Together, Domino's Pizza (NYSE:DPZ) and Yum! Brands' (NYSE:YUM) Pizza Hut make 25% of all U.S. pizza sales each year. In an environment where 10% of all restaurant openings in the U.S. come from pizza concepts, there has never been a better time for pizza chains to differentiate themselves from the increasing competition.
Since the demand for chicken wings has never been greater in the U.S., Domino's Pizza continues to add new flavors to its wings in an attempt to scoop up market share from wing-specialty chains like Buffalo Wild Wings (NASDAQ:BWLD). Most recently, Domino's Pizza debuted specialty chicken on its menu on April 14.
Today, your Domino's Pizza order probably contains a lot more chicken, and there are numerous reasons for this.
Domino's Pizza is really just Domino's
In 2012, Domino's Pizza removed the word "pizza" from its famous logo after it had been selling many non-pizza items for years. At a takeout chain where you can order a variety of sandwiches that include Philly cheese steaks, desserts like cinnamon sticks and chocolate cake, and several types of chicken wings, it only made sense to drop the word "pizza."
Nevertheless, Domino's Pizza still continues to target pizza customers as it launched its version of the pan pizza in late 2012 to go up against rival Pizza Hut.
By addressing customers who love pizza and those who don't, Domino's Pizza has continued to grow its earnings. In 2013, the company's revenue rose 7.4% to $1.8 billion, while its net income soared 27.2% to $143 million.
Why chicken is consuming your Domino's Pizza order
Super Bowl Sunday has made Domino's Pizza a legitimate threat in the chicken wings business. Not only did the chain sell over 11 million pizza slices on game day, it also sold over 3 million chicken wings.
It is very possible that without the company's popular pizza, millions of customers would have never had the chance to try its wings since many coupon deals offer wings as a side item in addition to pizza.
In a recent presentation, Domino's Pizza revealed that meat is now a close second behind cheese in terms of commodity costs. This is no surprise given the overall situation within the food industry.
Meat continues to become more expensive. Beef prices are at record highs now, with ground beef at $3.55 per pound, up 56% since 2010. Since the end of 2013, prices for lean hogs are up over 42%.
It isn't just beef and pork prices that are pointing restaurant chains toward chicken, though.
Even though eating habits have trended toward more protein in recent years, with over half of U.S. adults saying they want more protein in their diets, they are more interested in chicken than other sources. The average American consumes 82 pounds of chicken per year, up from just 34 pounds in 1965. By comparison, the consumption of beef and pork is just 57 pounds and 46 pounds, respectively.
In the end, boneless chicken sales in the industry grew 11% in the three years ended February 2013, and this could be the big reason why Domino's Pizza just introduced its own version of the dish.
Competition encourages innovation
Domino's Pizza continues to face swift competition from its closest rival: Pizza Hut. Like Domino's Pizza, Pizza Hut has been successful in its own right with its menu offerings and it has also capitalized on mobile sales. Its mobile apps are now on over 95% of all smartphones.
Recent promotions like the company's $10.99 Tax Day Deal bundle box shows that it has a very similar strategy for the introduction of new items. Given that Pizza Hut's signature sides are breadsticks, cinnamon sticks, and chocolate cake dunkers, Domino's Pizza's edge in terms of side menu items appears less noticeable.
Buffalo Wild Wings is silently moving in on pizza as well -- perhaps to counter what pizza chains have done in the wings department. The company has made two separate investments in newcomer PizzaRev, a fast-casual pizza chain which has just a few units so far.
Additionally, Domino's Pizza may have noticed the success Buffalo Wild Wings has had in their boneless wings category. Boneless wings for Buffalo Wild Wings now make up 20% of all sales, equal to that of traditional wings. Furthermore, the chain has big expectations in the near-future for a total of 3,000 locations, up from 1,000, and a 20% net earnings growth goal for 2014.
In short, Buffalo Wild Wings' ongoing success shows there is a huge demand in America for chicken wings, and Domino's Pizza is acting now, rather than later, to capture some of that business.
A recent study revealed that 40% of U.S. restaurants today offer pizza. This alone may be the deciding factor that pushes pizza chains like Domino's Pizza and Pizza Hut to continue to innovate and introduce new products.
Given the rise in beef and pork prices and the rising demand for chicken among American consumers, it should be no surprise that Domino's Pizza serves chicken to its customers now and it will in the future.
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Michael Carter has no position in any stocks mentioned. The Motley Fool recommends Buffalo Wild Wings. The Motley Fool owns shares of Buffalo Wild Wings. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.