In this time of unprecedented uncertainty, normalcy is a big deal. Perhaps that explains why pizza companies are performing stronger than the rest of the restaurant industry right now.
Pizza is the food of the Pandemic
Pizza restaurants, from independent operators to the big chains, have all experienced significant sale gains during the pandemic. While major companies like The Cheesecake Factory announced furloughs, and other companies like Union Square Hospitality announced layoffs, Domino’s, Papa John’s, Pizza Hut and Jet’s Pizza were in the midst of announcing hiring sprees yielding tens of thousands of new employees.
Pizza chains have seen significant sales gains during the pandemic. In May, Sense360 data found that year-over-year sales were down by 33% for fast casual concepts, 20% for quick-service concepts but only a mere 5% for pizzerias. At the same time pizza was also experiencing a larger per-dollar order increase versus those two segments, at 11%. Fast forward a few months on and pizza seems to just keep on delivering. Second-quarter earnings for the pizza industry are expected to be some of the strongest in history. After a couple of years of underperforming, Papa John’s shares have spiked some 55% this year; Yum Brands’ Pizza Hut, which has been battling falling sales over the past few years, has had its best sales for delivery and carry-out in over eight years, and Domino’s posted its highest second-quarter revenue ever.
Why has pizza done so well?
A confluence of factors are insulating pizza companies from much of the coronavirus-induced damage that is happening to many other eating establishments, such as…
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Delivery: Due to COVID-19, lockdown restrictions and social-distancing measures, dining in has become the new dining out. For pizza players, delivery isn’t new. They have had decades to perfect their delivery infrastructure and pizza delivery has become instinctual for customers or, as Domino’s CEO Richard Allison said in a press release, “normal.” Equally, their operating model is simple, a benefit for any company in a time of financial crisis.
For many dine-in establishments where delivery was not a key business driver pre-pandemic, many have quickly tried to adapt to provide such services in order to survive. However it hasn’t been an easy or straight forward road. Restaurant management software company Upserve found that 47% of restaurant owners surveyed said the transition to a new business model was their biggest challenge during the Covid-19 pandemic. Even restaurants that can offer socially-distant, full-service dining are relying on delivery and takeout more than ever before as business isn’t anywhere near its pre-pandemic state.
In addition, many eateries have turned to third-party aggregates to facilitate delivery – which comes with its own headaches and financial burdens, whereas the pizza segment as a whole isn’t reliant as much on such companies because it doesn’t have to be.
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Digital: Similar to delivery, pizza companies have long prioritized digital ordering. More consumers have downloaded apps and ordered digitally for delivery and curbside pickup during the pandemic. By the end of March, digital restaurant orders increased by 63%; as of July 30, digital delivery spend is up 173% year-over-year. Now that we’re living in a world where the entire industry is an off-premise business, digital orders have significant gain importance and provide an edge to those who already lead in that space. For restaurants, like pizzerias, that proactively invested in such channels prior to the outbreak, they are now reaping the benefits. “It’s highly probable that this crisis will define winners and losers by their digital proficiency since consumers may prefer the contactless delivery protocol that digital ordering offers”, David Portalatin, NPD food industry advisor and author of Eating Patterns in America.
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Value & Appeal: Pizza has always been one of America’s popular go to take-out foods to order. According to Datassential sixty-three percent of consumers sought out pizza during the pandemic, while Pizza Magazine reported that 83% of consumers were already eating pizza at least once per month prior to stay-at-home orders.
In addition, one of the more underrated but important strengths of the pizza business is its value. Their core product is geared toward groups. Those with a family of four can easily enjoy dinner for little more than $20, including the delivery fee and the tip. Few restaurant chains can match that kind of value. “One reason pizza is faring relatively well is that, on a per-person basis, pizza is high value in terms of the number of people it can feed for a low cost,” said Sense360 in a statement.
- Better Suited: One unfortunate truth is that some restaurant models and foods, like pizza are better than others when it comes to retaining existing off-premise business as they are better suited for drive-thru, carry-out and delivery. Most food isn’t made to be put in a box or sealed in plastic and bounced on the back of a scooter for 20 minutes before it gets to you – nor was it meant to be experience at home away from the restaurant setting. At the end of March, while quick service restaurants, which historically have more off-premise business, realized transaction declines of 40% , full service restaurants, which aren’t typically set up for off-premise dining, declined by 79%.
Pizza establishments are one of a few that have thrived due to COVID-19. However, as restrictions are eased over the coming weeks and months, maintaining the recent rate of sales growth may ultimately prove unrealistic. However, if companies can simply improve on what they were seeing pre-pandemic, then “that’s a home run,” Peter Saleh, Analyst at BTIG.