Some pizzerias failing despite our love of pizza
It's almost as if America was losing its taste for pizza. Sbarro, the seemingly omnipresent pizza joint at mall food courts, filed for bankruptcy protection this week.
CHICAGO — It's almost as if America was losing its taste for pizza.
Sbarro, the seemingly omnipresent pizza joint at mall food courts, filed for bankruptcy protection this week. That follows Round Table Pizza, a chain that filed in February. And the operator of Uno Chicago Grill emerged from bankruptcy protection last summer.
Ranked among the largest U.S. pizza operators, they are numbers 5, 10 and 11, respectively, with a combined 1,700 locations and $1.6 billion in sales, according to industry publication Pizza Today.
Giordano's, one of the best-known chains for stuffed pizza in Chicago, filed for bankruptcy protection in February. Numerous smaller pizzerias also have slipped into financial trouble.
It's true that pizza chains are dealing with the effects of a deep recession, higher ingredient prices and more competition from nontraditional channels, such as take-and-bake pizza from restaurants and supermarkets.
But America still loves pizza.
Overall, the pizza business is faring OK, with flat sales of about $38 billion over each of the past three years, said Jeremy White, editor of Pizza Today. The pizza business has been treading water while overall restaurant revenue sank.
"The pizza business is really pretty solid right now," White said. "You can feed a family of four for under $30 or even under $20."
Many of the high-profile bankruptcy reorganizations of household-name pizza restaurants have individual causes that don't speak to a larger trend of consumers turning away from pizza, experts say.
"They're unique on a case-by-case basis," White said. "There's not really a common thread among them."
Sbarro, with more than 1,000 locations in 40 countries, was saddled with crushing debt. And unlike many strip-mall pizza shops or stand-alone restaurants, it was dependent on foot traffic in malls and airports, which saw declines during the recession.
Its financial situation is also a reflection of how Sbarro was run, said restaurant consultant James Sinclair, principal of restaurant consultant OnSite Consulting.
"This is not based on the specific product, pizza, but instead on how Sbarro ran their business, executed leases, created profitable items and managed their labor model," he said. "Sbarro is a stale and old brand that has not taken any steps to reignite their audiences and have not competed on the same level as their competitors."
A Sbarro spokesman said the company did not wish to respond to that criticism. However, Nicholas McGrane, interim president and chief executive of Sbarro, said in a news release Monday, "We are a strong company with one of the most recognizable restaurant brands in the world."
As for other pizza companies, family-run Giordano's filed for Chapter 11 because of troubled real-estate investments.
In fact, real estate has been a problem for a number of pizzeria owners who bought at the top of the real-estate market, said Tony Gemignani, who owns four pizza restaurants in the San Francisco area and a school for pizza-restaurant operators.
"Fixed costs hurt a lot," he said.
While some operators, including Sbarro, have cited troubles stemming from higher-cost ingredients, such as cheese and flour, that's not leading to bankruptcies, White said.
"It's a big deal, but it's nothing new," he said. "Food prices fluctuate truly like a roller coaster. If you've operated for any length of time, you've come to expect that."
Still, for those operating on slim margins, price spikes hurt.
"We recently had to let a manager go because our cheese cost rose more than $1,100 per month, which is a huge jump," said Mark Huebner, managing partner of Denver Pizza Co., who said food costs have become a major hurdle for his Denver pizza shops.
While pizza continues to be popular in America, it's evolving, Gemignani said.
Many successful pizzerias are getting into artisan pizzas, using wood- or coal-fired ovens, organic and locally sourced ingredients and unusual toppings.
Another big shift in the pizza business isn't what consumers are buying, but where they're buying it. The number of channels to buy pizza has increased, said Dennis Lombardi, executive vice president of food-service strategies at WD Partners.
"The pizza segment is made more challenging for traditional restaurants by close substitutions," he said.
They include supermarkets, which not only sell frozen pizzas but ready-to-bake pizza. Warehouse clubs sell very large pizzas for about $10. Meanwhile, some non-pizza restaurants sell flatbreads, which can be a close substitute for pizza.
"When pizza is your primary product line, you're starting to sense and feel all the substitute channels that are available," Lombardi said. "It's not so much that people are fleeing pizza as a meal option. Their number of eatings is being spread over a growing array of different channels."
Fierce price discounting and couponing by the top three players, Pizza Hut, Domino's and Papa John's, has also squeezed other pizza sellers.
"Some play the coupon game, but it's hard for people to be able to compete in that market," Gemignani said. "If you keep lowering prices and discounting prices, you're going to lose in the end. The volume just isn't there."
One way some of the big players are competing on price is by upgrading equipment.
For example, many of the big players have upgraded to speedier ovens that use less energy and cost less to operate, said Mark Sieron, president of Middleby, which makes such an oven. He said its clients include Pizza Hut, Domino's, Papa John's and Little Caesars.
Sam and Sara Lucchese create handmade pasta out of their kitchen-garage adjacent to their Ballard home. Here, they illustrate the final steps in making pappardelle pasta.