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Report on Business Food delivery app competition, rising labour costs bite into pizza chain sales

Canada’s biggest pizza chain, Pizza Pizza, has seen negative same-store sales growth for seven consecutive quarters since September, 2017.

Andrej Ivanov/The Globe and Mail

Sales are slowing at several North American pizzeria chains as customers gain access to a widening array of foods available at their fingertips through delivery apps such as Uber Eats, Foodora and Skip the Dishes.

Andrew Waddington, senior consultant with fsStrategy Inc., said pizza’s long-held advantage as a fast, cheap and convenient food for delivery is eroding.

“Growing up in my house, it was pizza, Swiss Chalet or Chinese food. Those were your options,” he said. “But with Uber and other delivering options, the convenient and the fast bit has been spread around many different types of competitors.”

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The latest sign of trouble for pizza retailers emerged on Tuesday, when industry titan Domino’s Pizza Inc. reported same-store sales that fell short of expectations, sending the Michigan-based pizza giant’s share price tumbling nearly 8.7 per cent to close on the New York Stock Exchange at US$246.54.

Domino’s international stores, including about 500 in Canada, reported 2.4-per-cent same-store sales growth in the second quarter of 2019. In the same period last year, sales growth was 4 per cent.

Pizza Hut, owned by Yum Brands Inc., in May reported flat same-store sales growth in the first quarter of 2019 compared with the first quarter of 2018.

The pain is also being felt north of the border. Canada’s biggest pizza chain, Pizza Pizza, has seen negative same-store sales growth for seven consecutive quarters since September, 2017.

Stock prices for Pizza Pizza Royalty Corp., the publicly traded company that owns the rights to the Pizza Pizza logo and licenses it to restaurants in exchange for a percentage of sales, have plunged in recent years. Shares closed at $9.83 on Tuesday on the TSX, down from an all-time high of $18 in May, 2017.

Pizza Pizza did not respond to a request for comment.

Digital disruption isn’t the only challenge facing Pizza chains. Labour costs are on the rise as provinces increase their minimum wage.

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And chains selling pizza have always operated in a highly competitive market segment, Mr. Waddington said. Since the product is cheap to make, a lot of players are “fighting for that same dollar."

Now, they’re fighting with new types of cuisine for home delivery, too.

“I don’t think people are leaving pizza because of price,” he said. “You’d be hard-pressed to get that same calorie-to-dollar value. … We’re seeing people willing to pay … to get something that’s different.”

While many delivery apps also offer customers another way to order pizza from popular chains, those potential gains are likely being offset by rising competition.

“Pizza is perhaps being outshone by fast-food chains … who are a little more aggressive with food delivery apps,” said Sylvain Charlebois, director of the Agri-Food Analytics Lab at Dalhousie University.

But make no mistake, many pizzas are still being sold in Canada and around the world. Euromonitor International pegged the annual global pizza market as being worth US$134-billion in 2018. And there are new markets with an appetite for the cheesy tomato pies, with Euromonitor flagging Pakistan as the world’s fastest-growing retail market for pizza.

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Domenic Primucci, president of Pizza Nova Take Out Ltd., a privately held Canadian pizza chain with nearly 150 stores across Ontario, acknowledged that his industry is seeing new challenges in rising costs for labour and rent, as well as from a wave of fresh competitors in the form of apps.

Still, he said, pizza holds a key advantage: customer sentiment.

“When you order pizza, you’re sharing,” Mr. Primucci said. “When people get together and share a product, it makes them happy. It really touches that connection of people.”

“Pizza will survive,” Mr. Charlebois added.

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