Tasty winners in tough times

When times are tough, people trade down their eating habits, with international fast food chains standing by, ready to serve and soak up the profits.

People who once went to white tablecloth restaurants dial back to casual cafes. Cafe diners switch down to upmarket takeaways Indian, gourmet pizza and burgers. Folks on the bottom of the heap go for pick-up pizzas. It means fast food operators, especially the discounters, do well and have probably not been as badly hit by the recession as up-market restaurants.

Wellington restaurants are currently staging a highly successful fight back in the form of "Wellington on a Plate". But some of them have suffered a tough winter.

Regardless of what you think of the quality, the choice of cheap fast food in a $2 billion-a-year market is a far cry from the cheap Friday night fish and chips of decades past.

The most dramatic successes have come from Kiwi-owned franchise stores for global chains like Subway, Domino's Pizza and Kiwi-owned Hell Pizza.

It seems local knowledge of preferences like the Kiwi sweet tooth and hard work by Kiwi owners running their own stores works better than corporate chain-owned stores like Pizza Hut. Pizza Hut is now trying to sell its stores to local owner-operators.

Domino's this week claimed to be out-selling Restaurant Brands-owned Pizza Hut, although it did not give sales figures. Pizza Hut has 93 stores to Domino's 77, but Pizza Hut average store sales were significantly lower than Domino's according to Domino's boss Don Meij.

That is a seismic shift in the $300 million a year, 400-store pizza sector in just a few years.

Last year Pizza Hut sales were down to just $64 million from $89m in 2006, a 27 per cent slump.

Pizza Hut and Domino's probably have about 23 per cent each of sales, with Hell not far behind, according to Coriolis Research retail analyst Tim Morris.

In business terms, Domino's is eating Pizza Hut's lunch. Pizza Hut has suffered falling same-store sales for about four years, although it doesn't seem to be losing market share as fast as it was.

Mr Morris says Pizza Hut dominated the market in New Zealand just five years ago. The only competition was from single locally owned operators or small chains.

But Domino's came in and has been on "an incredible growth curve" with a simple business model, like Subway, and excellent processes. It also bought Pizza Haven which gave it some scale.

Domino's success relies on its cheap prices, heavily undercutting Pizza Hut and anyone else.

With discounts, a large pizza can be as cheap as $6 the same as a single order of takeaway fish and chips.

"The quality is not dire. They do well with university students, men between 15 and 25," Mr Morris says.

New Zealand chain Hell Pizza, with about 60 stores, also grew fast from small beginnings in Wellington in 1996 but with a better quality product. Its original founders recently bought it back from TPF Group which also owns Burger King.

Expect Hell to stick to more expensive gourmet pizza and controversial marketing blitzes like this week's Auckland billboard: "Our brownie won't eat your dog."

Pizza Hut got squeezed between Domino's and Hell.

The pizza chains sell meals for a family or group, a different segment from Subway with its individual sandwiches, or a McDonald's burger.

Mr Morris said Domino's has come on strong in New Zealand and started the idea of delivery-only outlets 30 years ago in the United States. They are the global leader in that sector.

Getting stores in the right location was important for fast delivery. And the thermodynamic property of cheese is vital as cheese will hold heat for much longer than a burger.

That delivery concept blitzed the Pizza Hut model of that time for dine-in pizza restaurants.

Domino's was founded by Tom Monaghan, an arch Right-wing conservative who once famously gave Senator Ted Kennedy, also a Catholic, a grilling for his liberal stance on abortion.

Mr Monaghan retired a decade ago after selling out for US$1 billion (NZ$1.48b) but still holds about a quarter of the company that ranks second only to Pizza Hut in the US.

New Zealand is a small cog in the international fast food battle. Domino's rivals Pizza Hut while Burger King tries to foot it with McDonald's.

Burger King was for sale in New Zealand but has not changed hands, yet. US chain Wendy's is also in the market, with 15 stores, mainly in Auckland.

But it is not all a one-way street for New Zealand. Domino's Pizza buys all its cheese for both Australia and New Zealand from Fonterra and gets the best price going because of its size. McDonald's buys about six million kilograms of cheese from New Zealand for markets around the world, with one million kilograms for New Zealand alone.

- © Fairfax NZ News