Is Whitbread brewing up Perfect Pizza bid?

Perfect Pizza is up for sale. Its US owner has placed an estimated $30m (20m) price tag on the 203-chain franchise and is in the process of speaking to at least five potential bidders (MW October 18).

The bidders are believed to include: Whitbread Restaurants & Leisure, owner of Pizza Hut and soon-to-be proud owner of Pizzaland; Domino’s Pizza which could view any takeover of the chain as a defensive measure; Allied Leisure; and KFC.

Neither Perfect Pizza nor its US parent, Laidlow Inc, will confirm that talks are underway. But the writing has been on the wall since Laidlow, a transport-based business, bought Perfect Pizza’s then parent, Scott’s Hospitality, in August. Laidlow bought Scott’s for its transport interests, not to break into the UK home-delivery pizza market.

Laidlow chief executive Jim Bullock has even started speculating about how much he might raise by selling Perfect Pizza and another of its US fast food chains, Manchu Wok; he estimates $30 to $50m (20m to 32m) between the two of them.

Perfect Pizza had sales of 17m in 1995 and generated a pre-tax loss of 1.4m in the 12 months ended July 1995. Despite the loss of its second marketer in three months, Perfect Pizza is defending its market position with Marian Conn’s appointment to the post. The chain claims to be number one in the home delivery market, a view challenged by Pizza Hut. Domino’s Pizza, which only does door-to-door delivery, lies third. The rest of the market is supplied by ever-increasing numbers of own-label pizza makers.

The reason Perfect Pizza is attracting such interest is the potential growth in the home-delivery market which now accounts for a third of the overall sales in the UK pizza sector. In 1991, sales of home-delivered pizzas brought in 95m; in 1995 that figure stood at 250m, according to Euromonitor. By contrast, sales of restaurant pizza brought in 570m in 1991, a figure that had fallen 71m to 499m by last year. Additional research by Mintel shows that 46 per cent of sales – 317m of pizza – was eaten at home.

It is a point emphasised by Perfect Pizza managing director Tony Sherriff. He refuses to confirm or deny the sale rumours but says that he expects the UK market to reflect the US where 40 per cent of all pizzas bought are delivered to homes.

Whitbread is also acutely aware of these statistics. Analysts believe the company, which jointly owns Pizza Hut with PepsiCo, is one of the five companies interested in buying Perfect Pizza.

“Whitbread is the obvious one,” says UBS analyst Eddie Hargreaves. “It is buying BrightReasons and that makes it an obvious bidder.” Perfect Pizza would complement the restaurant chain and consolidate its home-delivery operation.

Another source says: “Whitbread is known to want to increase its portfolio of outlets so that it can increase growth. Growth comes from stores and from footfall.” Crucially, most Perfect Pizza sites are located in densely populated areas – most within the M25 – which makes them more attractive to possible bidders.

If Whitbread were to buy Perfect Pizza it would add to the consolidation that is expected when the company acquires BrightReasons, owner of the Pizzaland and Bella Pasta restaurant chains.

The 80m deal, expected to be completed next month, although Pizza Express has also been linked with a deal, will at a stroke remove Pizza Hut’s main rival in the restaurant pizza sector. Logically, the next step would be to strengthen its hold on the home-delivery market. Whether the Perfect Pizza name can survive a Whitbread takeover will have to be decided at a later stage.

Pizza Hut holds 32 per cent of the total pizza market. It is by far the biggest player with 341 outlets – 99 dedicated to home delivery – and is extending trials to move into roadside catering through Granada service stations.

By contrast, Domino’s Pizza only has a one per cent share. But it, too, is seen as a potential bidder. It would, presumably, face stiffer competition from a chain freshly revamped by a a fast-food oriented new owner.

If Domino’s buys the chain, it will not only remove a major competitor but could also take out some of the excess capacity in an over-supplied market. But Gerald Halpern, group manager of Domino’s Pizza Group, denies the group has any interest in buying the business.

Domino’s must at the very least be studying the situation. Unlike the other two players, home delivery is all it has. The PepsiCo-owned KFC is also thought to be among the bidders because it is looking to expand its portfolio.

No matter who buys Perfect Pizza, it is clear they are buying into a growing market. At least five bidders are sitting down doing their sums. Whitbread, despite its denials, remains the main contender. It has both the money and the strategic motivation to execute the deal. Whether it succeeds will depend on how much of a hurry Laidlow is in to sell.