Dive Brief:

• Independent pizza operators on Slice, an online ordering marketplace for pizzerias, have doubled their weekly sales during COVID-19, from $2,000 to $4,000 on average, according to a BTIG report released on Monday highlighting analyst Peter Saleh's conversation with Slice founder and CEO Ilir Sela. Conversely, independents with a high mix of in-store sales and limited delivery options have not done as well.
• While the pandemic has boosted sales for independent pizzerias, it is "likely not to the same extent as larger chains given the uneven digital access and delivery capabilities," the report said.
• Major pizza chains have also seen significant sales gains during the pandemic. Domino's same-store sales were up 16% during Q2, for example, while Papa John's same-store sales were up 28% for Q2 and Pizza Hut recently experienced its best sales week for delivery and carryout in eight years during May. 

Dive Insight:

Because of their developed and robust digital properties, major pizza chains were threatening to gobble up independent pizzerias just four years ago, when a report from Aaron Allen & Associates found that these small concepts lost 21% of their market share to major brands within a decade. Chains with 10 or more units also dominated sales last year at 60% compared to independents at 40%, according to PMQ Pizza Magazine's Pizza Power Report 2020. Domino's led the segment with over $6 billion in sales and continues to gain market share during the pandemic, according to Cowen research. It could seem there wouldn't be much more market share left for independents, but Slice's data proves otherwise.

Slice is on track to generate $600 million in food sales, and is aiming to achieve $1 billion in 2021. The company is adding 500 new independent pizzerias on its platform per month, illustrating just how fast digital adoption is happening as well as how popular pizza is during this crisis. Slice has grown to 14,000 pizzerias from 3,000 four years ago and is on track to double its marketplace sales this year, according to BTIG.

In May, Sense360 data found that year-over-year sales were down by 33% for fast casual concepts, 20% for quick-service concepts and just 5% for pizzerias. Pizza was also experiencing a larger per-dollar order increase versus those two segments, at 11%. The category's ability to cater to families and groups quarantined at home no doubt have contributed to this, but so too has our demand for familiar comfort food and pizza's delivery-heavy presence. 

Delivery spend is up 173% year-over-year as of July 30, according to Cardlytics' latest State of Spend Report, while 29% of consumers say they place an online order a few times a month, according to a Toast report. These changing behaviors no doubt bode well for the pizza segment, especially as more independents quickly ramp up their digital presence. 

Still, opportunity remains to increase digital ordering among independent pizzerias, which account for about half of the entire pizza category, according to BTIG. Their digital sales mix remains in the 5% range. Giants like Domino’s and Papa John’s generate 70% to 75% of digital sales, underscoring just how big this opportunity is. 

If demand for pizza and delivery remain high post-COVID, however, Domino's may likely continue to hold or gain additional market share because of its value proposition. Slice data suggests that consumers remain price sensitive, with a $2 delivery fee being a significant threshold, well below the fees charged by many third-party aggregators. Domino's digital orders also cost about 25 cents on average, versus "several dollars" for third-party platform orders allowing the chain to create operational efficiencies and the ability to reinvest in value, BTIG said. For example, Domino's $5.99 Mix and Match has been a value differentiator for years, proving the chain is winning on economies of scale while independents have had to raise prices to offset the addition of delivery costs. 

Still, on average, U.S. consumers order pizza about 18 times a year, according to BTIG. These customers rotate between four different companies for those occasions, according to Slice, so there should be plenty of room for other players to win over consumers.