Sector insight: Pizza and pasta restaurants

While pizza and pasta chains have been struggling on the eat-in side, takeaways remain popular with the cash-strapped public.

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Two-for-one offers are a favourite tool for boosting volume sales, and the recession has led to a surge in these promotions as brands try to tempt reluctant shoppers. With websites aggregating the latest discounts across sectors, it is now easy for careful shoppers to take advantage of money-off coupons.

Few sectors have embraced this with as much gusto as pizza and pasta restaurants. Hardly a day goes by without branded 'two for one' or 'kids eat free' vouchers pinging into email inboxes. While this might encourage footfall, it runs the risk of devaluing the meals, and if consumers come to expect that there will always be a deal available, they will go elsewhere if there is not.

In 2009 the total market was worth an estimated £1.4bn, according to Mintel. Although this equates to a 14% increase since 2004, in recent years both value and margins have been hit by the discounting culture.

Promotional offers

Research shows that 29% of consumers now eat out to make use of a promotional offer, with a quarter of regular pizza/pasta restaurant diners taking advantage of them. These incentives are most effective with younger people.

This voucher frenzy is a reflection of the combination of several factors that have made the sector a particularly tough environment. While the recession has meant all restaurants are fighting for fewer customers, the pizza sector also has to deal with flack over the nutritional content of its menus and the ease with which people can opt for a cheaper shop-bought alternative.

Consumers are being more frugal in their eating-out habits: six in 10 have reduced the frequency of visits or the amount they spend when they go.

Takeaways remain popular

Yet while the dining-in sector has been struggling, the popularity of takeaways has remained buoyant. Pizza and pasta restaurants have been ahead of the crowd in terms of mobile and internet ordering (helped by the simplicity of their menus) and this has boosted takeaway and delivery value. Last year, £740m was generated through takeaways and deliveries, compared with £654m eating in.

The public health spotlight fell on the eating-out sector in 2009 when the Food Standards Agency (FSA) launched a trial of a voluntary code of conduct for menu-labelling in which calorie information is displayed on menus to help diners make healthier choices. The FSA said consumers want more information of this sort, yet Mintel research suggests this is not always the case, especially among male diners.

'Fast casual'

While they remain popular, pizza and pasta restaurants face competition from other 'fast casual' restaurants such as Nando's and Wagamama, fast-food outlets and food-service pubs.

With more than 700 outlets, Pizza Hut dominates the market, although Domino's is close behind with 600. The main operators have put expansion plans on hold during the recession.

Pizza Hut has varied deals depending on how the customer buys their pizza, with At the Restaurant, Collection from Restaurants and Delivery & Takeaways. In 2008 a temporary name-change stunt garnered the headlines when it called itself Pasta Hut for three months to promote its pasta offering.

The Gondola Group owns the Pizza Express, ASK and Zizzi chains. ASK has been updating its menus, especially at it specific 'ASK Italian' restaurants, while PizzaExpress continues to promote its 'at home' retail range.

Last year Papa John's, which has about 150 outlets, launched a mobile web-ordering service with geo-location, to find the nearest outlet, and SMS confirmation.

In the years ahead the restaurants will have to alter consumer expectations of price-led promotions and may need to focus on menu innovation to engage their interest. Perhaps with offers such as coffee and cake in the afternoon, they could compete with the coffee-shop chains.

By 2014 the market will be worth £1.6bn, according to Mintel, a 15% increase on 2009; but when inflation is taken into consideration, this represents a static market.