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Epic Economist, 11/7/23
"15 Pizza Chains Collapsing All Around Us"
"It's been a rough couple of years for America's struggling pizza companies, with some of the country's largest pie chains reporting waning demand and mass store closings. Not even big brands like Domino's, Papa John's, and Pizza Hut are stepping on solid financial ground as we approach 2024.
For instance, take-and-bake Papa Murphy's is being forced to rethink its business due to changing consumer trends. Although its approach helps to save money on delivery, labor, and store size, fewer people seem interested in ordering pizza that isn't hot and ready to eat. On top of that, whereas delivery accounts for a big part of sales at other pizza chains, it's a pretty small fraction of Papa Murphy's profits in 2023. Despite having an almost 95 percent franchised empire, the company is carrying a multimillion-dollar debt, that has put pressure on struggling franchisees to rapidly expand and increase their margins, but that has left them ill-equipped to handle competition from other pizza chains — which is now resulting in several closings. As industry experts pointed out, it's never a good sign when a company has 13 straight quarters of sales declines. Over the past year alone, parent company MTY Brands shuttered 108 Papa Murphy's locations, and more are expected to occur in 2024 because pizza lovers want convenience, and Papa Murphy's isn't being efficient enough.
Also facing profitabily issues, Little Caesar's is struggling ever since the brand introduced its Hot-and-Ready deal that offers customers pizza for $5.55. While the idea behind it seems interesting, in real terms, the new prices have been squeezing franchise owners. In fact, since 2018, dozens of franchisees ceased operations and closed all stores, including 21 Kansas City locations owned by businessman Alan Knox. He said that the chain's stores couldn't make a profit at that price point. Operators in South Carolina, Texas, and Washington closed a total of 58 stores over the past twelve months alone. Still, the company didn't roll back the deal and insists that the strategy will pay off in the near future, but franchisees disagree. "The $5 price point has become an unprofitable business model for many and is fast becoming unprofitable for many more," warned Todd Messer, a spokesperson for the Independent Organization of Little Caesar Franchisees.
After experiencing a pandemic boom, many pizza chains are now facing challenges to bring consumers back. Americans continue to reduce their spending amid inflation and rising energy prices, leaving little money to order delivery or eat out. Changing consumer habits, profitability issues, and ongoing labor shortages are pushing dozens of beloved U.S. pizzerias to the brink this year. In a crowded pizza market, only the best of the best will remain in business. These company’s underwhelming performance is a sign of trouble for the entire industry. With over 35,000 pizza restaurants across the country, it's easy to understand why businesses are having to make the difficult decision of reducing their store count. The market is clearly saturated, and there isn't enough demand to support all these locations, especially as another economic downturn unfolds. In the coming months, we're going to see many more restaurant closing announcements because the real carnage has only just begun.That means your favorite pizza place may be on the list of closings announced by companies in the third quarter. For that reason, we listed some of the brands that are being battered in the market right now."
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