Despite the myth abounding that the Chinese invented pizza, no less of an authoritative source than Wikipedia says that's demonstrably false. It's a Mediterranean invention, but has roots extending back well into the Neolithic period. But the real culinary advance that distinguishes pizza -- the addition of tomatoes to the bread trencher -- was indeed an Italian innovation.
Whatever the veracity of its origins, pizza remains popular today. According to another reliable source -- Snapple Fact No. 66 -- Americans on average eat 18 acres of pizza every day.
According to NPD Group, for the year ending November 2010, the U.S. pizza industry generated some $34.1 billion in sales. That's a lot of pizza, but it's actually down from the year before when Pizza Magazine (yes, there is one!) reported more than 65,000 pizzerias generated over $36 billion in sales, which itself was down from the year before. At the time, more than half the revenues came from independent operators, while Yum! Brands'
The pizza business remains crusty even today. Papa John's reported earnings fell 2% in the latest quarter despite a 9% increase in sales as higher costs ate into margins. Yum! reported U.S. same-store sales at Pizza Hut dropped 3% while California Pizza Kitchen
We admit it, we suck
The one exception is Domino's, which despite an advertising campaign touting just how much their pizza sucked, reported adjusted earnings for the first quarter that sharply exceeded analyst expectations as revenues rose more than 2%, also ahead of forecasts. U.S. comps, though, fell 1.4%, but that can be attributed to the huge 14% surge in same-store sales it enjoyed last year when the company embarked on its quixotic campaign.
I admit I was one of those who was snookered into trying Domino's pizza again after its CEO Patrick Doyle took to the airwaves to say he heard the complaints that his pizzas were like eating cardboard and that frozen pizza was better than what they served. About the only time I was willing to eat pizza there was after a night out on the town and its storefronts were one of the only food places still open. Hey, at that point you really didn't care what it tasted like.
Doyle set out to change that perception by making a better-quality product, and I'll give him good marks for his efforts. Domino's pizza does taste better than it used to. But I still favor my local pizza joint. Perhaps it comes from being in a family that has owned and operated independent pizzerias for years, but there's something about the taste of a local shop's pie that I prefer. Still, I'm more than willing to buy from Domino's again.
Selling coal to Newcastle
The pizza business in the U.S. is nothing if not mature. There's a growing market overseas, though, and all of the chains are figuring out a way to slice it up. Domino's saw 20% sales growth internationally, or 15% more without currency effects. Papa John's experienced 19% sales growth and a 5.6% increase in comps, while Pizza Hut saw a 12% growth in comps in China alone. Maybe the Chinese are rediscovering their affinity for pizza.
Although industry revenues are off, the pizza makers themselves have enjoyed the support of investors. Their stocks have risen like dough, with increases over the past 12 months ranging from 25% from Papa John's to more than 64% for Domino's. Despite that, Domino's and Papa John's sell at multiples that are only in the mid teens, and restaurant trends make them interesting still.
Not the old in-and-out
The pizza parlor operators eschew the "fast food" label given to burger joints like McDonald's
So, with a best-of-breed restaurant model, growth opportunities aplenty overseas, and valuations that look attractive, pizza makers might be as good for your portfolio as for your stomach. And Domino's, which has risen to the task of turning around its operations and its reputation, might still be the best of the bunch no matter how you slice it.