How to Compete in 2017
Media observers say fast-casual is mostly about fresher, better ingredients, a higher degree of customization and a higher price point (ranging from $9 to $13 per check compared to an average ticket of $5 or less for fast food). But try telling that to a traditional independent pizzaiolo and watch his eyes pop out of his skull—he knows he’s been offering fresh ingredients and build-your-own options for decades!
Even so, fast-casual is a buzz term that grabs attention, especially in sit-downs with private equity firms. “Fast-casual pizza is the fastest-growing segment in the restaurant business,” says Sean Brauser, founder of the traditional Romeo’s Pizza chain as well as Pizzafire, a new fast-casual concept with locations in Akron and Cleveland, Ohio. “We have grown [Pizzafire] to $5 million in just over a year, and we plan on opening 12 to 18 more stores next year.”
Brauser says Pizzafire doesn’t vie with traditional pizzerias for customers’ cash. “We compete with Chipotle, Jimmy John’s and Panera Bread,” he says. “And because of that, sales volumes are significantly higher. Our buildouts are all below $200,000, and our projected net profit is $180,000 per store. That’s 100% ROI, and that’s what we are selling to our private equity guys.”
Brauser likens the burgeoning fast-casual segment to the “wild west”—an arena that favors the brave and the bold, where you’ve got to be quick on the draw and your aim must be true. Several leading gunslingers have emerged, including Pieology, the first fast-casual pizza company to crack Technomic’s annual ranking of the 500 largest restaurant chains. Pieology’s systemwide sales totalled nearly $45 million in 2014, an increase of 230% over the previous year, and a unit increase of 180%. MOD Pizza and Pie Five Pizza, meanwhile, both doubled their sales in 2014, while PizzaRev nearly tripled its sales and number of stores, according to Technomic.
A Social Conscience
Call them hippies, call them liberals, call them what you will, but more and more consumers expect their favorite restaurants to exhibit a strong social conscience, especially in regard to the environment and sustainability. According to the Smart Flour Foods study, millennials in particular “have a natural resistance to companies they consider ‘corporate,’ those that don’t authentically commit to a purpose beyond earning money.” Another study, conducted by ad agency network TBWA/Worldwide in 2011, found that seven in 10 young adults consider themselves “social activists,” and 75% believe corporations should create economic value for society by supporting worthy causes. As Crain’s Chicago Business put it in a 2014 article, “Corporate social responsibility is the millennials’ new religion.”
And they’re not alone. In a 2014 Technomic study, 63% of all consumers said they would more likely eat at a restaurant they view as socially conscious. They tend to value safe working conditions for employees, recycling programs and reduction of food waste.
Yum! Brands, parent company of Pizza Hut, has committed to several environmental goals, including reducing energy consumption, lowering water consumption and using more paper-based packaging with fiber from responsibly managed forests and recycled sources. Meanwhile, many independents and small chains have built their brands in part around social responsibility. With its Field to Fork program, Fuel Pizza), which has a dozen locations in North Carolina, South Carolina and Washington, D.C., partners with schools in Charlotte and Mecklenburg County to encourage healthy eating and create “pizza gardens” where teachers and students grow and harvest their own vegetables. And Mason Wartman, owner of Rosa’s Fresh Pizza in Philadelphia, has earned national acclaim for keeping a wall of sticky notes with prepaid credits for pizza to feed the needy.
Give millennials what they want
Sounds easy, but Pizza Hut will tell you it’s no slam-dunk. The corporate giant’s “Flavor of Now” rebrand—replete with quirky customization options such as Peruvian cherry peppers and toasted Asiago crusts—famously bombed over the past year, even though it was crafted with millennials in mind. But remember, millennials don’t necessarily trust big-box companies. Most experts agree that offering increased customization with artisan toppings, sauces and crusts, plus an authentic commitment to improving your community, can help you court the millennial crowd and compete with the budding fast-casual giants of the world.
Embrace digital marketing and sales tools
We’re looking at you, old-school operators. More and more customers want to place their orders digitally, and if you don’t let them, Domino’s and other big-box competitors certainly will. These customers want to receive coupons and learn about specials via mobile devices. They use crowd sourcing websites and social media to decide where to eat. Their moms and dads may continue eating at your place, but this new generation of customers will look elsewhere if you can’t speak to them where they’re at—online and on their smartphones.
Raise your prices if you need to
Just do it. But don’t overdo it. “Raise your prices a little bit every year, and don’t raise everything at once,” Mease advices. “Here’s a lesson I learned a long time ago: If, as the owner, your ego gets involved too much and you find yourself resisting raising prices, even with rising food and labor costs, delegate repricing the menu—and do this annually—to someone else in your organization who is rewarded for profitability but who doesn’t have the same ego issues.”
More customers now avoid additives and what they perceive to be unhealthy ingredients. In the Smart Flour Foods study, 77% of pizza lovers said that natural ingredients are important to them. Twenty-nine percent avoid meats with added hormones, for example, and 28% shun high-fructose corn syrup.
Start offering delivery
Your new fast-casual competitor may have nailed the lunch-hour crowd, but it probably has one big shortcoming: It doesn’t offer delivery. Demand for delivery remains as high as ever, even if the ordering tools have changed. Offer a delivery option—and let customers order by phone, online and via smartphone app—and you’ve got a leg up on that fancy shop down the street.