2015 and eliminated BHA and BHT additives from its meats in 2017 and has vowed to end the use of human antibiotics in its chicken). Many independent operators, slow to adopt the latest technologies, have fallen by the wayside. But the industry overall continues to exhibit gains, thanks to new concepts and smart investments by the most well-regarded chains.
See the full report here http://aaronallen.com/blog/pizza-restaurant-technology
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