What’s Up With Pizza?

What’s Up With Pizza?

Pizza, one of the most consumed foods in the United States, saw skyrocketing sales during the pandemic years. As an inexpensive carry-out and delivery option, pizza found strong ground during COVID lockdowns and throughout previous economic downturns. However, pizza sales seemed to struggle in recent months, a surprising trend for many in the market, begging the question, what’s up with pizza?

Questions began in February when Papa John’s and Domino’s Q4 2022 financial reports failed to meet analyst expectations resulting in Domino’s stock plunging by more than 11%, while Papa John’s fell by 6%. Domino’s reported U.S. same-store sales growth of just 0.9%, coming in much lower than the 3.4% that Wall Street expected and 0.8% below the prior year for the fiscal year 2022. The company then announced it would cut its two-to-three year sales growth outlook from +6-10% down to +4-8%, citing macroeconomic headwinds.

Papa John’s results followed suit although fairing slightly better than their counterpart. Total revenue was down less than 1%, and would have been better, claimed the company, if not for the strategic refranchising for dozens of restaurants. Papa John’s then set their North American comparable sales to grow annually between 2-4%, although they expect the numbers to come in on the lower end of that range.

While both companies cited rising costs for food and labor as their primary challenge in 2022 and expect issues to continue in 2023, the decline in sales could be a result of their attempts to protect profits. Both companies raised prices in the second half of 2022 to offset higher operational costs. In October, Domino’s announced it planned to raise prices by 7% in the fourth quarter, including raising its popular Mix & Match deal from $5.99 to $6.99. In August, Papa John’s also increased prices by 7-8% and reduced the number of discounts to customers. While the price hikes were less than the “food-away-from-home” inflation peak of 9.1% in October 2022, customers still saw the pizza they once looked to as a reliable low-cost option spike in price after months of inflationary pressure weighing on their shoulders.

Now, the name of the game becomes value, something pizza has always touted above other dining experiences, but a new competitive atmosphere may change that narrative. As third-party delivery services, like DoorDash, Uber Eats, and Postmates have grown in popularity, pizza now competes with other low-cost, quick-service meal options in the delivery space. Capturing customers on sites that provide all types of different meals, and different discounts, is trickier for pizza than their traditional methods of delivery. If a customer is already going to a company’s branded app, discounts may be enticing but they have already committed to eating from that brand, whereas if a customer is searching for options on third-party delivery apps, a brand must now convince that customer to not only eat pizza, but to eat their pizza. An example of the successful navigation of this change can be seen by Pizza Hut, which has been outperforming its competitors in the U.S. market. Pizza Hut’s U.S. same-store sales rose by 4% in Q4 with the company attributing the increase to advertisements that highlighted new value offerings, helping to attract lower-income customers, while also expanding its third-party delivery partnerships and delivery promotions. The chain’s success compared to its counterparts is a result of attracting new customers to eat not just pizza, but Pizza Hut’s pizza.

Adjusting to third-party apps may be a key aspect to pizza’s success in 2023, however, there is still opportunity ahead. As consumer finances face additional pressure from a worsening macroeconomic environment, they may look to pizza once again as the go-to option. Instead of dining at home due to lockdown orders, they might be ordering pizza to save money on what has previously been the best value comfort food. Only time will tell if pizza can keep its spot as the reigning king of value.