By Kari Maue
Fast casual pizza restaurants are emerging as a new hot concept and they’re making their way into the marketplace – almost as quickly as they can cook the pizzas.
The fast casual pizza concept models offer a Chipotle-like concept by giving patrons personal size crusts, allowing them to pick their sauce and fresh toppings, and cooking the pizza within a matter of minutes, all at an affordable price. The competition in this market is primarily composed of many smaller regional concepts, but they are growing fast. Some concepts, such as Blaze Pizza, have reached over 50 locations, while others, such as Pieology and Mod Pizza, are expected to reach over 100 locations by the end of 2015. Many concepts are led by veterans to the restaurant industry, while others have investors and creators that have already proven successful with other endeavors.
It is no surprise that there is a desire for individuals to open their pockets and invest in or franchise these concepts. The pizza segment has historically enjoyed the lowest prime costs of all restaurant segments with an average of 54.1% for the fiscal year end 2014, according to BDO’s Q1 2015 Benchmarking Update. Pizza is closely followed by the fast casual segment, which averaged prime costs of 57.7%. The overlap of these two segments with the emergence of the fast casual pizza trend has been developing quickly over the past few years, and the fast casual pizza players’ aggressive growth strategies leave us wondering how the so-called “pizza revolution” could impact other restaurant segments.
As you can see in the BDO benchmarking update, it is clear that the pizza segment as a whole has not yet been affected by fast casual pizza concepts, as it has shown consistent and continued growth quarter after quarter. This is due, in part, to the pizza industry’s fierce competition forcing the market to drive down prices by discounting and offering the popular $5 and $10 pizza deals, which makes it an affordable dining option. The traditional pizza industry also offers delivery as well as the ability to order more pizza at a lower cost per person.
The bigger threat may be to the fast casual segment. The capital market has proven its ability to handle growth in this segment over the last few years with the recent uptick in restaurant IPOs, such as Zoe’s Kitchen and Habit Burger. Certain concepts have been hurt by the increasing competition, while others continue to show growth. For example, Chipotle continues to thrive with their burrito concept while they also explore the popular fast casual pizza trend by launching their own concept, Pizzeria Locale. With all of its success, will other segments begin to transform into the fast casual atmosphere?
As fast casual and pizza restaurants continue to show aggressive growth, there is one thing that remains true. In order to compete in today’s market, there are two key ingredients: fresh and fast.
This article originally appeared in BDO USA, LLP’s Quarterly Client Newsletter (Summer 2015). Copyright © 2015 BDO USA, LLP. All rights reserved. www.bdo.com