Recipe overhauls and crust experimentation were popular in the pizza space this year. But the biggest stories from the segment were off the menu – anchored by a growing legion of top-your-own concepts and stubbornly high cost pressures.
Here is a look at 5 of the top (non-menu) trends from 2014:
Fast casual pizza
For the second year in a row, this subsegment of create-your-own concepts is a top story not only in the pizza space, but in the restaurant industry as a whole. Startups continue to emerge while more established brands continue to sign big deals, leaving some wondering if and when there will be a shakeout.
Another top story carrying over from last year is the acceleration of digital commerce, a path paved by big-named pizza players, with more of the smaller guys getting on board this year. More than 60 percent of Americans now own a smartphone and brands are scrambling to get their attention directly through their device.
The digital arena has officially generated more than 50 percent of sales for Papa John’s, with Domino’s close behind, and Pizza Hut investing heavily to get there as well.
Technology has made it easier for customers to order and we’ve seen this have a significant impact on consumer engagement. Less time answering phones empowers employees to focus on the quality of the pizza and making customers happy.
Commodities, cost pressures
What a tumultuous year for bean counters, as cheese and beef prices both hit all-time highs, and pork skyrocketed due to a widespread pig virus. Although cheese has since tempered a bit, most expect the cost of beef to remain stubbornly high until at least 2016.
Couple these pressures with the lingering minimum wage debate, menu labeling and health care regulations and the National Labor Relations Board’s ruling that franchisors are responsible for franchisee actions, and the headwinds in the restaurant industry are strong.
For pizza operators specifically, there is also a rise in competition from every direction – c-stores are enhancing their pizza platforms and adding delivery; and grocery stores and retail outlets are adding take-and-bake options.
As a small business, right now is a very difficult time and a lot of operators are treading water. These trends are why so many mom and pop restaurants close.
But, with every cloud there is a silver lining and most restaurant operators consider that positive to be continuously falling gas prices. Gas is at its lowest level since the fall of 2010. Not only is this trend a boom for pizza delivery companies, but it also puts more money into consumers’ pockets. According to economists, consumers habitually spend more eating out when they are spending less to fill up their cars.
Looking forward, restaurant operators are increasingly optimistic about continued growth, and the underlying economic fundamentals point toward an improving business environment in the year ahead.
Franchising and growth
Additionally, the headwinds are also being somewhat offset by improving sales and traffic, as well as more capital than in recent years. In response, many brands are expanding their footprints, both overseas and stateside. After hitting a 10-year high in global net openings in 2013, and its 1,000th international location, Papa John’s hasn’t slowed this year, with a recent focus on India, the UK, Russia, the Middle East and Latin America.
Still, there is plenty of activity domestically as well.
IPO/private equity activity heats up
With 288 deals and $95.2 billion raised, 2014 will end with record activity in the US IPO markets, according to an EY Global IPO Trends report. As of December, the number of listings was at its highest point since 2000 and is a 27-percent increase over 2013. Restaurants were very much at play with this trend.
In addition, as stock markets have been trending higher, IPOs have been outperforming market indices. Companies that have listed on US exchanges in 2014 have averaged year-to-date returns of 27.8 percent, compared to the S&P 500 at 12.2 percent. One of the stock market’s top performers this year has been Domino’s Pizza, which has turned in seven straight weeks of lifetime highs and is trading 3,000-percent higher than it was in 2010.
Source: pizzamarketplace.com, 12-17-2014