| Still-expanding
UK Pizza Market Offers Profit, Serious Insights for Global
Operators
Author:
Michael Schaefer
With
nearly £2 billion (US$3.1 billion) in annual sales,
the high-growth, high-value UK pizza sector offers serious
opportunity for operators, as well as real insight into the
global pizza market's possible evolution.
Combining
a strong chained sector with a high proportion of full-service
restaurant operator, pizza in the UK has evolved towards a
two-tiered market, with increasingly high-end chained and
independent FSRs battling it out with more value priced casual
dining and 100% home delivery/takeaway outlets. With the largest
global pizza chains facing strong competition on the low end
from low-priced independents and fast food operators while
also struggling to break out of the casual dining niche in
many developed markets, the UK example offers a potential
way forward for operators looking to grow share in more developed
markets.
The
Gondola Holdings Pizza EmpireAccounting for nearly 30% of
chained pizza sales in the UK, good for £390 million
(US$620 million)in 2008, Gondola Holdings has edged ahead
of YUM! Brands with a multi-tiered offer, combining multiple
full-service dining formats. The group operates no fewer than
three pizza full-service restaurant brands, from the casual
dining PizzaExpress to the more-upmarket ASK and Zizzi brands.
Regardless of price point, however, it is notable that all
of Gondola's pizza brands have a distinctly premium feel to
them, with fresh ingredients and a notably “traditional”
presentation emphasized throughout—while all pizza chains
in the UK tend to offer simpler pizzas with a thin crust,
closer to the traditional Italian pizza than the heavier varieties
found in markets like the US, PizzaExpress, ASK, and Zizzi
all make freshness and simplicity a central focus of their
marketing, while strongly emphasizing their Italian influences,
offering an array of pastas to complement the central offer
of pizza.
The
success of Gondola Holdings' brands—all three have posted
steady growth over the last five years, taking share from
pizza full-service market leader Pizza Hut—offers lessons
on the possible evolution of pizza in more developed markets.
There is a growing constituency for a more premium offer—beginning
with independents, often offering a more self-consciously
traditional pizza, often prepared in wood-fired ovens and
so on—and working its way up to chains. While pizza lends
itself well to more premium ingredients, its simplicity makes
it an especially compelling choice for chains requiring consistent
product quality across multiple locations. What's more, for
pizza full-service restaurants, a more premium offer is fast
becoming a necessity—quality continues to improve through
both 100% home delivery/takeaway outlets and in chilled/frozen
pizzas, while a number of fast food chains in markets like
the US and elsewhere have begun to offer high-quality thin-crust
pizzas through fast casual formats, putting further pressure
of full-service operators, particularly at lunch time.
Domino's
Pizza Takes on the Chiller Case
While full-service restaurants still account for more than
half of pizza foodservice sales in the UK, sales slowed in
2008 as cash-strapped consumers cut back on eating out. Overall
pizza sales continued to expand, however, fuelled by strong
growth in 100% home delivery/takeaway outlets as well as through
supermarket sales of chilled and frozen pizza. For the year,
pizza 100% HDTA sales grew 8% to reach £800 million
(US$1.47 billion), while together frozen and chilled pizza
sales expanded more than 4%, to approach £760 million
(US$1.2 billion). Among 100% HDTA operators, Domino's Pizza
led the way with 11% growth, further cementing its 30% share
of sales in the sector. This growth has carried over into
2009, with company officials announcing same store sales growth
of 10% in the third quarter of this year. Illustrating the
advantages of scale, much of Domino's growth has been the
result of intense spending on marketing, with company officials
noting that lower advertising rates have allowed the Domino's
to heavily promote limited-time price promotions. Likewise,
the company has invested heavily in online ordering, with
online sales accounting for 26% of UK delivery sales in 2009,
up from 20% in 2008. With packaged chilled/frozen pizzas increasingly
competitive from a price/quality standpoint, convenience has
become the primary tool in any delivery chain's arsenal, with
targeted price promotions and rapid-fire online ordering combining
to attract impulse sales.
UK
Market Points the Way
With the exception of Italy, the birthplace of pizza and a
market radically different than any other, the UK offers several
insights into the likely evolution of pizza foodservice in
the more-developed markets of North America and Western Europe.
Pizza in the UK is a market with significant chained presence
as well as a multi-tiered structure, with more-premium full-service
operators increasingly distinct from value-priced 100% HDTA
operators and supermarket pizzas. Securing a niche in this
kind of environment is expected to become the first order
of business for many pizza operators in North America and
Western Europe over the next five years, with pizza full-service
operators moving to differentiate themselves with higher-quality
presentation focused on fresher ingredients and a more upmarket
ambiance, while pizza 100% HDTA operators are expected to
double down on convenience-oriented measures such as online
and mobile phone ordering, pressing their key advantage relative
to packaged frozen and chilled pizzas.
Casual
dining operators such as Pizza Hut are expected to face pressure
on all sides, increasingly undercut by decent-quality delivery
and packaged pizzas, while lacking the quality to compete
with higher-end chains such as ASK or Zizzi, as well as independents
offering a simpler, fresher, more traditional take on the
pizza. While pizza fast food remains underdeveloped in both
the UK and elsewhere, this remains a sector where a fast casual
presentation can prove effective, and is projected to emerge
over the forecast period—as noted, pizza is well-suited
to the fast casual model, combining a limited number of ingredients
with significant versatility. Particularly when tied to a
fresh, simple “traditional Italian” positioning,
pizza can be sold as a high-quality and even a relatively
healthy option, as evidenced by PizzaExpress's new Leggera
line, combining 500-calorie thin crust pizzas with a portion
of salad. For a glimpse at what a significant portion of the
future global pizza market could look like, one need look
no further than the UK.
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