News
A Changing Landscape
Robust menu items spur segment growth.
August 12, 2008
Pizza and spaghetti may be staples in Americans' diets, but they have yet to crack the secret code to a nationwide fast-casual presence.
Sure, there are plenty of successful players on the regional scene. When The Pasta House Co. Pronto! spun off from its full-service dining heritage in April 2005, its owners and the trade press tapped the St. Louis-based concept to become a leader in the Italian fast-casual world. To date, they have just three locations, however, all in Missouri.
According to Crittenden's Restaurant Insider, Artuzzi's planned to sign 30 to 50 franchise deals by the end of 2006 in its quest to grow. Currently, it has eight locations in the Atlanta area.
And the highly acclaimed Toastissimo Café, with its plans to open 300 units in five years, closed its only U.S. location in June after three years on the Orlando landscape.
Italian remains the most underpenetrated niche because, so far, the players are offering too little, too late, said Darren Tristano, executive vice president of Technomic Information Services in Chicago.
"You have a very well dominated service marketplace with Pizza Hut, Papa Johns and Domino's. For Italian to increase their share and grow in fast casual, they really have to do something a bit different in terms of what we are seeing," he said. "Take a look at Olive Garden in the full-service category. They do a pretty good job at lunch, and that doesn't leave a lot of opportunity for the fast casuals."
Tristano places Fazoli's at the head of the pack, but he's hesitant to hold them up as a fast-casual model, as many of their units have not adapted to the more upscale, sophisticated atmosphere while the food tends to cling to the quick-service model.
Pizza chain Donatos ranks second with its $175 million in sales, but Tristano still considers it a small player at those numbers. And while there is no third place in his opinion, a handful of emerging brands like Go Roma and zpizza show promise.
"If you want more than pizza and you want to be in and out in 10 to 15 minutes, an Italian menu has a tremendous advantage," Tristano said. "The question is whether they can grow enough units to be convenient to more consumers, to gain more traction andgrow faster."
Price Wars
By July 2008, officials at zpizza saw its numbers up approximately 6 percent over 2007 for the first five periods. Granted, it's not the double digit growth the Laguna Beach, Cal.-based chain saw last year, but they'll take it, especially considering customer traffic numbers also are increasing. And president Chris Bright gives the giant players in this niche part of the credit.
"Pizza Hut, Papa Johns and Domino's define what a pizza should cost in the consumer's eyes. Fortunately, with Papa Johns new whole wheat pie, it's between $10 and $12 now," Bright said. That's a price raise of $2, which helps the gourmet pizza niche – particularly one like zpizza, which is raising its prices in a surgical manner instead of across the board.
And since his 18-inch pie is 65-percent bigger than the national chains' large, Bright has repositioned the sizings, too, to milk the perceived value. The 14-inch has been renamed large, which research says first-time customers gravitate towards, and the 18-inch version is now called an extra large. The restaurant's strategic forecast says this decision won't erode margins or gross profit dollars.
Hungry eyes
Meanwhile, Bright's research shows the national pizza chain players have lost a combined $40 million in sales in the last 18 months. He pins the loss on more than just the economy – diners are no longer willing to eat food that has no nutritional value, in his experience. That's certainly a plus for Italian niche fast-casual players.
On the other hand, Tristano said consumers consider the ingredients used in most Italian recipes to be "cheap" food.
"If you can reproduce the product at home, it does make it harder to charge more for it," he said.
The public was on to something when it labeled Italian less expensive. Until the cost of flour and cheese rose dramatically in 2008, this was a kind niche when it came to ingredients, Bright said. On his books, it still is.
"On the cost of goods side, we are still far more competitive than some of the protein based concepts like burgers. They're seeing their cost of goods go from the low 30s to the mid 30s, which is devastating," he said. "We are going from the low 20s to the mid 20s, which is far more digestible for any restaurant brand sales."
But that hasn't stopped concepts from adding to their menus.
Pat and Oscar's, based in Mira Mesa, Cal., rolled out a new tomato fredo and an alfredo sauce in the past six months, and watched their sales stay the course even after a softening in the economy. It's the same story with their pizzas, reported chief operating officer George Hunter, who says his margarita pizza has enjoyed increased sales.
"The real estate on the menu board makes a huge difference when you're using point-of-purchase materials and flashy photography to show it to the guests," he added. "People really eat with their eyes."
Finally, an Italian menu carries an advantage other ethnic foods lack: a social persona.
"We find it's about the family and friends component," Hunter said. "You celebrate with pizza and pasta, and I think other niches are trying to fight for that same type of atmosphere."
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