Now that Chipotle Mexican Grill (NYSE:CMG) has announced it bought an interest in a tiny pizza chain called Pizzeria Locale comes the burning question. Can Chipotle (NYSE:CMG) really make a pizza with integrity that will satisfy those of us still greasily clinging to our mainstay delivery pizzas?
Why pizza for Chipotle?
Pizza is popular. Americans eat 350 slices of pizza every second and there are 65,000-plus pizza restaurants in the US as of 2012. That equals one pizza joint for every 4,615 Americans, making for a $40 billion business annually.
Wow, you think, that doesn't seem like nearly enough pizza! Franchise industry trends show that pizza is the No. 1 dinner choice for Americans of whom 93% eat at least one pizza monthly.
With a 'make your own' concept eerily similar to that of Seinfeld's Cosmo Kramer, Pizzeria Locale may be one pizza concept that hasn't been explored. It's also similar to the choose-your-own concept at Chipotle. As Cosmo tells Jerry," I'm telling you guys, this pizza thing is really gonna happen! People really want to make their own pizza pie!"
So, let's assume the market isn't saturated. This venture far afield from Chipotle's expertise seems to signal either boredom with a smoothly running business model or a desperate search for new areas of growth (less likely).
Steve Ells, Chipotle founder and classically trained chef (Culinary Institute of America), has overseen the tremendous growth of brainchild Chipotle for more than two decades. Likely, Ells wants to prove his business model of sustainable healthy food and the company's efficiency works for other cuisines. "Throughput," an industry term for how fast you move the customers through, reaches as high as 300 per hour at the best-performing Chipotles.
It could be as simple as he's bored with burritos.It was curious enough when Chipotle started its chain of Asian-fusion themed ShopHouse. Jennifer 8 Lee, author of The NY Times best-seller about the Chinese restaurant industry, The Fortune Cookie Chronicles, says some 40,000 Chinese restaurants in the US outnumber the US Mickey D's, Burger Kings, KFC's, and Wendy's combined. But with Chipotle's Pan-Asian tweak ShopHouse was filling a desire for less egg rolls and more authenticity and variety.
Four chains control 36.8% of the US pizza market: Pizza Hut, Domino's, Papa John's, and Little Caesar's (privately held).
Domino's may be the most serious competition, with almost one-quarter of pizza delivery share in the US. In 2009 it ran a very public and unusual ad campaign, admitting its pizzas tasted like cardboard and dropping its 49 year-old pizza recipe. Domino's most recently has been touting its mandate to 'slow down' with its handmade pan pizza made with fresh, never frozen dough.
Not only is Chipotle competing against these pizza titans on taste and freshness but also on business model, with 96% of Domino's locations owned by franchisees as opposed to the Chipotle company-owned model.
And Domino's is also rolling out a new store design, incorporating a Pizza Theater theme, much like Krispy Kreme's Doughnut Theater. The first debuted in Baton Rouge, La. in November. Overall, Domino's has raised the bar and this fall won The Huffington Post Pizza Deathmatch for best chain pizza.
Coming in second was Pizza Hut. Yum! Brands' US Pizza Huts have also been the target of a redesign focus, with 150 new Pizza Huts in the US. It might surprise you to know there are 7,756 Pizza Huts to 5,595 Taco Bells and 4,618 KFC's in the US. Yum! only owns and operates 26% of Pizza Huts.
The main challenge will be retraining Americans to appreciate sustainable- sourced ingredients in pizza. Sourcing ingredients with integrity on a large enough scale may be a problem. Pepperoni, for example, is the most popular US pizza topping.
Luckily for Chipotle, it has more experience in this area than anyone. As Ells told Fortune when he was first opening ShopHouse, "Chipotle succeeds not because of the burritos. It works because of our system: fresh, local, sustainable ingredients, cooked with classic methods in an open kitchen where the customer can see everything, and served in a pleasing environment."
Pizza probably won't be a needle-mover for Chipotle for years. Its ShopHouse concept has only expanded to four locations in two years. Whether Ells can pull off the same magic for pizza is moot. At the very least, it will drive its rivals to up the game yet again just as Taco Bell offered a fresher Cantina Bell menu to compete with Chipotle. The real winner of the war will be pizza lovers and commodity mozzarella suppliers.
AnnaLisa Kraft has no position in any stocks mentioned. The Motley Fool recommends Chipotle Mexican Grill. The Motley Fool owns shares of Chipotle Mexican Grill. 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.