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Market snapshot: Pizza and pasta

27 May 2005
Market snapshot: Pizza and pasta

The UK pizza and pasta market can be split into two distinct sectors: sit-down pizza and pasta restaurants, and take-away and delivery focused pizza operations.

According to figures from consultancy Horizons, the sector as a whole was worth more than £740m in 2004, in terms of food and drink sales.

Main players

In terms of the number of outlets, Pizza Hut is still very much the dominant player in the market, with more than 600 restaurants. Within the UK the chain is 50% owned by Whitbread, with the other half held by the brand's parent company, US-based Yum! Brands.

Pizza Hut's portfolio splits into some 500 directly owned sites and 95 franchised outlets. Globally, the brand has more than 12,000 outlets.

Next in the UK comes PizzaExpress, which along with sister chain Café Pasta, has some 320 outlets.

Both are owned by investors TDR Capital and Capricorn Ventures, who also control the 200-strong Ask group of pizza and pasta restaurants, of which 116 operate under the Ask brand and the rest as Zizzi.

Smaller players include the 23-strong Strada pizza and pasta chain owned by Signature Restaurants, Tragus's Bella Italia (63 outlets in early 2005), and The Restaurant Group's Italian-style chain Caffè Uno, with 60 units.

On the pizza delivery side, Domino's is the major player with more than 350 outlets in the UK and Ireland. Perfect Pizza, owned by US chain Papa John's, has more than 200 UK outlets.

Growth prospects

The sit-down-restaurant end of the pizza market is relatively mature, making organic growth difficult.

Horizons' Peter Backman comments: "A lot of the rapid growth has gone out of the market. The market has been around for a long time and there is a sense that it has pretty much reached its peak."

As a result, much of the growth of the sector in recent years has come from the home-delivered pizza side of the business.

And with the market almost saturated it is becoming harder for serious players to grow their business and stand out from the crowd.

Financially, with PizzaExpress now back in private hands and Whitbread combining Pizza Hut within its high-street restaurant division (which reported sales growth of a relatively sluggish 1.2% in the year to 3 March 2005), specific figures for the main pizza and pasta chains are hard to come by.

Whitbread did say, however, that Pizza Hut had added 50 outlets during the year, which helped boost the restaurant division's sales by 5.1%.

In March 2005 The Restaurant Group reported like-for-like sales at Caffe Uno down by 1% and those at Est Est Est (whose menu is also largely made up of pizza and pasta dishes) down by 2.1%. It subsequently sold the struggling Est Est Est chain to Living Ventures for £16.4m.

The delivery end of the market is much more buoyant, however, with Domino's reporting pre-tax profits up by more than 40% during 2004.

"There has not been a lot of excitement in the market for some time," concedes Jim Winship, director of the Pizza and Pasta Association (PAPA).

"Pizza is affected by fashions and trends. We had the stuffed crust a few years back that everyone picked up on. But there has been nothing like that happening for a while," he adds.

The market has been bedevilled in recent years by an image of rather staid, tired menus, adds Dave Mort, a director with IRS Research.

But there are signs the main chains have recognised the problem and are addressing it, he says, and if they can suitably differentiate themselves there is still scope for future growth.

Key trends

One of the biggest changes within the sector has been the changing nature of ownership, says Backman.

Outside money from venture capital firms and financial institutions has been injected into the sector in recent years.

A good example of this was the TDR/Capricorn acquisition of PizzaExpress in June 2003 (for £278m), followed by its snapping up of Ask (for £213m) in 2004.

However, while ownership may have been changing hands, management control has by and large remained constant.

Other trends in the market include the improvement in quality and sophistication of supermarket pizzas, so encouraging consumers simply to buy and take home their own pizzas rather than eat in or call out.

Some operators, such as PizzaExpress, have adopted an "if you can't beat 'em, join 'em attitude", by striking deals with supermarkets such as Sainsbury.

Quality and the desire for healthier ingredients and toppings are another concern. In July 2004 both Pizza Hut and PizzaExpress, for instance, came under fire from the Food Standards Agency for using too much salt.

Domino's last year launched a pizza made with 30% reduced-fat mozzarella.

Future

A lot of the smaller, cheaper operators are going to find life quite tough, predicts Backman.

One trend that we are already starting to see, and will probably see more of, he adds, is increased segmentation of the market, with operators creating different price levels for different brands.

The quality of the menu and the types of ingredients used are going to become much more important, particularly for chains that want to create a more "gourmet" image, suggests IRS's Mort.

"Pizza restaurant chains almost had the market to themselves a few years ago. Now there is a lot more quality on offer from a lot of other sectors, both informal and gourmet dining," he says.

This means one of the biggest challenges going forward will be in keeping pizza and pasta restaurants in consumers' minds as a destination in their own right, argues PAPA's Winship.

"There is increasing competition from different areas and different types of food. Pizza restaurants will need to do more to sell themselves to the consumer, to show they are something special," he says.

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