this photo shows the model for our Pizza Power Report 2020 cover

author: Mohammadreza Hussaini

Pizza Power Report 2020: Taking Advantage of Digital Disruption

The pizza industry is undergoing a radical transformation, but there will be no shortage of new moneymaking opportunities for operators who can adapt to change in the coming year.

“Digital disruption” has become something of a buzz phrase in the pizza business in recent years, but that term only tells part of the story of an industry that’s evolving at a dizzying pace. We’ve written at length about the online ordering revolution in past Pizza Power Reports—you know the drill by now, and if you haven’t made your peace with it yet, there’s no time like the present. Beyond that, pizzeria owners are contending with an entirely new crop of opportunities and challenges, from the startling rise of third-party aggregators to the surging popularity of plant-based proteins and the mysteries of a colossal consumer demographic known as Generation Z (yes, another younger generation to figure out).

At least the robots haven’t taken over—yet. But Domino’s is working on it. The chain has said it will roll out its first delivery bot (not so cleverly named the R2) at one of its Houston stores by the end of this year. Robotic delivery could give Domino’s additional advantages over independent pizzerias that are already struggling to keep up with technology. “The opportunity to bring our customers the choice of an unmanned delivery experience—and our operators an additional delivery solution during a busy store rush—is an important part of our autonomous vehicle testing,” said Kevin Vasconi, Domino’s executive vice president and chief information officer, in a statement in June.

In fact, according to the National Restaurant Association’s 2019 State of the Restaurant Industry Report, technology matters more than ever to customers, especially if it makes ordering food easier. “A majority of consumers say they would like to see restaurants incorporate more technology with a focus on improving customer service, making ordering and payment easier, and offering more convenient takeout and delivery options,” the NRA report states. Diners are particularly interested in service-enhancing tech, such as tablets at the table, self-service kiosks and wearable technology for servers.

Diners are particularly interested in service-enhancing tech, such as tablets at the table, self-service kiosks and wearable technology for servers.

But if tech is a consumer turn-on, mass-produced foods are a big turnoff. The NRA reports that “local sourcing, healthy options and eco-friendly food are increasingly important to consumers, and a majority of them say the availability of these options factors directly into their choice of a restaurant.” And if you think you’ve got that covered with your veggie pizzas, think again: According to research firm Technomic, 50% of consumers eat vegetarian or vegan dishes at least once a month, but only 27% of those consumers say restaurants provide vegetarian/vegan options that taste good.

So, there’s a lot to figure out in 2020. Even if you’re staying on top of customers’ technological demands, there’s no Star Trek-like scanner that can make sense of their ever-changing palates. But take heart: They still dig pizza, and they’re still spending their money on it. Now let’s move deeper into this year’s Pizza Power Report, starting with a look at the industry numbers and where all that money is going.

this Pizza Power Report graphic shows the struggle between pizza chains and independent pizzerias
This year’s Pizza Power Report finds that pizza chains are growing their sales while independent pizzerias struggle a bit.

The Challenge for Independents

This year’s national sales figures reflect a continuing trend that will be unsettling to independent pizzeria operators. All in all, the numbers look good: According to CHD Expert, pizza industry sales are up slightly for the year ending September 2019. Pizza restaurants racked up sales totaling $46,337,969,390.42, an increase of about 1.33% over the previous year’s sum of $45,733,656,011.07. More pizza stores opened as well, totaling 77,724 units, which is up 1.34% over the previous year’s figure of 76,993 total units.

Independents still lead the chains in total number of units nationwide, but CHD Expert says that lead is shrinking. The chains saw their number of units rise to 36,151 (from the 2018 total of 34,967), while independents lost a little bit of ground with a total of 41,573 stores (compared to 42,026 in the previous year).

The worse news for independents, as CHD Expert reports, is that they continue to lag behind the chains in total sales. Independents saw their sales drop by 1.33%, from $18,780,796,296.57 for the previous year ending September 2018 to $18,531,653,875.99 for the same period in 2019. As in years past, the pizza chains showed some growth, from $26,952,859,714.50 in the previous year to this year’s total of $27,806,315,514.43, an increase of 3.17%.

The independents’ average sales per unit also declined slightly, from $446,885 last year to $445,761, but the chains didn’t fare any better: Their average sales per unit fell from $770,808 last year to $769,171. These aren’t dramatic numbers by any stretch, but they do suggest a maturing and tightly competitive pizza marketplace with little margin for error in the coming year.

This Pizza Power Report graphic shows the top 20 pizza chains in the U.S.
Pizza Power Report: Top 20 Pizza Chains in the U.S.

“A Radical Transformation”

Digital disruption isn’t confined to the pizza segment, of course. In a November 2019 report titled “Restaurant Industry 2030: Actionable Insights for the Future,” the NRA said the restaurant business as a whole is in the midst of a “radical transformation.” Even the definition of “restaurant” will change over the next decade, as technology and data become integral to marketing and managing a foodservice operation. Over the next 10 years, the NRA report stated, “a greater proportion of meals will no longer be cooked at home, lending to the continued rise in delivery, virtual restaurants, subscription services and grab-and-go at retail locations.” Online-only delivery brands with so-called “cloud kitchens” (kitchens shared by multiple restaurants) will cater to customers’ demand for speed and convenience, and “the restaurant of the future will be smaller in size…[with] more automated kitchen equipment” and revised layouts.

this graphic illustrates some key findings of PMQ's 2020 Pizza Power Report
Pizza Power Report: 2020 Quick Facts

That’s the long-term picture in a nutshell. In the short term, the NRA earlier this year projected a record-high $863 billion in U.S. sales for 2019, an increase of 3.6% over 2018. In fact, 51% of all consumer spending on food in the United States goes to restaurants, and about 90% of consumers say they like to spend money in restaurants. To get them to spend more, the NRA predicted operators will allocate more of their resources toward technology, particularly customer-facing technology like—you guessed it—digital ordering, both online and via apps, and delivery management.

this graphic illustrates the world pizza market, a key metric in the Pizza Power Report
Pizza Power Report: the World Pizza Market (click to enlarge)

Worldwide, Euromonitor International forecast $150.3 billion in total pizza commerce in 2019 (including takeaway/delivery, full-service and fast-food outlets) and predicted growth to continue over the next four years. Globally, Euromonitor estimates the largest annual growth rate through 2023 will be seen in Eastern Europe (23.54%) and the Asia Pacific region (23.41%), while Western Europe and North America will see much lower rates of growth at 6.45% and 9.01% respectively.

The worldwide pizza market is projected to hit $233.26 billion by 2023, according to ResearchandMarkets.com’s “Global Pizza Market Report: Insights, Trends and Forecasts (2019-2023).” That report attributes the growth to several factors, including growing urban and youth populations, rising disposable income and more entrepreneurs joining the ranks of pizza franchisees. Online ordering is also surging worldwide, along with the use of social media advertising.

Pizza Power Report Top Pizza Chains in the U.S. (click to enlarge)

Authenticity in the Digital Era

Restaurateurs in the United States are certainly feeling the impact of digital marketing and sales technologies. According to a June 2019 report by The NPD Group, restaurant digital orders—via mobile app, the internet or text—have grown by 23% over the past four years and now account for 3.1 billion visits and $26.8 billion in sales. Mobile apps represent 60% of all digital orders, and NPD forecasts that digital orders will keep growing by double digits through 2020 in all service modes, including delivery, on-premise and carryout. Importantly, a 2018 study by Valassis Local Solutions found that 42% of customers said the ability to place an order online would make them choose one restaurant over another.

The problem with digital ordering, some believe, is that it moves us one step closer to dehumanization, a potential pitfall in an era in which many consumers place a premium on authenticity even while wanting to place their orders quickly and efficiently. Washington, D.C.-based &pizza, a small but growing fast-casual chain, has a remedy for that—and it’s relatively low-tech. Founder Michael Lastoria last year introduced the Pizza Plug, a text-based hotline for customers who want to “talk” to a real person without, you know, having to talk to anyone. Patrons can text the Pizza Plug number and get real-time responses to their most burning questions, complaints or concerns from a live &pizza employee.

&pizza’s oblong pizza are a key differentiation point, but their Pizza Plug hotline is unique, according to the 2020 Pizza Power Report.

“Text is not a new technology, but it’s still the fastest, easiest, lowest-barrier communications platform between individuals,” says Vanessa Rodriguez, head of brand for &pizza. “It’s how we all communicate with our peers, and we wanted to be able to talk to our guests in that same way—not to use text as a mass-marketing tool but as a way to build that one-to-one connection with them.”

The chain’s Digital Shop is staffed with several &pizza employees (or “tribe members,” as the company calls them) with strong customer service skills. They answer questions via text from 11 a.m. to 11 p.m. seven days a week. “We treat it just like we would any of our shops,” Rodriguez explains. “It has its own P&L, a shop leader and shift managers to staff up as needed based on historical data so that we can ensure total optimization. We pull from the same pool of tribe members who work out of our brick-and-mortar shops so they really understand our guests and know how to drive a really great experience, whether it’s in person or via text.”

Meanwhile, &pizza employees can even text Lastoria himself directly when they’ve got a problem or a suggestion for improving business. But surely Lastoria, whose company operates nearly 40 locations in D.C. and six states, doesn’t answer each text personally? “He actually does, and he loves it!” Rodriguez says. “It’s as powerful for the tribe to be able to reach the CEO as it is for the CEO to get that direct feedback from the tribe. It’s a key component to living our values of transparency and really ‘walking the walk’ when it comes to text.”

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