Price War! Price War! : Pizza Chains Follow Burger Joints’ Lead With New Deals
In their corporate war rooms and across the nation’s restaurant battlefields, three leading pizza chains are tossing their dough at a burgeoning campaign: cheaper pizza.
New value-priced products from the two biggest pizza chains--Pizza Hut and Domino’s--will escalate the war for market share among fast-food chains. Pizza chains are following the successful lead of the hamburger chains, which used combo and two-for-one deals in 1992 to post greater growth in nationwide customer traffic than the pizza segment did, for the first time in years.
In greater Los Angeles, however, pizza chains were the only fast-food chain segment to show sales growth in 1992. And despite losing some ground last year, nationwide traffic at pizza outlets has increased twice as much as at hamburger joints over the last four years.
“Pizza is the food of our time, without question,” said Harry Balzer, vice president of NPD Group Inc., a market research firm that tracks eating patterns.
“This country wants a live-in cook, and pizza is the next best thing,” he said.
Pepsico’s Pizza Hut unit remains the leader, with Little Caesar’s and Domino’s Pizza hot on its trail. Together the three carved out 48% of the $18.2-billion pizza market last year.
Sales at Pizza Hut’s nearly 7,300 U.S. units grew 35% in the last five years, in large part because of the company’s entry into the delivery arena. Domino’s, the self-proclaimed king of home delivery, saw sales decline, while sales at Little Caesar’s ballooned 54% despite the fact that it offers only carry-out service.
“The focus the last three or four years has been making pizza even easier to eat in your house,” Balzer said. “The real driving force is convenience, the ability to feed your family.”
Little Caesar’s was the first pizza chain to establish a “value niche” with its two-for-one deal. In recent years, Pizza Hut and Domino’s have responded with deep discounting of premium varieties.
Now, responding to the Little Caesar’s “Pizza! Pizza!” ad campaign and the launching of its “Big, Big Cheese” deal in March, Pizza Hut will begin an all-out counterattack Monday with Big Foot, a 21-slice, 1-by-2-foot pie priced at $9 to $11.
Pizza Hut marketing chief Bob Perkins predicted that Big Foot will generate $1 billion in annual revenue by 1995, or 23% of the chain’s $4.3 billion in 1992 revenue.
Domino’s said Tuesday that it will join the struggle in May with the Dominator--at 30 slices and a comparable cost, an even cheesier weapon.
“All the armies of the big three are gathering reinforcements and mounting for battle,” said Gerry Durnell, editor of the trade journal Pizza Today.
Jean-Paul Sarte once wrote that when the rich wage war, it’s the poor who die. In this case, he could have been referring to the smaller chains and independents that made up the remaining 52% of the pizza market last year.
But at least one analyst predicted that there will be enough business to go around.
“History has shown that as a result of all the hype, everybody gains,” Durnell said.
More likely, the losers will be other segments of the fast-food industry, analysts say. The public’s appetite for pizza is being fueled by its ability to be delivered and its value, said Ron Paul, president of restaurant industry consultant Technomic Inc.
For Domino’s, which has seen its share drop slightly since 1990 while its chief competitors gained, pressure to stay with the others pushed it to unveil the Dominator two months earlier than originally planned.
The Dominator is the company’s first foray into the carry-out business.
Like Big Foot, the Dominator will be rectangular. One big difference: Pizza Hut will deliver, Domino’s won’t, an irony considering Domino’s has long been a delivery outfit and Pizza Hut only began going door-to-door in 1986.
Domino’s has said it doesn’t want to deliver the Dominator out of fear that it would cannibalize sales from the chain’s pricier pizzas.
In Southern California, the value-priced pizza war will mean good things for recession-burdened consumers, said Bob Sandelman of Brea-based Sandelman & Associates, a consultant to the fast-food industry.
The heightened battle will also bring jobs to the Southland. Pizza Hut said Monday that Big Foot’s release will create 2,000 jobs in the Los Angeles area, positions the company expects to fill by June at 280 locations. In San Diego, Pizza Hut will add 1,000 jobs at 65 locations. The jobs will cover the gamut from delivery driver to cashier.
Domino’s said the Dominator will also result in “considerably more” jobs at franchised locations throughout Southern California.
