Is the pizza market sliced up too thinly?

Despite enjoying healthy sales in the UK, there are signs that the pizza market is becoming crowded, with big names such as Pizza Hut and Pizza Express feeling the pinch, says John Stones

More and more companies are muscling in, trying to grab a slice of the increasingly crowded high street pizza market. The largest chains, Pizza Hut and Pizza Express, have been on the high street for many years, enjoying growth in their respective niches, but are facing challenges from a number of quarters.

Both Pizza Hut and Pizza Express have recently appointed marketing directors to steer their brands through the forthcoming challenges. Pizza Hut has hired Martin Pugh from Safeway (MW last week), where he was marketing director, and Pizza Express has appointed Helen Benedict as commercial marketing director. Pizza Hut is also looking for a new media agency after PHD resigned the business following a second review in as many years.

Pizza Hut, a joint venture between Whitbread and Yum! Brands (the US restaurant giant that also owns KFC), offers a family oriented casual dining experience and Pizza Express positions itself as offering urban sophistication on a budget. The latter is, in particular, feeling the pinch from chains such as Strada and Zizzi, which offer a more “authentic” or sophisticated environment. However, Pizza Express’s owner, TDR Capital, is adding Zizzi and upmarket pizza chain Ask to its portfolio, with the intention of preserving the individual brands.

Meanwhile, though Pizza Express-branded products are available in supermarkets, the supermarkets themselves are attempting to slice off a share of the market. Asda has a counter where shoppers can buy a fresh dough pizza and choose its toppings, while Safeway has trialled a pizza delivery service. Brands such as Goodfellas are also marketed as equivalent to restaurant quality.

So successful have the branded supermarket sales been that Pizza Express blamed them for its recent slump in restaurant sales – like for like sales fell during 2003, dropping nine per cent in the 14 weeks to April 6 (Pizza Express/Mintel).

However, the good news for pizza brands is that consumers’ appetite seems insatiable. Last year &£1.1bn was spent on products, up by more than a third from five years ago (Mintel). Delivery and takeaway enjoyed growth of 42 per cent between 1998 and 2003, but eat-in sales also grew a healthy 27.8 per cent (Mintel).

Domino’s estimates its market share is 23.5 per cent – figures for other brands are not available. In terms of outlets, Pizza Hut is top with 578, followed by Domino’s with 318, Pizza Express with 311, Perfect Pizza with 225 and Ask with 115 .

But commentators are questioning whether the market is becoming saturated. Teather & Greenwood leisure analyst Nigel Popham says the pizza sector is “widely viewed as extremely crowded”. He suggests there is little potential for growth and questions the need for restaurants to be paying expensive high street rents.

Pizza Hut UK chief executive officer John Derkach disputes the suggestion that the pizza market is saturated: “First, Brits eat less pizza than consumers in other countries, particularly the US. Second, there are different brands operating in different ways.” He points out that Pizza Express and Pizza Hut offer different “experiences” and have co-existed for 30 years.

Derkach has added 78 outlets over the past year to bring the overall tally up to 578, and says he will be expanding at the rate of another 60 units a year, split evenly between restaurants and delivery outlets.

Chris Macleod, UK marketing director for Papa John’s and Perfect Pizza, the third-largest pizza delivery company behind Domino’s and Pizza Hut, is less bullish about the market. He says: “There is still some growth possible, though it might be easing off a little.” Macleod sees the delivery pizza marketing splitting between the value offering of small independents and the offerings from the larger, established brands, which he predicts will stop marketing themselves so strongly on price.

The pizza players are all trying to broaden their offerings to attract new customers. Pizza Hut unsuccessfully trialled goats’ cheese bruschetta last year. Other new items have made it onto the menu, such as nachos and set salads, and it is trying out further salad dishes and a lasagne in selected restaurants. Meanwhile, Domino’s is promoting its Moroccan Lamb pizza as a “new taste”, and Pizza Express recently unveiled a revamp of its long-standing menu to widespread press coverage.

Nevertheless, commentators have criticised the presentation of both Pizza Hut and Pizza Express as staid and outdated.

Wolff Olins board director John Williamson says: “Both Pizza Hut and Pizza Express simply don’t know what to do. It’s difficult to see how they will grow; their challenge is to get people to go there more often. They are too busy looking at product, but not the big idea. They both need to move their brands on.”

However, pizza operators will be thankful one problem has not landed on their plate – given the debate raging over diet and responsible marketing, commentators point out that pizza has emerged relatively unscathed.

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