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Franchise Chatter Guide: How Fast-Casual Custom Pizza Evolved Into the Hottest Franchise Concept of 2014

by Brian Bixler on May 12, 2014

in Franchise Chatter Guides, Pizza Franchises



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This Franchise Chatter Guide on fast-casual custom pizza franchises was written by Brian Bixler.

During the last few years, a band of start-ups has been racing to become what some have called “the Chipotle of pizza,” seizing upon the fast-casual custom concept and mimicking the company’s model in hopes that they can do for pizza what Chipotle did for the burrito. But at the end of 2013, Chipotle may have surprised some of the movers in this emerging segment by announcing it was getting into the custom pizza business itself, possibly changing the playing field for the future.

Chipotle Mexican Grill announced last December that it was partnering with restaurateurs Bobby Stuckey and Lachlan Mackinnon-Patterson to launch a new fast-casual pizza concept called Pizzeria Locale after a successful test run of the new brand in Denver. That announcement followed one earlier in the year by franchisor Buffalo Wild Wings, which also pitched a flag in custom pizza territory by investing in Los Angeles-based PizzaRev.

Both business moves further legitimize fast-casual custom pizza as a burgeoning segment with sales potential and expansion possibilities that could reinvigorate the overall pizza franchise category, where sales growth has been as thin as a flatbread.

“Investors should take notice when two restaurant stars, within months of one another, invest in fast-casual pizza concepts,” wrote David Kretzmann, an analyst for the Motley Fool investment website. “With respective backing and involvement from Chipotle and Buffalo Wild Wings, two of the most successful restaurant growth stories of the past decade, both pizza joints (Pizzeria Locale and PizzaRev) could become national chains within the next 10-15 years.”

What that means for the other names in the fragmented segment will be a development to watch. Meanwhile, fast-casual custom pizza concepts continue to attract potential franchisees, who see dollar signs in what has evolved into the hottest franchise concept of 2014—one that looks to have staying power, rather than being a passing fad.

Industry Overview

Pie Five Pizza Co. Photo from southlakestyle.com

It’s hard to pinpoint ground-zero for the custom pizza explosion, or even if it was the idea of one person or several at the same time, but there is no question it was inspired by Chipotle’s success and probably started in Southern California, where many of the new businesses began to sprout.

“Everybody’s saying this is ‘the Chipotle of pizza.’ I’m really getting tired of that,” Randy Grier, CEO of Pie Five parent Pizza Inn Holdings, told QSR magazine last fall. “But I think it’s a reference that maybe helps consumers understand the concept.”

All of the major players share practically the same model, bringing the personal pizza into the age of selfies by preparing it precisely to a person’s own tastes. They feature a menu of high-quality ingredients that can be ordered as customer-created combinations in an interactive service line for one price. Usually the centerpiece of the restaurant is a very high-temperature oven that can bake the pizzas in two to five minutes.

There are more than a dozen viable brands currently competing and the number of companies continues to grow, but there will eventually be a shakeout, said IBISWorld analyst Andy Brennan. But for now everything is pie in the sky.

“It’s almost a pizza war,” Brennan said. “We won’t know for some time who the successful ones are, but like any new product that comes to market, it takes some time for the dust to settle.”

Upper Crust Franchisors

Project Pie's James Markham

Project Pie’s James Markham

Aside from Chipotle and Buffalo Wild Wings, the segment has attracted other franchisors with clout, knowledge and deep pockets as backers, QSR reported. Dallas-based Pie Five originally started as an express spin-off of Pizza Inn. Smashburger founders Tom Ryan and Rick Schaden entered the fray with Live Basil in Denver. Umami Restaurant Group, parent of Umami Burger, owns 800 Degrees out of Los Angeles, where it competes with Pizza Studio, led by former Baja Fresh and Burger King executive Ron Biskin. Matt Andrew, co-founder and former president of Moe’s Southwest Grill launched Atlanta-based Uncle Maddio’s Pizza Joint. And finally, Rick and Elise Wetzel of the $65 million Wetzel’s Pretzels chain are behind Blaze Fast Fire’d Pizza, which debuted in 2012 and now has about 15 units opened with another 150 stores in the pipeline.

Last year, Franchise Chatter spoke to James Markham, founder of another California-based brand, Project Pie. He cut his teeth in the segment as a co-founder and conceiver of MOD Pizza and Pieology. Since our interview, Project Pie has announced a partnership with Lee Equity Partners, headed by Thomas H. Lee, who is known for investing more than $10 billion in capital over the last 40 years through his involvement with brands such as General Nutrition Centers, Dunkin’ Brands, Snapple Beverage Corp. and Playtex Products.

Even before the announcement of the partnership, Markham was anticipating an investor that he said would “blow Project Pie up.”

“We don’t worry a lot about the competition,” Markham said. “While we have a current corporate development and franchise strategy, this (will) accelerate the entire infrastructure and bring an expansion of the brand to a whole new level.”

Rodney Eckerman, one of the founders of PizzaRev, told Franchise Chatter the chain isn’t as concerned about competitors as it is about some challenging dining trends, such as those that indicate more people would rather stay home and order in than go out to dinner.

“We have a much broader view,” Eckerman said. “We look at it much more globally than just the direct competitors. But the space certainly has a lot of heat on it. There’s a revolution going on.”

With so many new brands entering the market and none of them dominating yet, potential franchisees face the dilemma of striking while the iron’s (or, in this case, the oven’s) hot or sitting on the sidelines to see which brand will best capture market share.

“Despite the fact that no brand has even cracked the 30-unit mark, the better-pizza category already accounts for hundreds, if not thousands, of units in development across the country,” QSR reported in September 2013.

And some of those units are posting impressive annual sales volumes as high as $1.8 million, according to Darren Tristano, who recently completed the Fast-Casual Pizza Cluster Report for Technomic market research firm.

Even though Technomic’s year-end 2013 figures show Pie Five Pizza Co., Uncle Maddio’s and Your Pie leading some competitors in the number of units, each with 18, the landscape is about to change.

“I think right now the two brands that are at the forefront would be PizzaRev because of the investment of Buffalo Wild Wings and Blaze Pizza, which is expanding rapidly,” Tristano told Franchise Chatter. “They both have strong management and overall knowledge of the consumer market.”

The speed with which the dueling companies bring their concepts to additional markets will be key to determining their success, he added. Tristano expects the custom pizza segment to be especially popular with the noon crowd.

“Fast-casual pizza has emerged out of a white space that’s typically lunch time,” he said, adding that brands that offer comfortable environments and alcoholic beverages will also be able to pick up dinner and nighttime customers as well.

“We expect to see a lot of opportunity for growth in the next five to eight years,” Tristano said. “It will likely attract more franchisees and other investors to come into the market as it’s still in the very early stage.”

Custom Pizza Pricing

Among the metrics Technomic used to forecast growing success for the segment were consumers’ reactions to quality, taste and visual appeal of food; decor; and availability of healthy options. In each of these areas, all fast-casual restaurants rated higher on average in customer satisfaction than traditional pizza restaurants like Pizza Hut, Domino’s and Papa John’s.

Moreover, the report shows that consumers are increasingly willing to pay higher prices for gourmet and natural ingredients; they are increasingly interested in new, innovative and themed pizzas with a preference for the taste of wood-fired or brick-oven-baked pies. And while convenience is still the primary driver for pizza sales, taste is a close second.

Emerging Players

Here are just some of the brands poised to increase their market share in the fast-casual custom pizza segment:

PizzaRev

PizzaRev

Founded by notable entertainment industry executives Irv Zuckerman and Rodney Eckerman, along with their sons Jeff Zuckerman and Nicholas Eckerman, PizzaRev seems destined to be a leader of the new pizza pack with nine company-operated units open in the Los Angeles area and another 65 franchised and corporate locations set to open across the country by the end of 2015.

Immediate markets targeted by the company outside of California include Minneapolis (with its first franchise unit opening there this week), Austin and St. Louis, as well as cities in North and South Dakota. Company differentiators include homemade dough options and more than 30 fresh toppings.

Blaze Fast Fire’d Pizza

Blaze Pizza

Of all the brands, Blaze Pizza seems to be the most on fire. Based in Pasadena, Calif., it reached 10 units in 2013, spreading out from its home base on the West Coast to establish units in Chicago, as well as in Michigan and Wisconsin. The chain plans to open 45 more units across the country in 2014 with some 230 units in the development pipeline, according to reports.

The restaurant lets customers choose from among seven meats, 15 vegetables, seven cheeses, and six sauces to build their own customized pies. Aside from having the experience and know-how of Wetzel’s Pretzels behind it, Blaze also has on its team executive chef Bradford Kent, one of the most highly acclaimed pizza chefs in the country.

MOD Pizza

MOD Pizza Exterior

It started in the Pacific Northwest as an acronym for Made On Demand and its founders include Ally and Scott Svenson, founders of the Seattle Coffee Co., along with James Markham, who eventually moved on to join the Pieology team in 2011 before establishing his own brand, Project Pie. Having started in 2008, MOD has been around longer than some of its competitors.

Based in Seattle with 14 units currently, last year it moved into California for the first time with openings in Valencia and Irvine. This year, it plans to quicken the pace of its growth by opening 25-30 more corporate locations.

The company has recently been beefing up its executive team to include former employees of Starbucks, JP Morgan Chase and the Walt Disney Company.

Uncle Maddio’s Pizza Joint

Uncle Maddio's Pizza Joint

Based in Atlanta, Uncle Maddio’s has a certain edge in the Southeast but is expanding quickly outside its comfort zone. Founded in 2008, it now operates 19 restaurants in six states with 34 restaurants in development for 2014 and 175 units committed through its franchise program.

Unlike some competitors that are concentrating primarily on one-size pies designed for each individual diner, Uncle Maddio’s has four sizes with three different crusts, a variety of sauces and nearly 50 fresh toppings, including vegan, organic and hormone-free choices. It rounds out the menu with gourmet salads and toasted panini.

The chain has also made forays into college towns. Its most recent unit opened this year at Auburn University in Alabama, the first of five on the drawing board for that state.

Your Pie

Your Pie

By now, Drew French has proven that even though he was just 24 when he started Your Pie in Athens, Ga., it wasn’t just a flash in the pan. And what’s different about French is that he puts his money where his mouth is. Both he and his chief executive Bucky Cook run stores as franchisees. Your Pie closed out 2013 in a strong position, having opened its 18th store with three more opening soon in Georgia. It also has units in South Carolina, Florida and Tennessee.

Last year, Your Pie also received a financial infusion of an undisclosed amount from Atlanta private equity firm Georgia Oak Partners. The investment in Your Pie Franchising is intended to fuel expansion to 100 stores in two years.

The brand is built on healthy options with only fresh ingredients, homemade pizza sauces and salad dressings, and offers vegan, vegetarian and gluten-free pizzas, as well as traditional pizzas.

Pieology

Pieology Photo by thisgirlangie

Pieology might have the custom pizza down to a New Age science and is probably the best brand at touting its green nature by promoting its energy efficient environment and pizza ovens. Founder Carl Chang (brother and former coach of 1989 French Open winner Michael Chang) has said that there was a “personal element” built into the concept. Part of that is being community-oriented, which is expected of franchisees as well.

Growth is coming through both franchising and corporate development. The corporate mission statement is more like a philosophy: “Be inspired to make a difference one pie at a time.”

While the company’s corporate culture might be more socially conscious than other brands, its business model is not that different. Pieology offers more than 30 different topping choices and sauce options include herb butter, red sauce and olive oil. At Pieology, customers can also order “after bakes” which are toppings added to the pizza once it comes out of the oven.

The Future

Pizzeria Locale Exterior

There are other brands racing for the better-pizza prize, including 800 Degrees Neapolitan Pizzeria, which has not indicated plans to franchise, and Top That! Pizza. And that’s before Chipotle has even asserted its presence in the market. The company’s Pizzeria Locale concept is still in the development stage with the first location opened last year in Denver, where Chipotle got its start. The company is scouting other areas in Denver for additional locations as it expands, according to press releases.

Meanwhile, some traditional pizza chains are taking notice of the fast-casual custom pizza segment and making small compensations to meet the competition. Domino’s would be setting the best example, by among other things introducing an artisan-style pie to its menu, according to Technomic’s Tristano. But the big pizza franchises seem to have mostly reacted by refocusing efforts on things like delivery and convenience.

If the fast-casual segment continues to burn white hot, they might need to do more to protect their turf. “It’s forcing the major players to be innovative and compete,” Tristano said. “It’s not necessarily going to steal the sales from Papa John’s and Pizza Hut. It’s just going to provide new options at nighttime.”




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