Tuesday 26 April 2016

How Tech is Killing Off Independent Pizzerias

  These flowers are call Fox and cubs.

How Tech is Killing Off Independent Pizzerias
Aaron D. Allen

Technology is killing off independent pizzerias in the United States at the rate of roughly 2,549 locations per year (in 2015 alone). The pizza category is being reshaped by both big new tech deployed by chains and fresh threats from sophisticated emerging brands that are taking slices
of the pie from tens of thousands of ill-equipped and low-tech independent pizzerias.

A few highlights of our findings: 
In the last decade, independent pizzerias in America have lost 21 percent market share
in terms of sales and 19 percent market share in terms of units to chains.
Put more plainly, that’s about 7,800 restaurants that have closed-up shop.

Domino’s price per share has grown more than 3,000 percent since 2008, from $3.86 to $132
(as of March 2nd, 2016). Its market capitalization was less than $300 million then,
to now $7.42 billion (a fantastic fortune was made accurately forecasting and betting on tech).
New ordering platforms including UberEats, Caviar, Postmates and DoorDash are growing
from collectively posting $400 million in revenue in 2014 to an expected $1.6 billion this year
(to put this in perspective, in a year, they’ll grow revenue 10 fold what it took Shake Shack,
2015’s much-heralded IPO, more than a decade to reach. In other words, food delivery is
about to dramatically change and redirect billions in restaurant revenue).

Digital and online ordering is growing 300 percent faster than dine-in ordering (again, this means billions of dollars in the U.S. alone will shift from dine-in to delivery in the years ahead).
The gap between independent average unit volumes (AUVs) and chain AUVs correlates almost directly to the volume of sales that chains are processing on the digital platform – about $328,500. 
America’s three (3) largest pizza chains process nearly 15 percent of all of the pizza industry revenue via their digital platforms (this equates to roughly one-third of the total industry market share shift that has occurred in the decade since the big guys first started processing orders online).

51 percent of all mobile searches on Google are for restaurants,
yet by some estimates as few as five percent of restaurants have mobile-compliant websites.
A closer look at 2015’s sales figures shows that, while pizza might have been the year’s

most photographed food item on Instagram, the pizza players with the widest smiles
are the executives at tech-savvy chains.

SALES ARE FALLING FOR THE PIZZA CATEGORY AS A WHOLE…
Last year, the U.S. pizza industry generated roughly five percent of the total U.S. restaurant revenue ($38.5 billion), despite the fact that America’s near-75,000 “pizza” establishments account for
7.5 percent of all U.S. restaurants. 2015’s revenue was, in fact, a 0.05 percent decrease from 2014’s figures, with segment AUVs dropping to $514,679 (a 2.34 percent decrease over last year).
During this same period, the overall U.S. restaurant industry saw 3.8 percent growth.


… BUT NOT FOR THE CHAINS, THEY ARE GROWING
The decrease in overall U.S. pizza revenue doesn’t mean everyone is down in the dumps – particularly if you’re dominating like Domino’s, up +9.2 percent in year-over-year (YoY) sales in 2015, on top of 12.5 percent growth in 2014. Little Caesars and Papa John’s are in pretty cheery moods, too, with +5.31 percent and +7.59 YoY increases respectively.
In fact, during 2015, chain pizza brands (companies with 10 or more units) saw a 3.38 percent increase in sales and a 3.82 percent climb in AUVs (now $655,846).
Independent pizza companies (those with less than 10 units), on the other hand,
saw a 5.01 percent decline in YoY sales and a 3.21 decline in AUVs (now $384,524).
The rate of new openings is, perhaps, most telling. During 2015, chain operators collectively saw a 7.33 percent increase in unit count, while independent operators’ total units dropped 1.85 percent. Yes, the hard fact of the matter is that while U.S. consumers still show a high demand for pizza, they’re ordering from the big boys, and mom-and-pop shops are closing down because they
can’t compete on equal terms. Despite the fact that chain pizza shops only account for
48 percent of all pizza restaurants, they’re pulling in 61 percent of the revenue.

THE DOMINO’S TECH TURNAROUND
One of the best modern examples of tech enabling an epic foodservice company turnaround
is that of Domino’s. Sure, some of the recent success stems from advantages of systemization, standardization, scalability and standard operating procedures (SOPs) – the processes, designs
and training that enable rapid and profitable growth. Another element is brand recognition and awareness – with over 5,000 units and a series of tremendously successful publicity campaigns, Domino’s had an enviable platform from which to launch its turnaround.
With product improvements, a renewed and reinvigorated company culture committed
to industry-leading innovations and strong leadership, Domino’s has restored its brand to one
that everyone not only recognizes but has started to trust again; consumers and investors alike.


Technology was unquestionably at the heart of the Domino’s turnaround. The CEO went so far
as to say, and I’m paraphrasing a bit here, ‘We don’t see ourselves as a pizza company.
We’re a technology company that sells pizza.’ Domino’s put its money where its mouth is –
and the results of this new mantra have grabbed enough market share to help them
and a handful of other big chains to absorb an additional 11 percent of segment sales
that were previously going to independents.
Domino’s pushed the limits on brand revitalization and started by acknowledging they had
some problems. Between driverless vehicles and drone deliveries (at least one of which sounds like science fiction), the company made a commitment to not just to digital/social/mobile and other tech advances, they sought to instill the commitment to pursuing disruptive innovation into the company culture. It’s clear that the mandate wasn’t just to swing for the fences, but to fly a drone over it with a pizza attached.



THE COST OF INCONVENIENCE A HEAVY PRICE FOR INDEPENDENTS
Across the entire U.S. restaurant industry, fewer than 25 percent of restaurants
have their own mobile app (some say this number is as low as 16 percent).
 When it comes to the pizza industry, the big players in this segment have been faster t
han most to realize that you can never make it too easy for guests to make a purchase.
After a quick review of the 50 U.S. pizza chains with the highest 2014 sales, we found that
an unsurprising (or astonishing, depending on how you look at it) 62 percent have a dedicated mobile app, and a further 88 percent have online ordering platforms.
These 31 chains with in-house apps together account for 36 percent of all U.S. pizza restaurant units and 54 percent of segment sales.
But what’s happening to the independents as mega-chains like Domino’s carve out a bigger share
of the pizza pie each year? With some estimates calculating that as much as 95 percent
of independent U.S. restaurants do not even have a mobile-optimized website
(we’re not talking apps here, just a website that will work on your phone),
it’s no wonder the chains are growing at a faster pace.

DOMINO’S IS NOT THE ONLY ONE DOMINATING AT DIGITAL
In a ‘Who wore it better?’ kind of way, the big pizza chains are parading
their digital accomplishments to woo over investors and media alike. It’s a triple whammy really,
if you score big with a digital innovation, not only will you see the business benefits in terms
of dollars and sense, it often comes with the add-on perks of free ‘earned media’
(a fancy way to say publicity or marketing you didn’t have to pay for), but also the confidence
and cash of investors looking for the kinds of returns such innovations can deliver.
While Domino’s probably wins ‘Who wore it better?’ in recent years, Papa John’s can’t be overlooked on the subject of digital innovations and market share gains. One of their badges
of honor can be found circulating on business and investor sites as well, touting their history of being an early adopter (note, the headline in the infographic below is their own, not ours):



THE SALES GAP IS FOUND IN DIGITAL
With an AUV of $657,000 (on par with the segment average), Domino’s now sees over 50 percent of its sales generated by online platforms (though, in some region’s like the U.K., that number is higher, with 75 percent of the company’s 2015 pizza orders made through digital channels).
Take away these sales, and you’re left with an AUV of $328,500.
If that number looks familiar, it absolutely should – it’s only $56,000 less than the AUV
of your typical independent pizza restaurant. The evidence is pretty plain that,
in the case of the plummeting mom-and-pop pizza profits, the failure to get with the program
and get online, once categorized by consultants and onlookers as a “highly recommended” strategy, is now requisite, not just to compete but to stay in business.

DIGITAL ORDERING GROWING AT AN ASTONISHING RATE
Back in 2010, roughly 1.39 billion delivery orders were made via phone. Last year, in 2015, only 1.02 billion guests called in an order (a 27 percent decrease in just five years). In this same period of time, online orders grew from 403 million to 904 million – 124 percent growth,
with 47 percent of Americans ordering food online.
Even more telling, digital ordering is now estimated to be growing at a rate 300 percent faster
than dine-in restaurant traffic.


If this trend continues, by the end of this year, online ordering will (most likely) overtake phoned orders – especially given the money major players are throwing at developing online programs.
As of May 2015, estimated investments into the development of these programs were anticipated
to be $1.2 billion (which is, in our view, conservative – particularly with companies like Uber, via UberEats, entering the market).

DIGITAL AND DELIVERY GO TOGETHER LIKE PEPPERONI AND CHEESE
Uber recently announced that its hoping to generate $1.5 billion in its next round of funding.
And while not all of this will be going to the UberEats program, it’s a clear sign that high-profile companies like Uber have a hefty chunk of change to throw toward making it easier for consumers to buy from them (and you can never make it too easy) through digital, social and mobile advances.
In 2014, UberEats, Caviar, Postmates and DoorDash together processed $400 million in orders.
By 2016, that number is expected to grow to $1.6 billion, and it’s all thanks to the investments
made to digital, social and mobile platforms.


  REDEFINING SPEED AND CONVENINECE IN THE RESTAURANT INDUSTRY
The game-changing innovations UberEats, Domino’s, Yelp and Amazon are making in delivery
is just one more example of how seismic shifts in technology can reshape an entire industry.
Digital innovation is the modern face of convenience engineering, and guests (and, for that matter, competitors) are not going to wait for a lagging business to get with the program.
Look at the (now defunct) Blockbuster, which was bought by Viacom for $8.4 billion in 1994,
$1 billion in debt by 2010 and sold to DISH Network for $234 million (less than three percent
of the company’s 1994 value) in 2011 – all because the folks at Netflix imagined video differently.
Companies like Uber, Amazon and Google are thinking the same way – and view investing in these technologies as part of the future of their companies, not as a line item or nicety of the marketing budget, but rather a necessity for the survival of their business. And those business have transformed their industries and the way that we all live today, essentially by providing us
with a new way to get the things we want faster and more conveniently.
So why wouldn’t executives in the restaurant industry be asking similar questions as these companies? How do we make it more user-friendly and use technology to make our product
and brand more convenient and relevant?
The numbers all add up to one clear conclusion, pizzerias not investing in digital, social and mobile are becoming irrelevant faster than users can type “pizza” into Google
and get their instant local listings.

ABOUT THE AUTHOR:
Aaron Allen is a global restaurant consultant and the founder/CEO of Aaron Allen & Associates, a leading global restaurant industry consultancy specializing in growth strategy, marketing, branding, design and concept development. Aaron has personally lead boots-on-the-ground assignments in 68 countries for clients ranging from startups to multinational companies posting in excess of $37 billion. Collectively, his clients around the globe generate over $100 billion annually and span six continents and more than 100 countries.
https://www.linkedin.com/pulse/how-tech-killing-off-independent-pizzerias-aaron-d-allen?trk=pulse-det-nav_art

You can TCR software and engineering manuals for spontaneous recall – or pass that exam.
I can Turbo Charge Read a novel 6-7 times faster and remember what I’ve read.
I can TCR an instructional/academic book around 20 times faster and remember what I’ve read.
Introduction to Turbo Charged Reading YouTube
A practical overview of Turbo Charged Reading YouTube  
How to choose a book. A Turbo Charged Reading YouTube
Emotions when Turbo Charged Reading YouTube

Advanced Reading Skills Perhaps you’d like to join my FaceBook group ?

Perhaps you’d like to check out my sister blogs:
All aspects of regular, each-word reading and education.
Turbo Charged Reading uses these skills significantly faster
www.innermindworking.blogspot.com         gives many ways for you to work with the stresses of life
www.happyartaccidents.blogspot.com        just for fun.

To quote the Dr Seuss himself, “The more that you read, the more things you will know.
The more that you learn; the more places you'll go.”

No comments: