Pizza chains feel the heat

CHICAGO — It’s almost as if America was losing its taste for pizza.

Sbarro, the seemingly omnipresent pizza joint at mall food courts, filed for bankruptcy protection this week. That follows Round Table Pizza, a West Coast chain that filed in February. And the operator of Uno Chicago Grill emerged from bankruptcy protection last summer.

Ranked among the largest U.S. pizza operators, they are numbers 5, 10 and 11, respectively, with a combined 1,700 locations and $1.6 billion in sales, according to industry publication Pizza Today.

Giordano’s, one of the best-known chains for stuffed pizza in Chicago, filed for bankruptcy protection in February. Numerous smaller pizzerias also have slipped into financial trouble.

It’s true that pizza chains are dealing with the effects of a deep recession, higher ingredient prices and more competition from nontraditional channels, such as take-and-bake pizza from restaurants and supermarkets.

But America still loves pizza.

Overall, the pizza business is faring OK, with flat sales of about $38 billion over each of the past three years, said Jeremy White, editor of Pizza Today. The pizza business has been treading water while overall restaurant revenue sank.

“The pizza business is really pretty solid right now,” White said. “You can feed a family of four for under $30 or even under $20.”

Sbarro, with more than 1,000 locations in 40 countries, was saddled with crushing debt. And unlike many strip-mall pizza shops or stand-alone restaurants, it was dependent on foot traffic in malls and airports, which saw declines during the recession.

Its financial situation is also a reflection of how Sbarro was run, said restaurant consultant James Sinclair, principal of restaurant consultant OnSite Consulting.

“Sbarro is a stale and old brand that has not taken any steps to reignite their audiences and have not competed on the same level as their competitors,” Sinclair said.

As for other pizza companies, family-run Giordano’s filed for Chapter 11 because of troubled real estate investments.

In fact, real estate has been a problem for a number of pizzeria owners who bought at the top of the real estate market, said Tony Gemignani, who owns four pizza restaurants in the San Francisco area and a school for pizza restaurant operators.

“Fixed costs hurt a lot,” he said.

While some operators have cited troubles stemming from higher-cost ingredients, such as cheese and flour, that’s not leading to bankruptcies, White said.

“It’s a big deal, but it’s nothing new,” he said. “Food prices fluctuate truly like a roller coaster. If you’ve operated for any length of time, you’ve come to expect that.”

While pizza continues to be popular in America, it’s evolving, Gemignani said.

Many successful pizzerias are getting into artisan pizzas, using wood- or coal-fired ovens, organic and locally sourced ingredients and unusual toppings.

Another big shift in the pizza business isn’t what consumers are buying, but where they’re buying it. The number of channels to buy pizza has increased, said Dennis Lombardi, executive vice president of food-service strategies at WD Partners.

“The pizza segment is made more challenging for traditional restaurants by close substitutions,” he said.

They include supermarkets, which not only sell frozen pizzas but ready-to-bake pizza. Warehouse clubs sell very large pizzas for about $10. Meanwhile, some non-pizza restaurants sell flatbreads, which can be a close substitute for pizza.