BUSINESS/ECONOMY

Chasing pizza profits

PATRICIA CHISHOLM August 8 1988
BUSINESS/ECONOMY

Chasing pizza profits

PATRICIA CHISHOLM August 8 1988

Chasing pizza profits

BUSINESS

ECONOMY

Peddling pizza may sound dull, but it often attracts the ambitious and the offbeat. Consider Thomas Monaghan, president of Ann Arbor, Mich.-based Domino’s Pizza Inc. Monaghan is planning an office building that will be a 35-storey Leaning Tower of Pizza. At the same time, he plans to assault the Toronto pizza market with 81 new outlets. That will put him in head-to-head competition with Canadian pizza king Michael Overs, chairman of Pizza Pizza Ltd. Another would-be architect, Overs helped design his downtown Toronto firm’s office, which includes a pop-art pizza sculpture. And Overs will also have to contend with James Treliving, a former RCMP officer who is president of Richmond, B.C.based Boston Pizza International Inc., a full-menu chain that is opening a new front in the rising pizza war by franchising in the same area.

The market for fast food is worth $5.7 billion annually in Canada—and is booming. Pizza is the fastest-growing segment of that market, and the rush to meet the spiralling demand has companies racing to open in large urban areas. Their strategies vary. Established pizza franchises, including Pizza Pizza, plan to attack their competition with aggressive expansions. A showdown is also developing between the so-called sit-down market—fullfledged restaurants that offer pizza, pasta and other selections—and takeout and home-delivered pizza. Restaurant chains, including Boston Pizza and Mother’s Restaurants Ltd., owned by M-Corp. Inc. of Montreal, have traditionally catered to young families, while takeout or home-delivered pizza appeals to young singles.

But for competitors who specialize in pizza delivery, the threat from pizza restaurants also looms large. Pizza is simply pizza in most consumers’ minds. Said Rob Hindley, director of marketing for Pizza Pizza: “They are both pizza-eating occasions. People who ate pizza in a restaurant one night won’t order it at home the next night.” Clearly, there is at least some overlap in the markets served by restaurant chains and franchises that specialize in home delivery. As more and more fast-food outlets open across the country, that overlap could become

an important battleground in the escalating competition for the public’s pizza dollars.

It is difficult to win ground in the so-called pizza wars. To defend their gains, pizza sellers have launched extraordinary advertising campaigns to ensure that pizza lovers are aware of their products. One new chain has even

incorporated its chief selling strategy into its name: Weston, Ont.-based 241 Pizza Ltd. offers two pizzas for the price of one on every order. Pizza Pizza spent almost $4 million on advertising last year, much of it to promote the single rhyming telephone number (9671111) it uses for all orders in the lucrative Toronto area. And Boston Pizza, with most of its 83 outlets in Western Canada, plans to spend $1.4 million to promote itself to a national audience.

Pizza is simple, quick and cheap to make, and profit margins are healthy—usually about 20 per cent. There is also a steady trend among Canadians to eat in restaurants or order prepared food of all sorts for home delivery. According to Treliving, working mothers have contributed to the popularity of such family restaurants as Boston Pizza. He added, “After working all day, they don’t have the time or energy to cook a meal the way our mothers did.”

But that very popularity is what makes market penetration difficult for newcomers or even such established chains as Boston Pizza that are attempting to expand. Although not yet saturated, valuable markets in Vancouver, Toronto and Montreal are already heavily served by fast-food outlets. That narrows the choices for expansion-minded fast-food entrepreneurs. They either have to offer new franchises in an area that they already control, elbow their way into prime locations or introduce a new gimmick designed to catch the consumer’s attention.

And most companies find that after they have leased or bought land, built a restaurant and obtained a liquor licence, the competition factor proves dangerous. Mother’s Restaurants already operates 80 Ontario outlets that cater to the pizza dinner market. In the past two years, some of the restaurants declined in quality, and as a result, Mother’s suffered stagnant rev-

enues. But since the chain was purchased last April by M-Corp., revenues are up by about 20 per cent, according to M-Corp. vice-president Jean-Claude Baron. M-Corp. plans to spend a “significant amount” on rejuvenating the chain’s outdated image, Baron said.

Pizza Pizza, on the other hand, is planning to repeat its already proven formula. Much of its success rests on its highly promoted telephone-number-computerized ordering system and a 30-minute delivery guarantee—a strategy that has worked admirably. Pizza Pizza controls a staggering 65 per cent of the $200-million market for delivered pizza in Metropolitan Toronto.

To increase sales further, Pizza Pizza is now subdividing areas already covered by existing franchises. Sectors once serviced by one outlet will

now be covered by two or three. Hindley says that the revenues of existing franchises initially decline by $2,000 to $3,000 a week after such a subdivision. But he defended the move. Initial losses are quickly made up as the chain attracts more and more customers, Hindley said.

Pizza Pizza’s expansion plans may be part of a rearguard action to protect itself from potential new competitors. Domino’s Pizza’s plan to add 81 Toronto outlets to the three that it now owns by the end of next year will likely create even more intense competition. Like Pizza Pizza, Domino’s also specializes in delivery and offers a 30-minute guarantee.

But Pizza Pizza is a difficult, highly

organized competitor—so much so that some consumers and competitors say that its product suffers because the firm is too removed from the actual pizza-making process. A computer now records all information provided by a customer on the first call, including name, address, telephone number and credit card number.

Hindley says that Pizza Pizza is even considering an electronic tonegenerated ordering system that will eliminate the need to speak to a person when ordering over the telephone. Customers do not complain about the automation, Hindley says, but at least one competitor has launched an advertising campaign that implies Pizza Pizza’s centralized, automated image has unfavorable consequences for the quality of its pizzas.

Indeed, quality may soon become a

pressing issue for pizza purveyors. Many consumers have responded to offers from some of the so-called fullstomach pizza outlets, which offer two or even three pizzas for the price of one. Both Hindley and Treliving question the value of those bargains. Treliving even said that his Boston group has analysed those pizzas and found that the total weight of two “two-forone” pizzas is the same as one Boston pizza.

And one pizza entrepreneur has staked his whole reputation on delivering a top-of-the-line product. Joel McEwan of Joel’s Gourmet Pizza in Toronto is a Swiss-trained chef who began selling his lavishly garnished

pizzas in 1985. He predicts that his sales this year will exceed $1.2 million. McEwan promotes his fresh ingredients, unusual doughs, including rye with caraway seeds, and special sauces. Toppings are varied and unexpected—a recent offering included smoked salmon and cream cheese.

Competition seems only to have benefited pizza-eaters. From speedy home delivery, to gourmet-style, to pizza with table service, consumers now enjoy a cornucopia of choice in the ready-made pizza market. And because the number of pizza entrepreneurs increases every day, they will likely battle even more fiercely to keep their customers satisfied. Indeed, their million-dollar profits depend on it.

-PATRICIA CHISHOLM