Regional pizza chains aim to bridge digital divide

Regional pizza chains aim to bridge digital divide

Mid-size brands such as Papa Murphy's, Rosati's Pizza and Donatos Pizza defend market share by boosting online and mobile ordering.

When Ken Calwell moved from Wendy’s to Papa Murphy’s Take ‘N’ Bake Pizza in June 2011 as the pizza brand’s president, one of his first projects was to upgrade Papa Murphy’s online-ordering capabilities significantly. He knew from experience that the pizza segment’s largest players were adopting digital-ordering technology as a way to grow their share of the business and gain new efficiencies in labor cost.

“I was at Domino’s when online ordering rolled out, so I’m very aware of what it can do,” said Calwell, now chief executive of Vancouver, Wash.-based Papa Murphy’s. “We have it growing rapidly to our markets across the country.”

Papa Murphy’s is hardly alone, as several regional pizza chains are looking toward expanding their use of online and smartphone ordering to close a technology gap that Pizza Hut, Domino’s Pizza and Papa John’s tout as a major competitive advantage.

According to a report from research firm CHD Expert, independent pizzerias still take in a majority of total pizza sales, with 56 percent of the $46 billion market, compared with a 30.5-percent market share for large chains and less than 15 percent for regional, mid-size chains.

Yet at an investor day event earlier this year, Domino’s chief executive Patrick Doyle cited research from The NPD Group that found his chain, Pizza Hut and Papa John’s accounted for 85 percent of online sales for the entire pizza category. “This is a very tough place for those regional and mom-and-pops to play … and this is why we think this digital story is so important,” Doyle said. “This is the big lever that has caused share to start shifting from the regionals, because they just can’t play effectively and efficiently in this space.”

Making the investment

In a recent research note, securities analyst Mark Kalinowski of Janney Capital Markets noted that major pizza chains like Domino’s and Papa John’s, both of whom have reported in the past year that digital ordering is accounting for between 35 percent and 40 percent of sales, “rightfully have a competitive advantage over smaller regional chains in regards to digital ordering.”

But in Kalinowski’s analysis of the top 47 pizza chains ranked by Technomic Inc. estimates of systemwide sales, 66 percent of those brands offer some form of online ordering through their websites. Mobile ordering caused a bigger gap between the big three brands and regional chains, with only 26 percent of pizza brands offering iPhone apps or 23 percent offering Android apps.

“It’s clear that consumers prefer the most seamless way to order online and from their mobile devices,” Kalinowski wrote, “and smaller regional, independent and mom-and-pop shops will need to improve or begin to offer such ordering platforms in the future in order to remain competitive against national chains. … For the category as a whole, digital ordering has proven to benefit pizza chains through higher average ticket, higher order frequency, better customer satisfaction and the potential to save labor costs at stores.”

For Papa Murphy’s, which thus far only has online ordering in about a third of its 1,352 units in 37 states, the first step to a digital-ordering program required the investment of new point-of-sale systems, now in half of all locations.

“Any good marketing program starts with good data,” Calwell said. “Now our franchise owners have data from a great database we have already, in just one-third of our system.”

Marla Topliff, president of Warrenville, Ill.-based Rosati’s Pizza and chair of the National Restaurant Association’s Pizza Industry Council, said mid-size and small pizza chains can adopt online ordering even with less expensive investments than Papa Murphy’s outlay in POS equipment.

“We’ve done online ordering as long as it’s been available,” she said of 170-unit Rosati’s. “If your POS doesn’t have the capability, there’s other ways to do it. We used to get faxes sent to us of orders [taken from a third-party website].”

Leveraging labor

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Leaders of regional chains agree that more digital-ordering capability could produce better labor and utility costs, but noted that they do not improve right away until their brands are able to scale up their technology.

Tom Krouse, president and chief executive of Donatos Pizza, said the 159-unit chain “certainly is seeing the higher average check” after recent upgrades to online ordering and the February launch of an iPhone app. “Much of our business is marketed trade area by trade area, so technology is a great way to do it, whether through a microsite, online ordering or an app,” Krouse said. “We’ve doubled our online business in the past nine months just by making it more accessible. We’re seeing great growth.”

Online ordering is not necessarily cutting labor hours for the Columbus, Ohio-based brand. “But the stores are operating more smoothly,” Krouse said. “Instead of scheduling more people on the phones, we can employ more delivery drivers. … At some point in time, if the world orders three-fourths of its pizza online, you’ll have fewer people in the restaurants, but we’re not there yet. It isn’t a labor-saving tool; it’s just about access.”

In a counterintuitive way, previous attempts at an online-ordering system caused Medina, Ohio-based Romeo’s Pizza to reinvest in its people, not just its platforms, said founder and chief executive Sean Brauser.

“All our stores had online ordering, built through a prior POS supplier, but it wasn’t integrated and was kind of messy,” Brauser said. “Most of our complaints came from online ordering. So we reset it and made a push to get our people trained in customer service on the phone through an intense certification process.”

A new POS system is now in place at all 31 Romeo’s restaurants, and a fully integrated online-ordering system is in beta test with a fall rollout scheduled, he said. Romeo’s had a smartphone app as well, but it never took off because the costs to advertise it to Romeo’s customers proved prohibitive, he added.

“We were looking for opportunities to reduce payroll with digital ordering, and it didn’t really do that,” Brauser said of previous attempts. “But a certain segment of our people like customer service, which is a lost art. Our people know the menu and specials and can help our guests through the ordering process. They can answer questions about how much pizza to get for 10 people and four little kids, and those conversations are the kind you can’t pull off online.”

Contact Mark Brandau at [email protected] [7].
Follow him on Twitter: @Mark_from_NRN [8]