Pizza chains chart ambitious growth; major players safeguard market against fast-food invaders while widening the mom-and-pop gap with new products, unusual sites and niche marketing

Nation's Restaurant News, August 3, 1992 by Theresa Howard

Major players safeguard market against fast-food invaders while widening the mom-and-pop gap with new products, unusual sites and niche marketing

Seeking to nurture their 65-percent share of the industry's $16 billion pizza market, the nation's eight largest pizza chains are building ambitious growth strategies on foundations of new products, innovative toppings, non-traditional sites and localized "micro-marketing."

With impending threats from McDonald's and other well-funded players who are moving into the pizza arena, the segment's major chains are doing what they do best to retain and grow their market shares.

The efforts were taken during a year when the segment's dominant operators appear to be dramatically widening their lead over smaller regional chains and mom-and-pop pizzerias.

Projections call for the aggregate sales of pizza chains in NRN's Top 100 to surge this year by a nominal 8.5 percent - more than double their growth rate last year - to nearly $10.4 billion.

Growth trends that are markedly different from those of the pizza industry at large suggest that the dominant chains are gobbling up the lesser players' customer bases.

Increased competition and the lagging economy pulled the overall segment's customer-traffic growth rate down to 2 percent for the first half of 1992 compared with guest counts in the same period last year, observes George Rice, president of the research group GDR Enterprises.

Historically, the pizza segment has grown at rates considerably greater than the industry," Rice notes. "But this year it is the same as the industry rate."

In seemingly successful efforts to surmount the flattish trend, the pizza operators in the Top 100 are pushing value-added programs, marketing to neighborhood niches and introducing a range of new products designed to beef up person checks and increase frequency.

On the food front, the chains are tailoring new items to bolster their market appeal, They also are using new menu items to improve perceived price-value relationships, with an emphasis on quality.

Leading the list of food trends are pizzas that shed traditional toppings like pepperoni and sausage for such things as barbecued chicken and Cajun-spiced shrimp. The trend, which was popularized in such West Coast hot spots as Spago and the California Pizza Kitchen chain, has filtered into the mainstream through the likes of Domino's and Pizza Hut. Those brands have introduced the barbecued and shrimp toppings on a regional basis.

Pasta, too, has become an increasingly popular menu item. Pizza Hut plans to make it as popular as hamburgers and french fries through the introduction of its Fastino's restaurant concept - a drive-through that serves pasta dishes and pizza by the slice.

Papa Gino's of America, one of the Top 100 companies, has introduced a variety of new pasta items and is testing a Caesar salad in about five of its chain's units.

One of the most intriguing events that change the face of the pizza segment, however, is the recent acquisition by Pizza Hut's parent company, PepsiCo Inc., of a majority stake in the full-service California Pizza Kitchen chain.

Although Los Angeles-based CPK is considerably more upscale than traditional pizza Players in the Top 100, its deal with deep-pocketed PepsiCo could conceivably make the small but high-grossing chain a potent factor in the segment's competitive dynamics.

One operator, however, contends that gourmet Pizzas are a fad that will not fly in Middle America. "Ethnic toppings are starting to wane and die out," says Herman Cain, chief executive and president of Godfather's Pizza. "I have this theory that people look to advertising and new products to boost business. But in today's economic times, people fall back on their basic preferences. New products provide a nice, temporary change for many of our customers, who will try them, like them, then go back [to their favorites]," he explains.

Nevertheless, Godfather's introduced a "Hawaiian Supreme" pizza earlier this year.

Other operators view new products as an opportunity to increase customer visits.

"We are trying to keep our patrons through customer service and by increasing their visits through some menu expansion," says James Fletcher, president of San Francisco-based Round Table expansion says James Fletcher, president of San Francisco-based Round Table Pizza. "We are doing a little bit at a time and being careful not to depart from the loyalty we have established [with our existing products]. Weren't introducing a barbecue pizza, nothing too exotic, and trying variations on the basic Pizza product . We're also looking at entrees that fit our store profile."

While some of the big chains are merely adding new fixings to top off pizzas. others have put forth systemwide programs that promote the overall quality of their dining experiences, not just product quality.

Last fall Domino's began to tout a new and improved pizza recipe, and Round Table began a "Quality Service Cleanliness" program.

And Domino's says it has chalked up noticeable improvements in service and quality control, according to Phil Bressler, the chain's vice president of operations.