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Pizza restaurants feeling bite from consumer options

Sbarro is the latest to file for bankruptcy reorganization as supermarkets provide frozen and fresh alternatives to dining out.

April 10, 2011|By Gregory Karp
  • A customer looks at pizzas at Sbarro restaurant in San Jose, Calif.
A customer looks at pizzas at Sbarro restaurant in San Jose, Calif. (Paul Sakuma / Associated…)

Reporting from Chicago — It's almost as if America was losing its taste for pizza.

Sbarro Inc., the seemingly omnipresent pizza joint at mall food courts, filed for bankruptcy protection last week. That follows the Round Table Pizza Inc., the chain based in Concord, Calif., which filed in February. And the operator of Uno Chicago Grill, Uno Restaurant Holdings Corp., emerged from bankruptcy protection last summer.

Ranked among the largest U.S. pizza operators, they are Nos. 5, 10 and 11, respectively, with a combined 1,700 locations and $1.6 billion in sales, according to industry publication Pizza Today. Numerous smaller pizzerias also have slipped into financial trouble.

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.

Many of the high-profile bankruptcy reorganizations of household-name pizza restaurant chains have individual causes that don't suggest a larger trend of consumers turning away from pizza, experts say.

"They're unique on a case-by-case basis," said Jeremy White, editor of Pizza Today. "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 Inc.

"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," Sinclair 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, the company's interim president and chief executive, said in a news release last week: "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.

Although 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."

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 ways 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 fresh, 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.

"It's not so much that people are fleeing pizza as a meal option," Lombardi said. "Their number of eatings is being spread over a growing array of different channels."

Fierce price discounting and coupon offerings by the top three players — Pizza Hut Inc., Domino's Pizza Inc. and Papa John's International Inc. — have 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."

business@latimes.com

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