Keeping pace with overall menu and ingredient trends plays a key role in keeping the pizza segment strong. Thanks to their lower price points, quick-service pizza operations remain hot.
In fact, revenues for the entire pizza segment totaled $45 billion in 2016, according to IBISWorld, a Los Angeles-based research firm. Pizza revenues will grow at a rate of 1.2 percent between 2016 and 2021, per IBISWorld projections. This comes after the segment posted annual growth rates of slightly less than 2 percent for 2011-2016.
Takeout and delivery locations, which comprise 53 percent of all pizza operations, account for the majority of the segment’s units, according to IBISWorld. Sit-down and catering operations account for 33 percent and 14 percent of overall pizza locations, respectively.
With the fast-casual pizza segment growing and with more regional operations popping up throughout the country, pizza is becoming even more competitive than in years past, according to London-based Mintel Group’s 2016 Pizza Restaurants — U.S. report. Consumers continue to support these restaurants, which range from traditional chains that have dotted the country for many years to beloved local independents that have acquired dedicated customers.
“There has been somewhat of a boom of build-your-own fast-casual pizza concepts in recent years,” says Annika Stensson, director of research and industry insights for the Washington, D.C.-based National Restaurant Association. “This type of concept lends itself well to a wide audience as there are countless crust-sauce-topping combinations to keep repeat customers engaged as well as bring in new diners.”
Healthier Menu Options
While on the surface, focusing on one dish seems limiting, restaurants that serve pizza continue to unlock new flavor combinations and leverage a variety of ingredients that keep this dish top of mind among consumers. This includes embracing the farm-to-table movement, local sourcing and better-for-you menu items.
“Current food trends lean toward wider concepts and ideas more than single-ingredient-based items these days,” Stensson says. “It stands to reason that this also applies to pizza, including locally sourced items, eco-friendly food, and nutrition- and diet-conscious items.”
The pizza experience continues to become more transparent with health claims and open kitchens, according to Mintel Group. Diners at these establishments seek more details on menu items, including descriptions of flavors and food origins.
In response, today’s pizzerias incorporate more nutritious ingredients. Examples include Pizza Hut’s Veggie Lover’s Thin ’N Crispy, Domino’s Thin Crust Lighten Up Veggie and Papa John’s Garden Fresh pizzas.
To contend with changing consumer preferences over the past five years, pizza restaurants added more entree salads, flatbreads, whole-wheat and gluten-free crusts, and locally grown produce, reports IBISWorld. In particular, high-end pizza restaurants now offer more gourmet items with organic ingredients to attract health-conscious consumers with adventurous tastes.
Healthy sides are a leading area of interest for pizza restaurant patrons. While a majority of restaurants offer menu add-ons from breadsticks to chicken wings, many consumers seek side options that can provide a healthier balance.
In addition, the focus on eating cleaner has led to a number of pizza chains reassessing ingredients. One example is Pizza Hut, which removed all artificial colors and flavors from its offerings in 2015. The following year, Papa John’s eliminated 14 ingredients from its pizza, including artificial colors and flavors, flavor enhancers, sweeteners, and preservatives.
Customization has become a hallmark among fast-casual restaurants, and this applies to the pizza segment, too. In these restaurants, build-your-own menu options continue to supplement ingredient innovation, according to Mintel Group. Consumers crave more innovative pizza experiences; 36 percent of Mintel survey respondents said unique pizzas would motivate them to try a new pizza from a restaurant.
Technology Equals Convenience
In addition to healthier fare, some members of the pizza segment continue to take full advantage of today’s technology, simplifying the ordering process, especially in the takeout/delivery sector. IBISWorld predicts the addition of more seamless web interfaces that easily customize pizza preferences, a benefit for larger chains with more offerings.
In terms of overall segment profit potential, however, implementing customer-facing technology such as app and web ordering does present challenges. According to Andrew Alvarez, lead analyst at IBISWorld, “Consumers indicate a preference for quick-service pizza stores, where pizza can be ordered online, rather than traditional sit-down pizza restaurants. This has limited the industry’s growth because quick-service pizza is usually sold at lower price points.”
Takeout and delivery pizza, which comprises the largest share of industry revenue, is indisputably popular. The affordability factor is attractive to consumers, and the convenience aspect of ordering online or by phone has helped propel sales at these restaurants. Also, consumers have an abundance of options when it comes to quick-service pizza brands.
Established pizza operators continue to open additional takeout and delivery locations because they are more cost-efficient than sit-down restaurants, according to IBISWorld. Rent, capital and purchases represent smaller costs for locations with no sit-down service because these establishments tend to be smaller and primarily require pizza ovens and a counter for takeout.
By comparison, full-service pizzerias, which include buffet-style concepts, continue to experience greater challenges due to higher price points for a product that can be purchased elsewhere for less. As a result, these operators are under added pressure to set themselves apart.
To combat price pressures, some pizza concepts provide more high-end gourmet options than their quick-service counterparts, according to IBISWorld. Despite these well-intentioned efforts, market share among higher-priced pizza operators has declined over the past five years.
In addition, “Off-premises options are the largest growth area for the restaurant industry overall, and about three-quarters of restaurant traffic is now off-premises,” says Stensson. “This is especially true in the limited-
service restaurant segment.”