The evolution of New Zealand's pizza industry
As the last eat-in Pizza Hut restaurant closes its doors, price wars and the constant need to balance between quality and quantity take hold of New Zealand's pizza industry. Laura Walters reports on its past and its future.
It was New Zealand's first eat-in Pizza Hut and now it's shutting down. Sure, it may just be a place where you can eat as much self-service dessert and deep-pan pizza as your stomach can handle, but it does mark the end of an era in the industry.
As the sun sets on the golden age of pizza in New Zealand, it's interesting to see how the industry's evolved from one Pizza Hut in New Lynn to a cut-throat fast food battle.
THE FIRST BITE
When Garry Melville-Smith brought the first Pizza Hut restaurant to New Zealand in 1974, pizza was considered an exotic cuisine.
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No one really ate it, but Melville-Smith decided to take a gamble in the family dining space.
He had a some experience in the industry after introducing the KFC chain to the country a few years earlier.
So at 32 Melville bought the franchise rights for the brand in New Zealand and went on to open 36 stores across the country in the next 16 years.
Pizza Hut changed the game. It opened its doors on a Sunday, serving alcohol and securing itself firmly in the family dining space.
The restaurant was charging close to $30 a pizza but people were happy to pay it, Melville-Smith said.
"It didn't blow the doors off like KFC."
And once word travelled the restaurants started bustling.
Little details like Pizza Hut's salad bar, kids' puzzles, self-service dessert and deep-pan pizza were a first in New Zealand, and Kiwis loved it.
"It was a pretty successful formula back in the 70s, 80s and 90s I'd have to say."
At its peak, the chain held about 75 per cent market share under Melville-Smith's watch.
Melville-Smith's been out of the business for a while now but he still thinks there's room for a family-focused fast food eat-in restaurant in New Zealand.
He said he was surprised by Restaurant Brands' strategy to phase out the dine-in model and focus on the "competitive and low-margin" takeaway and delivery sections of the business.
The iconic Pizza Hut restaurants have been steadily closing down and the franchise rights owner has been selling low-volume stores to local owner-operators.
Pizza Hut's New Zealand sales for the last quarter totalled $10.4m, a decrease of 3.9 per cent compared to the same period the previous year but same-store sales were up 4.2 per cent proving there is something behind their strategy.
GETTING A PIECE OF THE MARKET
Pizza Hut's success paved the way for the rise of competing foreign chains like Domino's, Eagle Boys and Pizza Haven.
When Melville-Smith sold the New Zealand franchise rights back to PepsiCo in 1996 for a tidy sum, which he wouldn't disclose, the chain was employing about 1200 staff.
The same year Gavin Cook, the man behind the South Island-based Stallones pizza restaurants, introduced the Eagle Boys chain to New Zealand from across the ditch.
PepsiCo, which by this stage also owned the franchise rights to KFC, rebranded as Restaurant Brands and listed on the New Zealand stock exchange in 1997.
And in 2000 Restaurant Brands-owned Pizza Hut tightened its grip on the market when it took over Eagle Boys in a deal reportedly worth $28.3 million - it also adopted the chain's famous barbecue meatlovers pizzas.
But Pizza Hut had a rude awakening when Domino's launched in New Zealand in 2003.
In 2005 Domino's, which now has the biggest slice of the Kiwi market, bought out Pizza Haven's New Zealand business.
Meanwhile, Kiwi company Hell Pizza, which started in Wellington in 1996, was gaining ground with the help of its risque advertising and premium pizzas.
As the smaller chains were dissolved and the big players rose to the top a perfect storm began to brew.
Melville-Smith said building the Pizza Hut from scratch in New Zealand was exciting but the game was no longer for him.
The focus on high-volume and low-margin was a whole new world.
In an attempt to gain the advantage in the low-end market and fight back against Domino's aggressive New Zealand growth, Pizza Hut led the recent charge on "value pizzas".
Unsurprisingly, Domino's followed suit and $5 pizzas became a standard feature on the chains' menus.
Domino's general manager Scott Bush said $5 value pizzas were still a big part of the company's New Zealand business.
"People want more than pizza these days."
Kiwis are looking for value and they're looking for speed, Bush said.
Domino's delivery drivers can get a pizza to a customer 15 minutes from when they order. The chefs can make a pizza in just over 10 minutes.
And to make sure they stay on their toes, the chain has introduced a driver GPS tracking system.
The plan is to halve the time it takes to make a pizza as Domino's eyes up the lunch market.
The global chain has 95 stores in New Zealand, with the aim to get to 120 in the next two years.
The New Zealand business experienced its third year in a row of double-digit growth in 2015.
And Bush said it was still a "massively growing industry".
It's also a tough industry to break into but that doesn't mean there's no room for another player to take on the big guys like Domino's and Pizza Hut, he said.
"Competition is a great thing. None of us would be here without competition.
"To be challenged is wonderful."
More competition has the added bonus of pushing prices lower for consumers, but could it really be viable to sell a pizza for less than $5?
Meanwhile, Hell Pizza general manager Ben Cumming said the Kiwi business had deliberately steered clear of the "price war" between the global brands.
Cumming puts Hell at the "more premium end" of the market, where there is more of a focus on quality and less on quantity.
Hell Pizza launched in Wellington in 1996 and the pizza chain of the middle class now has 66 stores across the country.
The Kiwi brand isn't directly competing with the likes of Pizza Hut and Domino's so it can afford to do things like use all free range meat and charge a little more for the pleasure.
There would always be a place in the market for $5 pizzas thanks to the price-conscious consumer but that space in the market was shrinking, Cumming said.
And unlike Bush, Cumming doesn't think there's room for anymore big players.
"New Zealand has enough pizza chains."
While low-cost pizzas will always hold a place in the New Zealand market, consumers' tastes are changing.
Cumming said the rise of the conscious consumer was dominating the company's current direction.
Hell switched to free range meat in November and it continues to focus on healthy, ethical, high-quality products.
Cumming said this trend still had a long way to run and the Kiwi business was uniquely positioned to move with changes in local dining trends.
While the chain was well-positioned in the market, global food chains often struggled in New Zealand, he said.
Kiwis liked to support one-off, good quality local restaurants rather than big businesses that focused on quantity rather than quality.
Cumming said this trend was apparent in the craft beer and cafe markets and was also true in the pizza industry.
Meanwhile, Domino's is looking to push into the lunch market and continue to grow its premium range of pizzas.
"For us it's all about slow where it matters and fast where it counts," Bush said.
Domino's is also aware of the unique Kiwi palette and is customising pizzas to fit the bill.
1974: First Pizza Hut restaurant opens in New Lynn, Auckland.
1996: Gavin Cook, owner of South-Island based Stallones pizza brings Eagle Boys chain to New Zealand.
Pizza Hut Restaurants (NZ) Ltd sells New Zealand franchise rights to PepsiCo
Hell Pizza starts up in Wellington
1997: PepsiCo, now Restaurant Brands, lists on the NZX
2000: Restaurant Brands buys Eagle Boys franchise rights and stores from Cook for $28.3m and merges the brand into Pizza Hut.
2003: Domino's launches in New Zealand.
2005: Domino's buys out Pizza Haven chain.
2016: Last Pizza Hut dine-in restaurant due to close on March 20, as Restaurant Brands continues to focus of takeaway, delivery and selling small-volume stores to local owner-operators.