Sam's, Kmart grab slices of $16.5B pizza market

Discount Store News, June 1, 1992 by Richard Halverson

Sam's Club is wolfing down a slice of the $16.5 billion pizza market, just as Kmart's apparent success with its Little Caesars pizza franchises is causing heartburn for the members of a trade association that represents dissident franchisees.

Sam's Club is rolling out its Pete's "a" Club concept, offering deep-discount fresh pizzas, along with special order baking and warming ovens for businesses. Starting with two in December, Sam's now operates 50 Pete's "a" Clubs, said the manager of one on the East Coast, and is opening them in all 200 Sam's Clubs as fast as it can.

Locations include Franklin Mills Mall, Philadelphia; Dover, Del.; Plano, Texas; and San Diego.

At the Franklin Mills Mall, the pizza club currently occupies a free-standing kiosk measuring about 20 feet square. It is located at the left front of the store between the last of the food aisles and the checkouts.

The kiosk includes baking ovens, refrigerators and makeup tables, as well as glass cases displaying cooked and uncooked pies. Pete's "a" Club makes the pies fresh on the premises, an associate said, and the ingredients are never frozen. But the pies can be frozen if rewrapped in air-tight freezer wrap, she added.

Customers can buy whole pies "Hot Baked" or "Take-U-Bake," for cooking at home, convenience store or restaurant. Pete's also invites customers to phone in orders for pickup.

In addition, Pete's "a" Club solicits special orders, such as for organization fund-raisers or new profit centers for a business, but offers no quantity discounts.

Sam's has equipped its pizza clubs with baking ovens from Lincoln Food Service Products, Fort Wayne, Ind. Using what it calls air impingement technology, a fast-baking process that uses hot, forced air, the Lincoln oven can cook a pizza in six minutes on a continuous baking conveyor system.

The Impinger 2 model that Sam's uses can cook 27 pies an hour, and Sam's has double decked two units for a combined capacity of 54 pies an hour.

A convenience store, however, typically would require a countertop baking oven that can cook two pies at a time, at $735, plus a rotating warming oven for $1,283, a Pete's "a" Club manager said. Special orders on equipment require one to two weeks for delivery, he said.

A price list shows that Pete's "a" Club sells a 12-inch thick crust cheese pizza for $2.78; pepperoni, $3.18; beef, $3.54; sausage, $3.23 and deluxe, $4.27. Extra cheese is 65 cents. Prices for 12-inch pancrust pies range from $3.53 to $5.18, while 14-inch deep-dish crust pies range from $4.18 to $5.99.

For restaurants only, Pete's "a" Club also offers a 7-inch, thick crust cheese pizza for $1.14; pepperoni for $1.22; and deluxe, with pepperoni, sausage, hamburger, mushrooms, green and red peppers, onions and black olives, for $1.54.

In comparison, the Kmart Little Caesars in-store pizza shops charge the same prices as do other Little Caesars franchisees, a Little Caesars spokeswoman said. A typical price would be two, 10-inch cheese pizzas with one extra topping for $10.90 in the Elmwood Park, N.J., Kmart.

Little Caesars' marketing strategy is to offer two pizzas at one price. Unlike Sam's, the Kmart pizza shops also sell pizza by the slice, $1.19 for cheese in Elmwood Park.

Kmart now operates about 200 Little Caesars franchises and is aiming to open a total of 1,200 by 1995. That easily would make Kmart the largest franchisee of Little Caesars, which now operates 3,900 outlets. Franchisee run 70% of them.

Most of the Kmart shops offer seating for about 50, while the traditional Little Caesars shop is takeout only.

Each Little Caesars shop in a Kmart has direct phone lines that bypass the store switchboard for pizza orders.

The Kmart is offering the same "Shake Your Caesar" special that Little Caesars now is advertising on television, two 10-inch pies, with one topping, four pieces of garlic bread made of pizza dough and a Caesar salad for $8.98, or $10.98 for 12-inch pies.

With 1991 sales of $1.7 billion, Little Caesars is the third largest pizza chain behind Pizza Hut and Domino's. In the year ended August 1991, sales for the top seven pizza chains, including company-owned and franchised units, totaled $9.9 billion, reported Nation's Restaurant News, a sister publication of DSN. For the entire pizza industry, including independents, pizza sales grew 4.4% last year to $16.5 billion, from $ 15.8 billion in 1990, estimated Technomic, a Chicago-based marketing and research consultant for the food industry.

Despite the lack of any outside advertising to date, the apparent success of the Kmart Little Caesars pizza shops is prompting concern on the part of A.L.C.F. Inc., an association that claims to represent 70 members who operate about 500 stores.

To vent its concern, A.L.C.F. released a statement in which it alleges that Kmart is getting special treatment that other franchisees don't enjoy. To investigate the supposed preferential treatment, the association members are assessing themselves $50 a month per store to pay for a lawyer.