ibisworld industry report od4320 pizza … pizza restaurants in the us april 2014 1 ibisworld...

WWW.IBISWORLD.COM Pizza Restaurants in the US April 2014 1

IBISWorld Industry Report OD4320Pizza Restaurants in the USApril 2014 Andy Brennan

Rising dough: Pizza innovation and improved incomes will drive demand and revenue

2 About this Industry2 Industry Definition

2 Main Activities

2 Similar Industries

2 Additional Resources

3 Industry at a Glance

4 Industry Performance4 Executive Summary

4 Key External Drivers

6 Current Performance

8 Industry Outlook

10 Industry Life Cycle

12 Products & Markets12 Supply Chain

12 Products & Services

13 Demand Determinants

14 Major Markets

15 International Trade

16 Business Locations

19 Competitive Landscape19 Market Share Concentration

19 Key Success Factors

19 Cost Structure Benchmarks

21 Basis of Competition

21 Barriers to Entry

22 Industry Globalization

23 Major Companies23 Pizza Hut Inc.

24 Domino’s Inc

25 Little Ceasar’s

26 Papa John’s International Inc.

28 Operating Conditions28 Capital Intensity

29 Technology & Systems

30 Revenue Volatility

30 Regulation & Policy

32 Industry Assistance

33 Key Statistics33 Industry Data

33 Annual Change

33 Key Ratios

34 Jargon & Glossary

www.ibisworld.com | 1-800-330-3772 | [email protected]


This industry is composed of establishments that prepare and serve pizza and other related items.

The industry includes both full- service restaurants and quick- service establishments.

The primary activities of this industry are

Providing pizza delivery services

Providing pizza carry-out services

Providing sit-down restaurant services

Providing pizza catering and food-truck pizza sales

72211a Chain Restaurants in the USThis industry primarily engages in full waiter service. It provides food to patrons who pay after eating.

72211b Single Location Full-Service Restaurants in the USBusinesses in this industry operate single restaurants usually run by the owner.

72232 Caterers in the USThis industry includes companies that provide individual event-based food services.

72221b Coffee & Snack Shops in the USEstablishments in this industry provide coffee and snacks where patrons generally select items and pay before eating.

72221a Fast Food Restaurants in the USEstablishments in this industry provide food services where patrons generally order or select items and pay before eating.

Industry Definition

Main Activities

Similar Industries

Additional Resources

About this Industry

For additional information on this industry

www.franchise.org International Franchise Association

www.nrn.com Nation’s Restaurant News

www.restaurant.org National Restaurant Association

www.pmq.com PMQ Pizza Magazine

www.rimag.com Restaurants & Institutions Magazine

The major products and services in this industry are

Full-service pizza restaurants

Quick-service pizza restaurant

Others


% c

hang

e

4

−2

−1

0

1

2

3

2008 10 12 14 16 18Year

Consumer spending

SOURCE: WWW.IBISWORLD.COM

% c

hang

e

16

−16

−8

0

8

2006 08 10 12 14 16 18Year

Revenue Employment

Revenue vs. employment growth

Products and services segmentation (2014)

67%Quick-service

pizza restaurants

28%Full-service pizza

restaurants

5%Other


Key Statistics Snapshot

Industry at a GlancePizza Restaurants in 2014

Industry Structure Life Cycle Stage Mature

Revenue Volatility Low

Capital Intensity Low

Industry Assistance None

Concentration Level Low

Regulation Level Medium

Technology Change Low

Barriers to Entry Medium

Industry Globalization Low

Competition Level High

Revenue

$38.7bnProfit

$2.9bnWages

$12.5bnBusinesses

38,083

Annual Growth 14-19

2.0%Annual Growth 09-14

0.5%

Key External DriversConsumer spendingConsumer Confidence IndexHealthy eating indexWorld price of wheatHouseholds earning more than $100,000

Market SharePizza Hut Inc. 15.3%Domino’s Inc 9.7%Little Ceasar’s 8.1%Papa John’s International Inc. 6.5%

p. 23

p. 4

FOR ADDITIONAL STATISTICS AND TIME SERIES SEE THE APPENDIX ON PAGE 33


margaretmorgan

Highlight


Key External Drivers Consumer spendingFactors that influence growth in consumer spending affect the industry. During a recession, any spike in unemployment generally leads to declining consumption. Conversely, when spending is high, consumers are more likely to spend money on eating at restaurants. Consumer spending is expected to increase during 2014, providing a potential opportunity for the industry.

Consumer Confidence IndexChanges in consumer sentiment have a significant effect on household

expenditure on discretionary items, including restaurant dining. During a recession, consumer demand for lower-priced value products from restaurants increases. The Consumer Confidence Index is expected to increase in 2014.

Healthy eating indexOver the past five years, consumers have been more aware of issues related to weight and obesity, nutrition and food safety than they were before. Therefore, as the healthy eating index rises, demand for restaurants with fewer healthy options will decrease. The healthy eating

Executive Summary

The Pizza Restaurants industry has risen slowly over the past five years while battling anemic consumer spending and changing preferences. Consumer spending has increased 2.3% per year on average in the five years to 2014; however, the full force of this increase has not flowed through to pizza restaurants, as consumers have remained wary of the economic outlook. People are indicating 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. Industry revenue is expected to increase 0.5% per year on average to $38.7 billion over the five years to 2014, which includes an increase of 0.9% over 2014.

Changing consumer preferences have forced pizza restaurants to adapt or change strategy over the past five years. Americans have become more concerned about their health and the food they eat,

moving away from food high in fat, salt and sugar. Organic, locally grown and gourmet food have become more popular, and pizzerias are offering a greater array of flatbreads, whole-wheat and gluten-free crusts as a result. For example, Domino’s, the industry’s second biggest player, launched artisan-style pizzas in 2011 and added handmade pan pizza to their menu in 2012.

The industry will continue to rise over the next five years as the economy improves and consumers spend more on eating out. The way operators utilize technology will become increasingly important to the industry’s performance as consumers increasingly use their smartphones or tablets to order, expecting seamless web interfaces that make it easy to customize pizza preferences; this trend will likely benefit larger chains. As a result, the industry is expected to continue to consolidate as the large chains build more quick-service stores and leave full-service restaurants to independent pizzerias that have more of a feel for local tastes and can provide personalized customer service. Revenue is projected to grow 2.0% per year on average to $42.6 billion over the five years to 2019.

Industry PerformanceExecutive Summary | Key External Drivers | Current Performance Industry Outlook | Life Cycle Stage

By adjusting to consumer preferences, pizza joints rode out the recession

margaretmorgan

Highlight

margaretmorgan

Highlight


Industry Performance

Key External Driverscontinued

index is expected to increase slowly in 2014 as consumers continue to seek-out more healthy options.

World price of wheatThe world price of wheat has a substantial impact on operators in this industry. Grain prices, such as wheat, are a prime determinant of production costs, since wheat is the main ingredient in pizza dough. If wheat prices increase, the cost of ingredients rises and, as a result, operators may need to increase pizza prices to offset this expense. High prices

could deter customers and cause revenue to decline. The world price of wheat is expected to increase in 2014, representing a potential threat to the industry.

Households earning more than $100,000High-end pizza restaurants tend to draw their customers from higher income households. Because of this factor, growth in the number of higher income households benefits the industry. The number of households earning more than $100,000 is expected to increase slowly during 2014.

%

70.0

68.0

68.5

69.0

69.5

1905 07 09 11 13 15 17Year

Healthy eating index


% c

hang

e

4

−2

−1

0

1

2

3

2008 10 12 14 16 18Year

Consumer spending

margaretmorgan

Highlight



On the menu The industry has had to contend with changing consumer preferences over the past five years. Americans have become more concerned about their health and the food they eat. As a result, many consumers have been steering away from food high in fat, salt and sugar. Consumers have also become increasingly attracted to organic goods and more fruits and vegetables. In response to this trend, pizza restaurants are offering more entree salads, flatbreads, whole-wheat and gluten-free crusts and locally grown produce on their menus and in their recipes. In particular, high-end pizza restaurants are offering more gourmet items with organic ingredients to attract health-conscious consumers with complex taste palates.

Along with adapting to health consciousness, industry operators are

facing more competition from places such as grocery stores and mass merchandisers. The frozen pizza selections found in respective outlets, such as Kroger and Walmart stores, have increased greatly. Also, more food retailers are offering partially baked (par-baked) pizzas in the refrigerated section and touting them as having high-quality, restaurant-style flavor and ingredients. These products have been particularly popular among price-conscious consumers who still want quality pizza but at a lower price.

Ingredients for profit Technology has infiltrated the industry in a big way over the past five years. Large pizza chains have invested in sophisticated web-based ordering systems that allow customers to order and pay for deliveries quickly via their computer, tablet or smartphone. The ubiquitous adoption of the internet has driven this trend as young consumers in particular have an affinity for using online ordering platforms. Customers can create their own online accounts, saving

personal preferences for toppings and delivery instructions. The large chains such as Domino’s, Papa John’s and Pizza Hut have reported that 40.0% of their sales are derived from orders made over the web. This has helped the powerful pizza chains increase their market share and profit. However, most independent pizza shops lack the capital and technological know-how to compete with this technology as they must provide seamless web interfaces and be able to

The Pizza Restaurants industry has produced anemic growth over the five years to 2014 thanks to consumers remaining scathed by the recession and hesitant to spend on eating out. Intense external competition from a variety of new food services concepts and an increase in health consciousness among consumers have also worked against the industry.

Despite these obstacles, many operators have performed well, adapting their menus and investing in advanced technology, including sophisticated web-based ordering systems, to boost efficiency and improve profit margins. Over the five years to 2014, industry revenue is expected to increase 0.5% per year on average to $38.7 billion, including growth of 0.9% in 2014.

Current Performance

The industry has had to contend with changing consumer preferences over the past five years

margaretmorgan

Highlight

margaretmorgan

Highlight

margaretmorgan

Highlight

margaretmorgan

Highlight

margaretmorgan

Highlight



ensure that credit card information is secure. To bridge the digital ordering divide, smaller pizzerias have flocked to

online food ordering services such as GrubHub, Seamless, and EatStreet, which usually take a cut of online sales.

Ingredients for profit continued

The industry has consolidated over the past five years, with larger chains owning a bigger piece of the industry’s pie. Many small pizzerias were unable to make it through the recession when consumer spending declined and have been further disadvantaged by a greater number of consumers purchasing pizza online. According to PMQ Pizza Magazine’s 2014 State Of The Industry report, independents owned 53.2% of pizzerias in 2013 and controlled 40.3% of the industry’s sales. This is in comparison with 58.0% of pizzerias and 51.7% of industry sales in 2009. Overall, the number of industry establishments (locations) has increased at an average annual rate of 2.1% to 72,101 over the five-year period, while the number of enterprises (businesses) has actually declined.

Industry employment has improved along with revenue over the past five years as restaurants have hired to keep pace with demand. The number of industry

employees has increased at an average annual rate of 2.8% to 929,707 people over the five years to 2019. However, wages as a proportion of revenue have declined as pizza restaurants have found ways to save on labor costs. For example, the industry has shifted from a full-service sit-down restaurant model toward fast casual stores specializing in delivery and carryout. Domino’s has long abided by this strategy, and Pizza Hut has applied this strategy more recently, building over 600 Delco (company shorthand for Delivery and Carry Out) stores since 2009. This change in strategy has ultimately led to less industry demand for labor.

Consolidation Larger operators are increasingly investing in web-based ordering systems

margaretmorgan

Highlight

margaretmorgan

Sticky Note

chains building more stores while local businesses suffer

margaretmorgan

Highlight



The Pizza Restaurants industry will continue to enjoy moderate growth over the next five years. Pizza restaurants will benefit as the economy continues to improve, unemployment rates decline and growing household incomes allow consumers to increase spending on high priced menu items. Over the five years to 2019, consumer spending is expected to increase at an average annual rate of 2.8%. The industry will continue to face challenges, however, most notably intense competition from other food services segments for a share of the consumer dollar. Over the five years to 2019, industry revenue is expected to increase at an average annual rate of 2.0% to $42.6 billion.

Consumer confidence in the economy’s outlook is expected to increase over the next five years, boosting spending as a result. The US economy is exhibiting consistent growth and Americans are increasingly becoming more confident that the worst is over; even the more price-conscious consumers are forecast to increase their spending in the next five years. In addition, the number of households earning more than $100,000

is expected to rise 1.1% per year on average over the five years to 2019. This growth of wealthy households will induce higher demand for more expensive pizza restaurants and gourmet pizzas, which will help boost industry growth. According to market research firm Mintel, pizza chains currently experiencing the greatest growth are those targeting consumers from higher income brackets. Chains catering to lower incomes are competing in a very saturated marketplace, thus limiting their opportunity for organic growth.

Industry Outlook

% c

hang

e

15

−10

−5

0

5

10

2006 08 10 12 14 16 18Year

Industry revenue


Although the industry is expected to grow, it will still face some challenges. Consumers are expected to become even more health conscious and many Americans will steer clear from fast-food establishments such as pizza delivery outlets. In addition, Americans will continue to crave products made from fresh and organic ingredients. As a result, pizzerias will increasingly focus on providing crusts and toppings made from high-quality goods. IBISWorld also expects operators to focus on differentiating their products from other competitors. For example, industry player California Pizza Kitchen has grown its business by offering innovative pizzas such as the Greek pizza,

which includes Mediterranean chicken and mozzarella topped with a Greek salad. As consumers increasingly desire healthier menu items and specific ingredients, pizza providers will continue to innovate and get creative with their menus to satisfy consumer demand.

Pizza restaurants will also continue to face competition from alternative retail outlets, such as grocery stores. Over the past five years, many mass merchandisers have started retailing more groceries, reducing revenue for supermarket operators. In order to gain back consumers, grocery stores have diversified their product offerings and are providing more specialty goods, such as

Peppered with challenges

margaretmorgan

Highlight

margaretmorgan

Highlight



made-to-order pizza. Since Americans’ schedules are becoming busier, being able to pick up a made-to-order pizza while shopping for groceries is extremely convenient. As a result, pizza restaurants,

especially those that only offer delivery, will have to come up with ways to draw consumers back to their shops, which could include promotions or other creative tactics.

Peppered with challenges continued

Similar to the previous five-year period, the industry will continue to deal with rising input prices, especially fresh meats. Some restaurants will increase prices to help with the rise in expenses and others will change some of their menu offerings to better cope with the shift. These changes may not be significant enough for smaller operators to offset the costs, however, which could potentially harm their profit margins. Large chains that are able to buy in bulk will be in a better position to manage the rise in expenses, keeping their profit margins relatively stable as a result.

With revenue expanding consistently, IBISWorld expects more restaurants to

open up, albeit at a slow rate. Over the five years to 2019, the number of industry establishments is projected to increase at an average rate of 1.6% per year to 78,209 restaurants. Employment numbers are projected to follow suit. As more restaurants open, more employees will be needed to help run the establishments. In the five years to 2019, employment will increase at an annualized rate of 2.1% to 1.0 million workers.

Pizza toppings and size Pizzerias will increasingly

use fresh, organic and locally sourced ingredients

margaretmorgan

Highlight

margaretmorgan

Sticky Note

pickup locations near grocery store?


Industry PerformanceIndustry value added is growing at a slighly slower rate than GDPThe industry is affected by product saturationTechnology changes are being implemented to increase business efficiencyIncreasing sales per stores, rather than total store numbers, is crucial to overall growth

Life Cycle Stage


20

15

10

5

0

-5

-10

% G

row

th in

sha

re o

f eco

nom

y

% Growth in number of establishments

-10 -5 0 5 10 15 20

DeclineShrinking economicimportance

Quality GrowthHigh growth in economic importance; weaker companies close down; developed technology and markets

MaturityCompany consolidation;level of economic importance stable

Quantity GrowthMany new companies; minor growth in economic importance; substantial technology change

Key Features of a Mature Industry

Revenue grows at same pace as economyCompany numbers stabilize; M&A stageEstablished technology & processesTotal market acceptance of product & brandRationalization of low margin products & brands

Chain Restaurants

Frozen Food Wholesaling

Single Location Full-Service Restaurants

Dairy Wholesaling Fast Food RestaurantsPizza Restaurants



Industry Life Cycle The Pizza Restaurants is currently in a long-term, low growth phase, indicating the industry is in the mature phase of its life cycle. The number of pizza restaurants within a city or town that can be supported by its population have been reached in many areas. This limits the ability of existing operators to open new stores, or of new pizza restaurant operators to enter the industry, making an increase in sales per store (rather than new store openings) the most important driver of industry revenue. For this reason, many operators are introducing menu items with higher price points or complementary foods, such as chicken and salads. The market share of the large chains is increasing as small independent operators struggle to keep pace with the increased competition. Over the 10 years to 2019, industry value added (IVA), which measures an industry’s contribution to GDP, is expected to grow 1.5% per year on average, while US GDP is expected to grow at a rate of 2.7% per year over the same period.

Despite the industry’s mature life cycle, pizza restaurants are evolving to adapt to consumer preferences. Increased consumer demand for healthier food choices means many pizza restaurants are offering more health-conscious menu items, such as entree salads and whole-wheat, flatbread or gluten-free pizza crusts. Higher disposable incomes,

especially in urban areas, have led many players to chase higher profit margins by centering their menu on gourmet or organic ingredients or wood-fired pizzas. Also, the Pizza Restaurants industry has been one of the most successful segments of the slow growing food services sector at introducing quick service stores that cater to consumer demand for more convenient and customizable food.

The industry is experiencing moderate technological change due to the greater penetration of the internet throughout society. The large pizza chains have invested in sophisticated web-based systems that let customers order and pay for deliveries quickly via their computer, tablet or smartphone. Customers can create their own online accounts, saving personal preferences for toppings and delivery instructions. This makes the ordering process seamless and encourages repeat business. Some operators, including Domino’s, Papa John’s and Pizza Hut, now derive more than 40.0% of their sales from orders made over the web. Meanwhile, independent pizza shops lack the capital or technological know-how to compete with this technology. Due to these technological advantages, the large chains have increased their market share of the industry over the past five years, especially among younger demographics that are more likely to order pizza online.

This industry is Mature


Products & Services

Quick-service pizza restaurantsQuick-service restaurants, which include carryout and delivery locations, account for the largest share of industry revenue. Many establishments provide delivery options along with their sit-down service, but the quick-service category include only establishments whose primary activity is either pizza carryout or delivery. Over the past five years, this service segment has increased as a share

of revenue due to a combination of factors. First, delivery and carryout pizza options are typically less costly for consumers than more formal gourmet pizza restaurants. Therefore, with weak consumer sentiment and slow growth in per capita disposable incomes, Americans have favored the quick-service model. Additionally, industry operators have opened more of these locations because they are more cost-efficient than sit-down

Products & MarketsSupply Chain | Products & Services | Demand Determinants Major Markets | International Trade | Business Locations

KEY BUYING INDUSTRIES

9901 Consumers in the US Households are the major buyers for this industry.

KEY SELLING INDUSTRIES

42442 Frozen Food Wholesaling in the US Operators in this industry supply frozen foods to pizza restaurants.

42443 Dairy Wholesaling in the US Dairy wholesalers supply pizza restaurants with inputs like milk and cheese.

42444 Egg & Poultry Wholesaling in the US Pizza restaurants buy poultry and eggs from this industry.

42447 Beef & Pork Wholesaling in the US Operators in this industry sell beef and pork ingredients to pizza restaurants.

42448 Fruit & Vegetable Wholesaling in the US Fruit and vegetable wholesalers supply pizza restaurants with topping ingredients.

42449 Soft Drink, Baked Goods & Other Grocery Wholesaling in the US Operators in this industry supply pizza restaurants with soft drinks and other beverages.

Supply Chain

Products and services segmentation (2014)

Total $38.7bn

67%Quick-service

pizza restaurants

28%Full-service pizza

restaurants

5%Other



Products & Markets

DemandDeterminants

Demand for the services of pizza restaurants is determined by a variety of factors. Per capita disposable income influences consumers’ decisions to eat out or buy food for consumption at home. It can also determine whether they buy pizza with a promotional deal or eat at a gourmet pizza restaurant. As disposable income increases, Americans are more likely to spend on pizza at restaurants. During the recession, high unemployment limited disposable incomes and stifled industry revenue as a result.

Consumer sentimentChanges in consumer sentiment, which measures consumers’ feelings about their current and future financial situations, also determines the level of demand for pizza restaurants. When sentiment is high and Americans are secure with their finances, their willingness to eat at pizza restaurants increases. During the recession, consumer sentiment crashed, pulling patrons away from pizza parlors. Consequently, industry revenue suffered.

DemographicsThe changing age structure of the population influences industry demand. Two broad demographic trends have encouraged industry growth in the past decade. Firstly, the baby-boomer generation has access to higher disposable incomes than previous generations, meaning they are more likely to spend on eating out. Also, young adults aged between 18 and 30 years old are delaying marriage and having children compared to previous generations; this allows them to spend a greater proportion of their income on eating out. Young adults in this age bracket spend more of their food budget on eating out than any other age group.

Health and lifestyleRising health consciousness has a direct effect on consumer food choices as consumers have become increasingly concerned about fat content, fried foods and salt content, especially when dining out. As such, rising concerns regarding the nutritional content and value of

Products & Servicescontinued

restaurants. Rent, capital and purchases represent smaller costs for locations with no sit-down service because these establishments tend to be smaller and require primarily pizza ovens and a counter for takeout.

Full-service pizza restaurantsFull-service pizza restaurants provide sit-down service to patrons and usually full waiter service. Customers order off a menu and the pizza is brought to their table; these establishments typically provide more high-end gourmet pizza options than their quick-service counterparts. However, along with the higher-end product and service, these restaurants also carry a price premium,

making them less attractive to cash-strapped consumers. As a result, their share of industry revenue has declined over the past five years. In an industry that is saturated with players and options, clever full-service restaurant concepts may offer newcomers a way to differentiate themselves from the competition.

OtherOther pizza service options include catering services and mobile outlets (e.g. food trucks). This segment accounts for only a small portion of total industry revenue. While food trucks are growing in popularity, their place in the Pizza Restaurants industry is not yet very significant.


Products & Markets

Major Markets

The Pizza Restaurants industry primarily serves the 25-to-44 age group. Consumers in this demographic spend more than average on food away from home, according to the Bureau of Labor Statistics (BLS). They are typically well established in their careers, which provide them with steady disposable incomes and the ability to purchase prepared food at restaurants. Additionally, many of these consumers also have families with young children – another factor that increases their likelihood to utilize the Pizza Restaurants industry’s services. Pizza provides a quick and relatively inexpensive meal solution for the entire family. Over the past five years, IBISWorld estimates that this demographic has increased its share of industry revenue as families have opted for low-cost meal options when dining outside the home.

Consumers in the 45-to-64 age group make up the second-largest industry market. While these patrons typically have steady incomes, they also tend to favor more high-end choices like traditional sit-down restaurants. Nevertheless, this market segment’s share of revenue has decreased slightly over the past five years due to their tightened budgets, which have led them to seek out less pricey meal options.

Pizza patrons under 25 years account for 16.2% of industry revenue. Many of these consumers do not have steady careers and disposable incomes, which limits their demand for pizza. However, over the past five years, revenue generated from this segment has actually increased as pizza chains have chased younger demographics through clever marketing campaigns and menus designed to appeal to young consumers.

DemandDeterminantscontinued

restaurant meals is likely to influence the demand for certain foods on pizza restaurant menus, encouraging industry players to alter their product mix.

Convenience, value for money and time are other important demand

determinants. Recent social trends such as busy lifestyles, heavy workloads and long working hours have helped boost demand for out of home dining as time-poor consumers look to cut down cooking time.

Major market segmentation (2014)

Total $38.7bn

46.3%Consumers between

25 and 44 years

22.8%Consumers between

45 and 64

16.2%Consumers under

25 years

14.7%Consumers 65 and older



Products & Markets

International Trade The Pizza Restaurants industry primarily serves the needs of the domestic market. The industry comprises a small number of large global players with a mix of company-owned and franchised outlets, and a large number of small businesses

that service a particular town or suburb. The domestic market is increasingly becoming saturated with outlets. Therefore, some major operators are continuing to invest internationally through franchises.

Major Marketscontinued

Similarly, consumers 65 and older represent a small and shrinking market for the Pizza Restaurants industry. The BLS indicates that this segment spends well below average on food eaten away from home. The typical consumer in this

category spends $1,608 annually on restaurant meals, compared to the overall average of $2,505. Patrons in this category tend to purchase more food to eat at home (an annual average of $4,558 per person).


Products & Markets

Business Locations 2014

MO2.0

West

West

West

Rocky Mountains Plains

Southwest

Southeast

New England

VT0.2

MA3.5

RI0.6

NJ4.2

DE0.1

NH0.7

CT1.9

MD1.8

DC0.4

1

5

3

7

2

6

4

8 9

Additional States (as marked on map)

AZ1.5

CA9.5

NV0.8

OR1.2

WA1.7

MT0.3

NE0.6

MN1.8

IA1.5

OH5.4 VA

2.4

FL5.8

KS0.9

CO1.4

UT0.6

ID0.5

TX5.4

OK1.0

NC2.5

AK0.3

WY0.2

TN1.7

KY1.2

GA2.1

IL4.7

ME0.6

ND0.2

WI1.9 MI

4.0 PA6.3

WV0.7

SD0.3

NM0.5

AR0.9

MS0.5

AL1.0

SC1.2

LA0.9

HI0.2

IN2.6

NY7.7 5

67

8

321

4

9


Mid- Atlantic

Establishments (%)

Less than 3% 3% to less than 10% 10% to less than 20% 20% or more

Great Lakes


Products & Markets

Business Locations Establishments in the Pizza Restaurants industry are distributed across the country in much the same pattern as is the US population. As is the case with most consumer-facing industries, this industry must locate close to its target market to maximize revenue and profit, while minimizing its costs. However, there are some discrepancies between establishment location and population density, based on consumer tastes and preferences.

SoutheastThe Southeast region of the country is home to the largest share of industry establishments at 20.9% of the industry’s total. It is also home to the largest share of the United States’ population at 25.4% of the total. Of the states in this region, Florida accounts for the largest portion of pizza establishments at 5.8% of the industry; it also holds the region’s largest share of the population at 6.1% of the nation’s total. The ratio of establishment per capita is slightly below average in this area, largely due to its diverse tastes, ranging from Creole food to Cuban fare.

Mid-AtlanticThe Mid-Atlantic region is also dense with pizza restaurants, accounting for 20.5% of the industry’s establishments. The area also makes up 15.6% of the United States’ population. New York accounts for 7.7% of establishments and 6.3% of population and Pennsylvania holds 6.3% of establishments and 4.1% of the nation’s population. These states have higher-than-average establishments-per-capita ratios, pushing the region’s share up. New York is home to many Italian immigrants, which gives it a flavor for Italian cuisine.

Great Lakes The Great Lakes region also holds a significant portion of the industry’s establishments at an estimated 18.6%.

The region is also home to 15.0% of the nation’s population. In this area, Ohio and Illinois are the front-runners, accounting for 5.4% and 4.7% of total establishments, respectively. The two states also respectively hold 3.7% and 4.2% of the US population. Illinois is particularly known for its affinity for pizza; the state is the founding place of Chicago deep-dish pizza. As such, consumer tastes in the state (and, therefore, in the region) favor the food.

WestThe West region accounts for a disproportionately small share of industry establishments at only 13.7% of the industry’s total, while holding 17.0% of the nation’s population. The area is home to diverse tastes and is at the forefront of healthy eating habits. California, in particular, focuses on growing organic produce. Its share of pizza establishments is 9.5% of the industry’s total, while its share of the US population is 12.1%. The Southwest has a similar ratio of establishments per capita; it holds 8.4% of pizza restaurants and

%

30

0

10

20

Sout

hwes

t

Wes

t

Gre

at L

akes

Mid

-Atla

ntic

New

Eng

land

Plai

ns

Rock

y M

ount

ains

Sout

heas

t

EstablishmentsPopulation

Distribution of establishments vs. population



Products & Markets

Business Locationscontinued

12.1% of population. Texas – the most populous state in the region, which holds 8.1% of the US total – accounts for only 5.4% of pizza locations. Tastes in the state are diverse and favor south-of-the-border flavors.

The remainder of the regions makes up the balance of pizza establishments. The New England region holds 7.5% of

industry establishments and 4.7% of the country’s population. Similarly to the Mid-Atlantic region, this area is influenced by a history of Italian culture. The Plains region accounts for 7.3% of industry establishments and 6.6% of US population, while the Rocky Mountains region holds 3.0% of establishments and 3.5% of the population.


Cost Structure Benchmarks

Costs and returns vary between industry operators, depending on their location, their supply contracts and their scale of operations. Typically, large players that own several links in the pizza supply chain are better able to control costs and reach their target markets. The figures presented below are averages for the entire Pizza Restaurants industry, which includes quick-service establishments and full-service locations.

ProfitProfit (calculated as earnings before interest and tax) has improved over the past five years. Margins depend heavily on the cost of inputs (i.e. ingredients); as the prices of dairy and wheat increase, the cost of pizza production mounts as well. When input prices rise, and restaurants cannot pass costs on to the consumer, players’ bottom lines shrink. Higher prices at the retail level may discourage

Key Success Factors Proximity to key marketsBeing in a good location and understanding what customers need from the restaurant can drive customer traffic and decrease operator costs.

Adoption of a commercial focusUnderstanding and meeting customers’ expectations helps attract business. Maintaining a high level of hospitality ensures positive word-of-mouth recommendations and repeat customers.

Fast adjustments made to changing regulationsIt is important that industry players monitor changes to government

regulations in areas such as food safety and handling.

Ability to control stock on handControlling orders, stock and food waste can limit costs and improve profit margins.

Access to multiskilled and flexible workforceAccess to suitably skilled and trained staff is required to meet peak customer demand periods.

Ability to quickly adopt new technologyAdopting new employee training and kitchen and customer-related technology can increase productivity and lower labor costs.

Market Share Concentration

In 2014, IBISWorld estimates the top four industry companies to represent 39.6% of total industry revenue, which indicates a low level of concentration among the industry’s largest players. While there are well-established and well-known pizza brands in the industry, there is also a large number of small, independent and locally-focused pizza restaurants across the United States. According PMQ Pizza Magazine, about 53.2% of US pizza stores are small independently owned

restaurants. This is consistent with the broader restaurants sector.

Over the five years to 2014, concentration has increased slightly. As unprofitable operators have exited the industry, survivors have captured a larger portion of demand, increasing their presence in the Pizza Restaurants industry. Most of the industry’s largest operators have also grown by successfully introducing new products and expanding their marketing and promotional activities.

Competitive LandscapeMarket Share Concentration | Key Success Factors | Cost Structure Benchmarks Basis of Competition | Barriers to Entry | Industry Globalization

Level Concentration in this industry is Low

IBISWorld identifies 250 Key Success Factors for a business. The most important for this industry are:


Competitive Landscape

Cost Structure Benchmarkscontinued

customers from purchasing pizza. However, over the past five years, pizza operators have been able to charge higher prices due to renewed demand, especially for gourmet products that carry higher prices. The average industry profit margin will remain similar over the next five years as intense competition continues. The industry’s major players may obtain higher margins due to the considerable supply chain advantages they have.

PurchasesPurchases (or the cost of goods sold) make up the largest expense category for industry participants. Food and beverages are usually purchased from wholesalers, particularly from those that can guarantee both prompt delivery and quality foodstuffs. Fluctuations in the cost of food inputs can significantly impact industry revenue and profit. In the short term, many cost increases

cannot be passed onto the consumer or client. Therefore, menus, portion sizes and other inputs into food service have to be continuously monitored. The other major source of inefficiency is waste due to fluctuations in demand, an oversupply of meals or excess ingredients that cannot be used and subsequently spoil. The industry’s largest players can take advantage of volume purchasing of food and supplies, leading to lower purchase costs. Food inputs, particularly fresh meat, have increased over the past five years due to increased global demand, however, as a proportion of industry revenue, this cost segment has remained relatively unchanged.

WagesLabor is used for a variety of tasks in a pizza restaurant business, including making pizza, taking orders, maintaining premises and managing day-to-day

Sector vs. Industry Costs

■ Profi t■ Wages■ Purchases■ Depreciation■ Marketing■ Rent & Utilities■ Other

Average Costs of all Industries in sector (2014)

Industry Costs (2014)

0

20

40

60

Perc

enta

ge o

f rev

enue

80

100 7.1

17.2

7.62.8 4.2

39.0

22.2

7.6

10.66.84.7

2.5

35.4

32.4




Barriers to Entry Barriers to entry into the Pizza Restaurants industry are moderate, but increasing. Players that want to enter into the industry can do so by opening a

franchise under one of the major companies’ brands. Franchise operations allow for lower barriers to entry than starting an operation from the ground

Basis of Competition Pizza restaurants compete on the basis of price, although most large chains have set their prices and promotions to be competitive with each other. Restaurants in this industry also compete against each other on the basis of location, product offerings (e.g. toppings, additional meal options, beverages), food quality and, to a lesser extent, ambience and hospitality.

Operators must know their position in the industry and deliver products that meet customers’ expectations. For example, a budget-friendly pizza restaurant cannot compete against a gourmet pizza parlor due to the variation in price points, food quality, service and product range.

Location is one of the most important competitive factors for industry players. A prime location is one that allows for easy pick-up options, short driving radius

to major markets and a short distance between food suppliers and outlets. The location can help to improve restaurant visibility, generate higher revenue, cut costs and maximize profit.

External competitionPizza restaurants experience competition from alternative retailers of pizza. Grocery stores with hot food counters (like Whole Foods) sell cooked pizza. Mass merchandisers like Costco, Walmart and Target also retail ready-to-eat pizza, posing a competitive threat to industry operators. Furthermore, frozen pizza options purchased from supermarkets, grocery stores and mass merchandisers can also be substituted for pizza purchased from restaurants. Customers value the convenience of the pizza location and its affordability.

Cost Structure Benchmarkscontinued

activities. Over the past five years, wage costs have declined as a share of revenue. Operators’ efforts to cut costs have come in the form of reducing their labor forces. Additionally, the move toward automation has reduced the number of jobs available at the typical pizza restaurant. Customers can now place an order via the internet instead of calling the restaurant.

Other costsPizza restaurants also incur relatively high rent and utilities costs. Rent can vary between establishments, with quick-service locations paying lower amounts because their total square footage is less than formal sit-down

restaurants. The energy required to power a pizza oven can also present a significant cost. This category has declined slightly as a share of revenue because rent and utilities do not fluctuate drastically, so as revenue has increased, costs have declined.

Other costs include depreciation, marketing and insurance costs. Marketing expenses have increased over the past five years as operators have focused on making their brands recognizable in a saturated industry. For example, major player Domino’s states in its most recent annual report that one of its main business strategies is to increase the visibility of its brands through marketing campaigns.

Level & Trend Competition in this industry is High and the trend is Increasing



Industry Globalization

Globalization in the Pizza Restaurants industry is low. No international trade occurs at this level and all of the major players are domestically owned. The majority of these players’ sales come from domestic operations, although their presence in international markets is expanding. Subdued demand domestically – due to the saturated nature of the industry and a weak economic environment – have encouraged players to increase their efforts to expand abroad. For example, major player Pizza Hut , is earning an increasing portion of its

revenue from foreign markets, most significantly from China. China is emerging as a target market because of the country’s rising per capita income and its population’s taste for American food.

Global expansion is anticipated to continue over the next five years. Global expansion offers operators the opportunity to heighten the pace of revenue, employment and profit growth. Less direct competition in many developing and high-growth countries allows industry operators to enter into the pizza restaurant business abroad.

Barriers to Entrycontinued

up. Franchises can lease premises and equipment, furniture and fittings from the parent company, which lowers operating costs and can help to minimize some of the risks of running a brand-new business. Parent companies also provide training to their franchisees to ensure smooth operations. Individual locations are responsible for managing their day-to-day activities.

Industry concentration is low, with the top four operators holding less than 40.0% of the market share. The largest industry player accounts for only 15.3% of aggregate revenue. These shares indicate that opportunities for locally focused pizza restaurants are still available.

Industry regulations can pose a small barrier to entry since potential

operators must comply with health and safety laws, food-service licensing requirements, liquor licensing requirements and employee payments and benefits laws; however, these are not insurmountable obstacles for entrants.

Barriers to Entry checklist Level

Competition HighConcentration LowLife Cycle Stage MatureCapital Intensity LowTechnology Change LowRegulation & Policy MediumIndustry Assistance None


Level & Trend Globalization in this industry is Low and the trend is Increasing

Level & Trend Barriers to Entry in this industry are Medium and Increasing


Player Performance Pizza Hut is a fully owned subsidiary of Yum! Brands, a Louisville, KY-based conglomerate that is one of the world’s largest franchisers of fast food restaurants. Yum! Brands also operates Taco Bell and Kentucky Fried Chicken, for a total of about 40,000 company-owned, franchised and licensed locations worldwide. Pizza Hut was founded in 1958 and opened its first franchise a year later. The company has been through a series of ownership changes and was once owned by food and beverage corporation, PepsiCo, before being purchased by Yum! Brands in 1997.

Pizza Hut has nearly 15,000 restaurants, about half of which are in the United States. Similar to its competitors, the company focuses on a franchise model, with over 90.0% of Pizza Hut restaurants operating under franchise or license agreements. Pizza Hut’s menu features a range of pizzas, offering a variety of toppings suited to local

preferences and tastes. Many Pizza Huts also offer pasta and chicken wings, primarily under the WingStreet brand.

Pizza Hut built its reputation as a brand known for its casual dine-in pizza restaurants. However, over the past five years, recognizing changing consumer preferences, Pizza Hut has focused on developing smaller restaurants specializing in delivery and carryout. The company began building carryout units in 1988 and intensified this strategy, building over 600 Delco (company shorthand for Delivery and Carry Out) stores since 2009. Pizza Hut has also focused on emerging economies over the past five years due to a saturated US market. The company now has over 1,000 restaurants in China and over 300 units in India.

Financial performanceOver the five years to 2014, Pizza Hut’s US system-wide sales are expected to

Major CompaniesPizza Hut Inc. | Domino’s IncLittle Ceasar’s | Papa John’s International Inc. | Other Companies

60.4%Other

Pizza Hut Inc. 15.3%

Domino’s Inc 9.7%

Little Ceasar’s 8.1%

Papa John’s International Inc. 6.5%


Major players(Market share)

Pizza Hut Inc. (US system-wide sales) – fi nancial performance*

YearSales

($ million) (% change)Operating Income

($ million) (% change)

2009 5,000.0 N/C 552.5 N/C

2010 5,400.0 8.0 621.0 12.4

2011 5,500.0 1.9 665.5 7.2

2012 5,700.0 3.6 929.1 39.6

2013 5,806.0 1.9 981.2 5.6

2014 5,922.0 2.0 1,000.8 2.0

*EstimatesSOURCE: NATION’S RESTAURANT NEWS

Pizza Hut Inc. Market share: 15.3%


Major Companies

Player Performance Domino’s Pizza has its roots in Ypsilanti, MI, when the first store was opened in 1960. Since then, the company has grown to nearly 10,000 company-owned and franchised locations worldwide. Domino’s operates in all 50 states domestically and has locations in more than 70 countries; furthermore, it is the second largest pizza company in the world after Pizza Hut based on number of units and retail sales. Domino’s sells over 1.5 million pizzas globally each day

Domino’s sales are primarily generated through its pizza delivery business and delivering its food in a timely manner. As such, the company focuses on securing its position within the Pizza Restaurants industry through providing convenient store locations and an efficient supply chain. This move also enhances the company’s carryout business. The company’s business model includes a

store design with relatively low capital requirements when compared with other restaurant concepts. Domino’s current strategy also includes expanding its global presence to take advantage of emerging markets outside of the United States.

Domino’s menu varies by region, but is primarily focused on Italian-American entrees and side dishes. The company’s menu has undergone a period of rapid change over the past five years. In 2010, Domino’s changed its pizza recipe, making significant changes in the dough, sauce and type of cheese used. The company also launched artisan-style pizzas in 2011 and added handmade pan pizza to their menu in 2012. Dominos also removed the word “Pizza” from its logo in 2012 to emphasize its nonpizza products, such as pasta, chicken, bread bowls, desserts and oven-baked sandwiches.

Player Performancecontinued

increase 3.4% per year on average to $5.9 billion. After stagnating during the recession, the brand’s fortunes have been rejuvenated by a shift in focus toward more delivery and carryout stores, which is increasingly becoming the method consumers prefer when consuming pizza. Pizza Hut has also pursued a “Pizza and More” menu

strategy in its traditional dine-in segment in order to capture higher margins on a broader range of items such as desserts, salads and chicken wings. Pizza Hut has outperformed the broader Pizza Restaurants industry over the past five years, while experiencing moderately slower growth than its main chain competitors.

Domino’s Pizza (US system-wide sales) – fi nancial performance*

YearSales



2009 3,097.1 N/C 374.7 11.7

2010 3,320.1 7.2 415.0 10.8

2011 3,442.9 3.7 451.0 8.7

2012 3,600.0 4.6 622.8 38.1

2013 3,689.6 2.5 660.4 6.0

2014 3,762.0 2.0 673.4 2.0


Domino’s Inc Market share: 9.7%


Major Companies

Player Performance Little Caesar’s is a pizza chain headquartered in Detroit, and is estimated to be the third largest in the United States based on both number of restaurants and total network sales. The company operates and franchises more than 3,600 carryout pizza restaurants throughout the United States and in about 10 other countries.

The restaurant generally offers a variety of original and deep-dish pizza along with cheese bread, salads and sandwiches. Most restaurants do not offer dine-in seating and about 80.0% of the chain’s outlets are run by franchisees. The company’s main strategy is selling quality large pizzas for $5. The company’s ability to retain customers is mainly due to its emphasis on leveraging costs rather than expanding its product line.

Little Caesar’s has unveiled a range of new product innovations over the past five years with the aim of capturing market share. The company recently doubled the size of its research and development staff to 20 with the aim of bringing new, innovative products to market. In 2013, the company rolled out Detroit-style pan pizza, marketed as Deep!Deep! Dish, nationwide. This pizza style has been on the company’s Michigan-based stores menus for years. Also, in 2014, the company began targeting the lunch crowd, partnering with Pepsi to provide a $5 pizza and soda combo, marketed as a Hot-N-Ready Lunch Combo. The combo, which consists of four pieces of deep dish pepperoni pizza and a 20-ounce drink, is designed to be eaten on-the-go and is aimed at


Financial performanceDomino’s is estimated to earn $3.8 billion in US system-wide sales in 2014, representing annualized growth of 4.0% over the past five years. Domino’s store count has registered moderate growth; however, its sales per store have increased at an impressive rate, due to the increased popularity and higher price points of its redesigned menu. The company’s artisan pizzas that have

higher quality ingredients and garner higher profit margins have been particularly popular. Domino’s sophisticated web-based order and delivery system has also helped the company’s bottom line as it now derives over 40.0% of its sales from digital orders. Domino’s estimates that its share of the pizza delivery market has grew from 23.0% in 2013 from 19.0% in 2008 on the back of its superior technology.

Little Ceaser’s (US system-wide sales) – fi nancial performance*

YearSales



2009 1,879.7 N/C 227.4 N/C

2010 2,130.0 13.3 266.3 17.1

2011 2,450.0 15.0 321.0 20.5

2012 2,900.0 18.4 501.7 56.3

2013 3,018.4 4.1 540.3 7.7

2014 3,137.1 3.9 561.5 3.9


Little Ceasar’s Market share: 8.1%


Major Companies

Player Performance Founded in 1985, Papa John’s International is one of the largest pizza restaurant chains in the United States. The company operates and franchises pizza delivery and carryout, and in certain international markets, dine-in and restaurant-based delivery restaurants under the trademark Papa John’s. The company operates in all 50 states and in 34 countries.

Papa John’s strategy is to provide pizza and other side items such as breadsticks, cheese sticks, chicken wings and desserts, made of quality ingredients on a consistent basis. The company focuses on operating efficiently with reliable distribution systems, effective restaurant layouts and superior customer service. The company’s quality control center system takes advantage of volume purchasing of food and supplies and

provides consistency in fresh dough production. Papa John’s has a marketing strategy based on both national and local components, including national advertising via television, print and direct mail. The company’s marketing strategy has increasingly been focused towards online and digital marketing in response to increasing consumer use of online and mobile technology. Papa John’s has pursued limited merger and acquisition activity over the past five years.

Financial performanceIn the five years to 2014, Papa John’s US system-wide sales are expected to grow 3.9% per year on average to $2.5 billion. This growth rate is slightly higher than the industry average, and similar to that of its main competitors Pizza Hut and Domino’s. Papa John’s is expected to open more than


competing with quick-service fast food burger, taco and chicken restaurants.

Financial performanceLittle Caesars is privately owned; therefore, publicly available financial information is sparse. However, based on figures provided by Nation’s Restaurants

News, IBISWorld estimates the company will generate total network sales of $3.1 billion in 2014, representing annualized growth of 10.8% over the past five years. The company has significantly outpaced the growth of the broader industry and is currently one of the fastest growing fast food chains in the nation.

Papa John’s International (US system-wide sales) – fi nancial performance*

YearSales



2009 2,067.0 -3.5 250.1 N/C

2010 2,097.0 1.5 262.1 4.8

2011 2,204.0 5.1 288.7 10.1

2012 2,400.0 8.9 415.2 43.8

2013 2,450.4 2.1 438.6 5.6

2014 2,501.9 2.1 447.8 2.1


Papa John’s International Inc. Market share: 6.5%


Major Companies

Other Companies Although there are a few major players, the majority of this industry is made up of independent pizza parlors and pizza delivery stores. According PMQ Pizza Magazine, about 53.2% of US pizza stores are small independently owned restaurants. These players include sit-down pizza restaurants that sell higher-end pizzas and related goods, such as

Uno’s, Giordanos and Gino’s East, which are all known for their deep-dish pizza. It also includes small pizza shops that rely on delivery and carryout for their sales. In the next five years, IBISWorld expects more high-end small pizza restaurants to open to cater to consumers who demand food made of natural and organic goods and can satisfy a complex taste palate.


500 new stores over the five-year period and has also experienced moderate growth in sales per store. The average store profit

margin has also improved slightly, despite periods of rising input costs, particularly for cheese, wheat and meats.


Capital Intensity Capital intensity in the Pizza Restaurants industry is low. For every dollar spent on labor, the average operator allocates $0.08 toward the use and replacement of capital. Labor is used for most activities performed in the typical pizza restaurant, from taking orders to making the pizza, to maintaining premises and managing its day-to-day actions. As such, labor makes up a much larger component of revenue than depreciation. Operators spend on depreciation in the form of computers and software used to make and track orders, cash registers and equipment used to bake the pizzas.

Capital intensity has grown over the five years to 2014 because technological advancements have enabled customers to

order their pizzas over the internet. This advancement, in particular, has limited the number of jobs available in a given

Operating ConditionsCapital Intensity | Technology & Systems | Revenue VolatilityRegulation & Policy | Industry Assistance

Tools of the Trade: Growth Strategies for Success


Labo

r Int

ensi

veCapital Intensive

Change in Share of the Economy

New Age Economy

Recreation, Personal Services, Health and Education. Firms benefi t from personal wealth so stable macroeconomic conditions are imperative. Brand awareness and niche labor skills are key to product differentiation.

Traditional Service Economy

Wholesale and Retail. Reliant on labor rather than capital to sell goods. Functions cannot be outsourced therefore fi rms must use new technology or improve staff training to increase revenue growth.

Old Economy

Agriculture and Manufacturing. Traded goods can be produced using cheap labor abroad. To expand fi rms must merge or acquire others to exploit economies of scale, or specialize in niche, high-value products.

Investment Economy

Information, Communications, Mining, Finance and Real Estate. To increase revenue fi rms need superior debt management, a stable macroeconomic environment and a sound investment plan.

Chain Restaurants

Frozen Food Wholesaling

Single Location Full-Service Restaurants

Dairy WholesalingFast Food Restaurants

Pizza Restaurants

Capital intensity

0.5

0.0

0.1

0.2

0.3

0.4

SOURCE: WWW.IBISWORLD.COMDotted line shows a high level of capital intensity

Capital units per labor unit

Pizza Restaurants

Accommodation and Food Services

Economy

Level The level of capital intensity is Low


Operating Conditions

Technology& Systems

Pizza restaurants regularly leverage technology to reduce labor and food costs to increase sales. They also use it to improve business processes, support growth, maintain current operations and improve meal experiences.

Quality of serviceThe majority of technological adoption by the industry aims to address new systems and processes that are designed to promote quality service and reduce customer wait time. The large pizza chains have invested in sophisticated web-based systems that let customers order and pay for deliveries quickly via their computer, tablet or smartphone. Customers can create their own online accounts, saving personal preferences for toppings and delivery instructions. This makes the ordering process seamless and encourages repeat business. Some operators, including Domino’s, Papa John’s and Pizza Hut, now derive more than 40.0% of their sales from orders made over the web. Meanwhile, independent pizza shops lack the capital or technological know-how to compete with this technology and have flocked to online food ordering services like GrubHub, Seamless, and EatStreet, which usually take a cut of online sales, to bridge the digital ordering divide. Due to these technological advantages, the large chains have increased their market share of the industry over the past five years, especially among younger demographics that are more likely to order pizza online.

The increasing sophistication of the internet and mobile technology have also allowed industry players to reach wholesalers and suppliers online. This has allowed for increased efficiencies in coordinating supplies and other pre-prepared food items.

Larger chains also use data networks to send and receive business data to and from restaurants to monitor and analyze all aspect of the business. Through data analytics, operational efficiencies can be identified and improved on throughout a company’s network of stores.

Point of sale systemsMost operators now have point-of-sale systems in stores to speed up service, which helps lead to larger purchases on average and cuts down on labor costs. Retailers are increasingly accepting credit card payments through devices such as Square, which connect directly to the store’s tablet device and facilitates ease of transaction. Customers can sign with their finger on a touchscreen rather than with a pen and have the receipt emailed to them. Some restaurants have adopted mobile technology, allowing for the ordering of coffees and food items via mobile applications and online.

Social mediaTechnology has also aided pizza restaurants with marketing. Social media such as Facebook, Twitter and Instagram allows savvy operators to connect directly with customers and tailor their brand’s message to target fragmented consumer segments.

Capital Intensitycontinued

pizza establishment. Wages have declined as a share of revenue over the period. Over the next five years, this trend is expected to continue as operators

increasingly place value on efficiency gains and cost minimization, maintaining a focus on quick-service restaurants with less demand for labor.

Level The level of Technology Change is Low



Regulation & Policy The Pizza Restaurants industry is subject to a medium level of regulation that is increasing. There are regulations covering a range of areas, from food safety and standards, to labor conditions and franchising requirements. Most regulation is enacted and enforced at the state level, but many federal laws also apply.

Food safety and standardsThe industry is subject to laws and regulations relating to the preparation and sale of food, including regulations regarding product safety, nutritional content and menu labeling. The main agency responsible for providing guidance and regulation is the US Food and Drug Administration’s (FDA). The FDA’s Model Food Code, which is a

best-practice guide to food handling and presentation, applies to this industry and is updated each year. The FDA Nutritional Value applies as well. Since 1996, the FDA regulations have set standards for nutritional values of individual foods and meals. If claims like “low fat” or “heart healthy” are on a menu, an owner must be able to demonstrate to officials that there is a reasonable basis for the claim. For instance, the meal may be based on a recipe from a health association or a recognized dietary group. Complete nutritional information, however, is not required to be on menus.

The Affordable Care Act requires restaurant companies to disclose calorie information on their menus. The Food and Drug Administration has proposed

Revenue Volatility The Pizza Restaurants industry revenue volatility level is low-to-moderate. Demand primarily relies on consumer spending and Americans’ preferences toward pizza. Therefore when consumer spending declined during the recession, revenue dropped. However it quickly recovered as consumer spending increased when the economy rebounded.

Consumer trends toward eating healthy foods directly affects revenue volatility. As Americans steer toward healthier foods, some pizza delivery services have lost sales. Upscale pizza places with a focus on gourmet menu items have experienced more demand as they use more quality ingredients and add more healthy food options on their menus.


Volatility vs Growth

Reve

nue

vola

tility

* (%

)

1000

100

10

1

0.1

Five year annualized revenue growth (%)–30 –10 10 30 50 70

Hazardous

Stagnant

Rollercoaster

Blue Chip

* Axis is in logarithmic scale

Pizza Restaurants

A higher level of revenue volatility implies greater industry risk. Volatility can negatively affect long-term strategic decisions, such as the time frame for capital investment.

When a fi rm makes poor investment decisions it may face underutilized capacity if demand suddenly falls, or capacity constraints if it rises quickly.

Level The level of Volatility is Low

Level & Trend The level of Regulation is Medium and the trend is Increasing



Regulation & Policycontinued

rules to implement this provision that would require restaurants to post the number of calories for most items on menus or menu boards and to make available more detailed nutrition information upon request.

Labor relationsThe industry employs a high number of young and low-skilled workers at hourly rates and, therefore, is subject to minimum wage and employee benefits regulations. Workers in the US are entitled to be paid no less than the statutory minimum wage, which as of 2014 was $7.25 per hour. Each state also formulates and regulates its own minimum wage, with some states implementing rates higher than the federal rate.

The implementation of the Affordable Care Act over the next five years will have a minor impact on the industry. Employers with 50 or more employees that work 30 hours a week will be required to provide healthcare coverage or pay a fine. However, the large majority of firms in the industry employ less than 50 staff. Most major operators are currently reviewing the potential impacts of the new law on their businesses.

Smoking bansSmoking laws are generally enforced at the state level as the US Congress has not attempted to enact any nationwide federal smoking ban. Smoking is banned in restaurants, bars and non-hospitality workplaces in many states and some local jurisdictions ban smoking in outdoor

areas. Each jurisdiction has developed legislation separately; however, most laws are relatively consistent. There are some differences pertaining to the circumstances in which ventilated smoking rooms are permitted and the distance smoking is banned outside a building. California was the first state to enact a statewide ban on smoking, with most other states imposing a ban in the mid to late 2000s.

Franchising lawsA large proportion of industry establishments are operated under franchise agreements. There are both federal and state laws governing franchising, which vary from state to state. Franchising is regulated at the federal level by the US Federal Trade Commission and applied in any region within the United States. At the state level, various state agencies regulate franchises and laws vary between states. A state’s franchise laws usually only apply if the sale of a franchise is made in the state and the business is located in the state. Laws generally fall under three categories: disclosure laws, registration laws and relationship laws.

Under the FTC Franchise Rule there are three elements of a franchise: the franchise has a trademark under which the franchisee is given the right to distribute goods and services; the franchisor has significant control of or provides significance to the franchisee’s method of operation; and the franchisee is required to pay the franchisor at least $500 before opening for business.



Although the Pizza Restaurants industry receives no formal assistance in the form of government aid or monetary compensation, there are industry associations that help the industry as a whole. For example, the National

Restaurant Association provides industry news, research, sponsoring events, networking opportunities, and representation, among other things. There are also organizations that provide the same services on a more local level.

Industry Assistance

Level & Trend The level of Industry Assistance is None and the trend is Steady


Key StatisticsRevenue

($m)

Industry Value Added

($m)Establish-

ments Enterprises Employment Exports ImportsWages ($m)

Domestic Demand

Consumer Spending ($ trillion)

2005 36,863.0 15,482.5 69,844 41,574 866,066 -- -- 11,533.0 N/A 9,527.82006 37,102.4 15,731.4 70,111 41,242 936,167 -- -- 11,639.7 N/A 9,814.92007 41,400.0 17,887.8 70,875 41,691 974,750 -- -- 13,169.9 N/A 10,035.52008 40,413.0 17,175.5 67,554 39,822 931,531 -- -- 12,908.9 N/A 9,999.22009 37,644.5 15,697.8 64,951 38,292 810,648 -- -- 12,344.0 N/A 9,842.92010 38,020.2 15,874.1 66,057 38,944 815,257 -- -- 12,432.6 N/A 10,035.92011 38,374.8 16,117.4 65,283 37,314 841,540 -- -- 12,548.6 N/A 10,291.32012 38,328.0 16,174.4 71,856 38,403 885,912 -- -- 12,494.9 N/A 10,517.62013 38,356.8 16,263.3 71,387 38,083 909,747 -- -- 12,466.0 N/A 10,723.02014 38,683.2 16,456.1 72,101 38,083 929,707 -- -- 12,549.1 N/A 11,017.02015 39,495.6 16,823.3 73,183 38,272 958,255 -- -- 12,755.3 N/A 11,326.62016 40,167.0 17,117.4 74,500 38,575 980,591 -- -- 12,940.0 N/A 11,659.42017 40,930.2 17,518.1 75,916 38,919 994,936 -- -- 13,161.7 N/A 12,023.22018 41,748.8 17,897.7 77,282 39,227 1,016,829 -- -- 13,443.1 N/A 12,345.52019 42,625.5 18,273.6 78,209 39,304 1,029,031 -- -- 13,725.4 N/A 12,642.8

IVA/Revenue (%)

Imports/ Demand

(%)

Exports/ Revenue

(%)

Revenue per Employee

($’000)Wages/Revenue

(%)Employees

per Est.Average Wage

($)

Share of the Economy

(%)2005 42.00 N/A N/A 42.56 31.29 12.40 13,316.54 0.112006 42.40 N/A N/A 39.63 31.37 13.35 12,433.36 0.112007 43.21 N/A N/A 42.47 31.81 13.75 13,511.05 0.122008 42.50 N/A N/A 43.38 31.94 13.79 13,857.72 0.122009 41.70 N/A N/A 46.44 32.79 12.48 15,227.32 0.112010 41.75 N/A N/A 46.64 32.70 12.34 15,249.92 0.112011 42.00 N/A N/A 45.60 32.70 12.89 14,911.47 0.112012 42.20 N/A N/A 43.26 32.60 12.33 14,104.00 0.102013 42.40 N/A N/A 42.16 32.50 12.74 13,702.71 0.102014 42.54 N/A N/A 41.61 32.44 12.89 13,497.91 0.102015 42.60 N/A N/A 41.22 32.30 13.09 13,310.97 0.102016 42.62 N/A N/A 40.96 32.22 13.16 13,196.12 0.102017 42.80 N/A N/A 41.14 32.16 13.11 13,228.69 0.102018 42.87 N/A N/A 41.06 32.20 13.16 13,220.61 0.102019 42.87 N/A N/A 41.42 32.20 13.16 13,338.18 0.10

Figures are inflation-adjusted 2014 dollars.

Revenue (%)

Industry Value Added

(%)

Establish-ments

(%)Enterprises

(%)Employment

(%)Exports

(%)Imports

(%)Wages

(%)

Domestic Demand

(%)

Consumer Spending

(%)2006 0.6 1.6 0.4 -0.8 8.1 N/A N/A 0.9 N/A 3.02007 11.6 13.7 1.1 1.1 4.1 N/A N/A 13.1 N/A 2.22008 -2.4 -4.0 -4.7 -4.5 -4.4 N/A N/A -2.0 N/A -0.42009 -6.9 -8.6 -3.9 -3.8 -13.0 N/A N/A -4.4 N/A -1.62010 1.0 1.1 1.7 1.7 0.6 N/A N/A 0.7 N/A 2.02011 0.9 1.5 -1.2 -4.2 3.2 N/A N/A 0.9 N/A 2.52012 -0.1 0.4 10.1 2.9 5.3 N/A N/A -0.4 N/A 2.22013 0.1 0.5 -0.7 -0.8 2.7 N/A N/A -0.2 N/A 2.02014 0.9 1.2 1.0 0.0 2.2 N/A N/A 0.7 N/A 2.72015 2.1 2.2 1.5 0.5 3.1 N/A N/A 1.6 N/A 2.82016 1.7 1.7 1.8 0.8 2.3 N/A N/A 1.4 N/A 2.92017 1.9 2.3 1.9 0.9 1.5 N/A N/A 1.7 N/A 3.12018 2.0 2.2 1.8 0.8 2.2 N/A N/A 2.1 N/A 2.7

2019 2.1 2.1 1.2 0.2 1.2 N/A N/A 2.1 N/A 2.4

Annual Change

Key Ratios

Industry Data



Jargon & Glossary

BARRIERS TO ENTRY High barriers to entry mean that new companies struggle to enter an industry, while low barriers mean it is easy for new companies to enter an industry.

CAPITAL INTENSITY Compares the amount of money spent on capital (plant, machinery and equipment) with that spent on labor. IBISWorld uses the ratio of depreciation to wages as a proxy for capital intensity. High capital intensity is more than $0.333 of capital to $1 of labor; medium is $0.125 to $0.333 of capital to $1 of labor; low is less than $0.125 of capital for every $1 of labor.

CONSTANT PRICES The dollar figures in the Key Statistics table, including forecasts, are adjusted for inflation using the current year (i.e. year published) as the base year. This removes the impact of changes in the purchasing power of the dollar, leaving only the “real” growth or decline in industry metrics. The inflation adjustments in IBISWorld’s reports are made using the US Bureau of Economic Analysis’ implicit GDP price deflator.

DOMESTIC DEMAND Spending on industry goods and services within the United States, regardless of their country of origin. It is derived by adding imports to industry revenue, and then subtracting exports.

EMPLOYMENT The number of permanent, part-time, temporary and seasonal employees, working proprietors, partners, managers and executives within the industry.

ENTERPRISE A division that is separately managed and keeps management accounts. Each enterprise consists of one or more establishments that are under common ownership or control.

ESTABLISHMENT The smallest type of accounting unit within an enterprise, an establishment is a single physical location where business is conducted or where services or industrial operations are performed. Multiple establishments under common control make up an enterprise.

EXPORTS Total value of industry goods and services sold by US companies to customers abroad.

IMPORTS Total value of industry goods and services brought in from foreign countries to be sold in the United States.

INDUSTRY CONCENTRATION An indicator of the dominance of the top four players in an industry. Concentration is considered high if the top players account for more than 70% of industry revenue. Medium is 40% to 70% of industry revenue. Low is less than 40%.

INDUSTRY REVENUE The total sales of industry goods and services (exclusive of excise and sales tax); subsidies on production; all other operating income from outside the firm (such as commission income, repair and service income, and rent, leasing and hiring income); and capital work done by rental or lease. Receipts from interest royalties, dividends and the sale of fixed tangible assets are excluded.

INDUSTRY VALUE ADDED (IVA) The market value of goods and services produced by the industry minus the cost of goods and services used in production. IVA is also described as the industry’s contribution to GDP, or profit plus wages and depreciation.

INTERNATIONAL TRADE The level of international trade is determined by ratios of exports to revenue and imports to domestic demand. For exports/revenue: low is less than 5%, medium is 5% to 20%, and high is more than 20%. Imports/domestic demand: low is less than 5%, medium is 5% to 35%, and high is more than 35%.

LIFE CYCLE All industries go through periods of growth, maturity and decline. IBISWorld determines an industry’s life cycle by considering its growth rate (measured by IVA) compared with GDP; the growth rate of the number of establishments; the amount of change the industry’s products are undergoing; the rate of technological change; and the level of customer acceptance of industry products and services.

NONEMPLOYING ESTABLISHMENT Businesses with no paid employment or payroll, also known as nonemployers. These are mostly set up by self-employed individuals.

PROFIT IBISWorld uses earnings before interest and tax (EBIT) as an indicator of a company’s profitability. It is calculated as revenue minus expenses, excluding interest and tax.

Industry Jargon

IBISWorld Glossary

FOOD AND DRUG ADMINISTRATION (FDA) A federal agency responsible for protecting public health through regulation and oversight of food and other consumable products.

PAR-BAKED Bread or dough that is partially baked and then frozen for storage.

QUICK-SERVICE RESTAURANT A restaurant that offers either carryout or delivery services as opposed to sit-down service.

SAME-STORE SALES A retail measure used to assess the true performance of retail outlets by taking out the effect of new store openings and only looking at sales growth of existing stores.


Jargon & Glossary

VOLATILITY The level of volatility is determined by averaging the absolute change in revenue in each of the past five years. Volatility levels: very high is more than ±20%; high volatility is ±10% to ±20%; moderate volatility is ±3% to ±10%; and low volatility is less than ±3%.

WAGES The gross total wages and salaries of all employees in the industry. The cost of benefits is also included in this figure.

IBISWorld Glossary continued

Disclaimer

This product has been supplied by IBISWorld Inc. (‘IBISWorld’) solely for use by its authorized licensees strictly in accordance with their license agreements with IBISWorld. IBISWorld makes no representation to any other person with regard to the completeness or accuracy of the data or information contained herein, and it accepts no responsibility and disclaims all liability (save for liability which cannot be lawfully disclaimed) for loss or damage whatsoever suffered or incurred by any other person resulting from

the use of, or reliance upon, the data or information contained herein. Copyright in this publication is owned by IBISWorld Inc. The publication is sold on the basis that the purchaser agrees not to copy the material contained within it for other than the purchasers own purposes. In the event that the purchaser uses or quotes from the material in this publication – in papers, reports, or opinions prepared for any other person – it is agreed that it will be sourced to: IBISWorld Inc.

At IBISWorld we know that industry intelligence is more than assembling factsIt is combining data with analysis to answer the questions that successful businesses askIdentify high growth, emerging & shrinking marketsArm yourself with the latest industry intelligenceAssess competitive threats from existing & new entrantsBenchmark your performance against the competitionMake speedy market-ready, profit-maximizing decisions

Who is IBISWorld?We are strategists, analysts, researchers, and marketers. We provide answers to information-hungry, time-poor businesses. Our goal is to provide real world answers that matter to your business in our 700 US industry reports. When tough strategic, budget, sales and marketing decisions need to be made, our suite of Industry and Risk intelligence products give you deeply-researched answers quickly.

IBISWorld MembershipIBISWorld offers tailored membership packages to meet your needs.

Copyright 2014 IBISWorld Inc

www.ibisworld.com | 1-800-330-3772 | [email protected]

ibisworld industry report od4320 pizza … pizza restaurants in the us april 2014 1 ibisworld...

Documents