U.S. Pizza Restaurant Industry

Robert CarrollCarrie Esch

Cara McGarry

Background

Historical Background

The lower class of Naples, Italy is believed to have created pizza in today’s familiar fashion

The first pizzeria opened in 1830 in Naples, Italy--it’s still in business today

Pizza made its way to the inner cities of the United States, New York and Chicago most notably, in the early 1900s thanks to the large population of Italian immigrants

American soldiers further prompted the dish to become very popular at the end of World War II, having been exposed to it while serving on the Italian front

Today’s largest pizza chains (Pizza Hut, Domino’s Pizza & Little Caesars) began popping up all over the U.S. in the late 1950s, early 1960s

Source: www.aboutpizza.com/history.php

Traditional Crust Pizza: The crust is not too thick and not too thin. Usually it is created by rolling the dough into a round circle then topping it with sauce and cheese.

Deep Dish Pizza: A thick crust and dense toppings usually characterize deep-dish pizza, also known as pan pizza.

New York Style Pizza: The crust of this pizza tends to be much thinner than traditional and deep dish.

Traditional Types of Pizza

Source: www.aboutpizza.com

Four Channels of Distribution

• Sit-Down Dining - custom pizzas made for in-restaurant dinersTypical Pizza Restaurant Establishments: Pizza Hut Red Roofs, Independents

• Delivery - custom pizzas made, baked and delivered by restaurant personnel to call-in customers

Typical Pizza Restaurant Establishments: Domino’s Pizza, Pizza Hut, Papa John’s

• Carry Out - custom pizzas made and baked for walk-in or call-in customers to pick up

Typical Pizza Restaurant Establishment: Little Caesars

• Take ‘N Bake - custom pizzas made for walk-in customers who then take the pizza home to bake themselves at their own convenience

Typical Pizza Restaurant Establishment: Papa Murphy’s

Aggregate Industry

Information

U.S. Restaurant Industry

$399 billion

U.S. Fast Food Industry

$135 billion

U.S. Pizza Restaurant Industry

$29.4 billion

2001 Industry Data

U.S. Pizza Restaurant Industry

U.S. Pizza Restaurant Industry 63,873 pizza restaurants in the U.S.

4,233 new restaurants opened and 4,300 restaurants closed between July 1, 2001 and July 1, 2002

Less than 30,000 pizza operators own all of America’s 60,000+ pizza stores One pizza store for every 4,330 U.S. residents

Pizza restaurants make up approximately 7.7% of the nation’s total restaurants Industry sales for pizza were up 1% for 2001, which gave the pizza industry

overall sales of $29.4 billion Total pizza market is projected to grow by 17% by end of year 2003

Pizza is the only food category to show consecutive growth for the past 20 years

Source: www.pmq.com/mag/2002summer/pizza_power.shtml www.pizzaprosperity.com/stats.htm www.pmq.com/pizzastorecensus.shtml

Chains vs. Independents

Independents Independent restaurants own 59.48% of all pizza restaurants (37,992 restaurants) Average unit sales was $366,720 per year between June 2001 and May 2002 Sales represent 47.38% of the industry’s sales Independent operators holding ground in the North East portion of the U.S.

Chains Average unit sales for the top 25 pizza chains increased to $598,000 to $583,000

the previous year “The Big Four” pizza chains (Pizza Hut, Domino’s Pizza, Papa John’s and Little

Caesars Pizza) represent 36.8% of industry sales at $10.81 billion Pizza Hut, Domino’s, and Papa John’s represent a larger % of the industry total

sales than they do industry total stores

Source: www.pmq.com/mag/2002summer/pizza_power.shtml Pizza Today, August 2002 www.pmq.com/pizzastorecensus.shtml

American Pizza Stores Per Capita

No. of Pizza Store Per 10,000 Population

Source: www.pmq.com/pizzastorecensus.shtml

2002 Year-End Sales Trend

-8%

-6%

-4%

-2%

0%

2%

4%

51&52*504948&47*46454443

QSR P izza QSR Sandwich

QSR Specialty Midscale Family Style

Midscale Specialty

Source: SalesTrac® Weekly

QSR Pizza: • Domino's • Mazzio's • Papa Gino's • Papa John's • Peter Piper Pizza • Pizza Hut • Pizza Inn • Round Table Pizza •

Weeks 43 through 52 - 2002

Competition

U.S. Market Share: $29.4 billion

Independents

Pizza Hut

Domino's Pizza

Papa John's

Little Caesars

All other chains

Source: www.pmq.com/mag/2002summer/pizza_power.shtml

Independents47.38%

PJs5.94%

All other Chains15.85%

Domino’s9.58%

Pizza Hut17%

Little Caesars4.25%

U.S. Share of Pizza Stores 63,873 stores

Independents

Pizza Hut

Domino's Pizza

Papa John's

Little Caesars

All other chains

Independents59.48%

PJs4.05%

All other Chains12.05%

Pizza Hut12.08%

Little Caesars

4.8%

Domino’s7.54%

Source: www.pmq.com/mag/2002summer/pizza_power.shtml

Top Chain Growth Trends

-6

-4

-2

0

2

4

6

8

10

Qtr 1 '01 Qtr 2 '01 Qtr 3 '01 Qtr 4 '01 Qtr 1 '02 Qtr 1 '02

Domino's

Pizza Hut

Papa John's

Source: www.dominos.com www.yum.com www.papajohns.com

Company Synopsis

Stores 7,100 3,400 2,800 12,200 *% Franchised Most 80% 75% 80%Public/Private Private Private Public PublicHeadquarters Ann Arbor Detroit Louiville LouivilleCEO David Brandon Michael Iiitch John Schnatter A. PearsonEmployees 12,600 90,000 ** 16,336 210,000 **2001 Sales $1,258 $600 # ** $971 $6,953 **International Yes Yes Yes YesInternet Ordering No Yes Yes Yes

Additional Products Breadsticks Antipasto Breadsticks Breadsticksother than Pizza Buffalo Wings Salad Cheesesticks Buffalo Wings

Cheesy Bread Cinammon Sticks Chicken TendersBuffalo Chicken Kickers Crazy BreadCinnaStix Italian Cheese BreadDots

* Pizza Hut specifically** includes all subsidiaries not just the specific Pizza Subsidiary# 1999 Sales

Top Chain FinancialsDecember-01 Dominos Little Caesar's Papa John's Yum! Brands

(llitch Holdings)(Taco Bell, Pizza Hut, KFC, Long John Silver's)

Revenues 1258.3 n/a 244 2202Cost of Goods Sold 937.9 n/a 122.2 1021Gross Profit 320.4 n/a 121.8 1181Gross Profit Margin 25.50% n/a 49.90% 53.60%SG&A Expense 193.3 n/a 66.6 784Depreciation & Amortization 0 n/a 35.2 111Operating Income 127.1 n/a 20 286Operating Margin 10.10% n/a 8.20% 13.00%Net Income 36.8 n/a 11.5 164Net Profit Margin 2.90% n/a 0.51% 7.40%

Cash 34.8 n/a 17.6 110Net Receivables 54.2 n/a 23.2 175Inventories 22.1 n/a 12.7 56Total Current Assets 131.4 n/a 65.1 547Total Assets 382.3 n/a 387.4 4388Short Term Debt 43.2 n/a 0.2 696Total Current Liabilities 154.1 n/a 66.4 1805Long-Term Debt 611.5 n/a 105.1 1552Total Liabilities 807.2 n/a 191.8 4284

Total Equity -424.9 n/a 195.6 104

Source: Hoover’s Online

Market View

December-01

52 week high n/a n/a $35.19 33.1752 week low n/a n/a $23.37 20.35Market Value n/a n/a $522.60 7,326.40Shares Outstanding n/a n/a 18.7 295.5Price/Sales Ratio n/a n/a 0.55 0.98Price/Earnings Ratio n/a n/a 12.55 13.33Return on Assets n/a n/a 12.80% 11.10%Return on Equity n/a n/a 34.70% 107.90%Current Ratio n/a n/a 0.27 0.43Long-Term Debt/Equity n/a n/a 0 4% Institutional Owned n/a n/a 69.60% 76.50%12 Month Revenue Growth n/a n/a -3.50% 8.10%36 Month Revenue Growth n/a n/a 6.10% -2.30%

Pizza Customers

Who Eats Pizza?

Source: Chain Leader, June 2000

Fun Facts About thePizza Customer

94% of America’s population eats pizza.

Each man, woman and child in America eats an average of 46 slices (23 pounds) of pizza a year

93% of all Americans eat at least one pizza a month

37% of kids say pizza is their favorite food

Children between the ages of 3 and 11 prefer pizza over all other food groups for lunch and dinner

Americans eat approximately 100 acres of pizza each day, or about 350 slices per second

Source: www.franchisehelp.com/web2000/pizza2002.htm www.pizzaware.com/facts.htm

When Do Consumers Eat Pizza?

Source: Chain Leader, June 2000

How Do Consumers Pay For Pizza?

Source: Chain Leader, June 2000

Where Do Consumers Eat Pizza?

Source: Chain Leader, June 2000

Industry Developments

Industry Trends to Watch A rise in convenience store locations

A shift in delivery/sit down restaurant pizza occasions to packaged pizza occasions (frozen)

New product introductions

Competitive deep discounting

Source: www.pmq.com/mag/2002summer/pizza_power.shtml

Industry Sources

Sources www.pmq.com - store census, market share, industry trends www.aboutpizza.com - history, types of pizza www.pizzaprosperity.com - industry statistics Pizza Today, August 2002 - sales information SalesTrac Weekly - weekly sales growth Hoover’s Online - financial outlook www.dominos.com - sales growth www.yum.com - sales growth www.papajohns.com - sales growth www.franchisehelp.com - pizza facts www. pizzaware.com - pizza facts Chain Leader, June 2000 - customer profile