Pietro's Battles For A `Pizza' The Pie -- Chain Marks Its 35Th Year In Competitive, Tough Business

LYNNWOOD

August marks 35 years in business for Lynnwood-based Pietro's Pizza - and the chain is celebrating with promotions featuring blasts from its 1950s past, including appearances by an Elvis Presley look-alike.

But don't let the celebrations fool you - underlying them is the grim realization that the pizza market is a tough, competitive industry that brutally punishes errors and complacency.

U.S. consumers spend nearly $25 billion a year on pizza, eating 90 acres of pizza each day, according to research from the National Association of Pizza Operators. Still, profit margins continue to tighten, and smaller operators are scrambling to find a competitive edge.

To survive in the rough-and-tumble world of pizza peddling, Pietro's focuses on its local roots and market longevity. The company counts on loyalty from its longtime customers and on maintaining its reputation for a quality product, says Dan Japhet, Pietro's vice president of marketing. These are the company's weapons in what has become known as the Pizza Wars, he says.

The wars, however, continue to intensify and price cutting is the weapon most pizzerias are using to capture market share.

Consumer demand forced Pietro's into the "couponing" game last year, Japhet says. Although Pietro's now regularly offers discount coupons and other price incentives, it still does not focus exclusively on price, Japhet says.

Competing on price is dangerous, he says. Smaller companies cannot offer the discounts the huge chains can offer. Deep discounts on pizza prices has caused some pizzerias to pinch pennies on ingredients, which can hurt a company's reputation for quality, Japhet says.

Still, couponing remains the most popular Pizza War weapon, Japhet admits. In 1988, about 32 percent of pizza sales were through price discounting. Today, that rate has risen to more than 46 percent, he says.

The big losers are the mom-and-pop stores, Japhet says. These restaurants are too small to compete on price and have little marketing budget, he says. Depending on the area, Pietro's commands between 5 percent and 25 percent of the total market share, Japhet says. He would not provide specific market information or revenue and profit figures.

To maintain its share of the pie, Pietro's has increased it marketing budget by about 50 percent.

"Pietro's is a regional company (with more marketing muscle and ability to discount prices) with a mom-and-pop clientele. Customer loyalty has been our saving grace," Japhet says.

Besides heavy price discounting, lower-cost outlets and other means of bringing pizza to consumers is also putting pressure on market share.

Restaurant Business, a trade publication, said, last May, that Pizza Hut"seems to be exploring virtually every means of bringing pizza to the public; from specialized delivery/carry-out units, to over 200 kiosk units franchised to Marriott Corp., to Express units (in shopping malls)."

Overall, pizza outlets make up 10 percent of all restaurant sales, according to the National Association of Pizza Operators. As industry profit margins shrink, more and more independent operators are turning to franchising, according to the association's research.

Locally, there are about 654 pizza restaurants, which is one for every 2,073 houses, Japhet says. Nationally, there is a pizza restaurant for every 1,850 houses, he says. In addition, consumers buy pizza from grocery stores, non-pizza restaurants and other sources that are not included in those statistics, he says.

The glut of sources for pizza-munching consumers has stalled most expansion in the industry, Japhet says. From 1988 to 1989, pizza restaurants were expanding at a rate of 10 percent per year nationally, Japhet says. For the past two years, expansions averaged about 1 percent. Profit margins are so tight and competition so stiff, that even national chains are closing marginal restaurants, Japhet says.

Pietro's, too, has closed some stores. The company, which was founded in 1957 in Longview, Cowlitz County, now has 67 restaurants in Washington and Oregon. In the greater Seattle area, the company has 23 restaurants, which is down from 29, Japhet says. Pietro's has no plans to close any additional stores. Over the next three years, the chain will concentrate on remodeling and updating some of its existing restaurants, Japhet says.

It is unlikely that other pizza chains will expand, either. The Restaurant Business article concludes: " . . The days of unbridled expansion are past, as hungry regional chains and independents fight the Big Three (Pizza Hut, Domino's and Little Caesars) for an ever-smaller piece of the pie."