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leapfrogpos.com Costs Operators in every segment throughout the restaurant industry have sticker shock over commodity costs, and for good reason. A recent report from IBISWorld predicts commodity prices will continue rising through 2017, as they’ve done for the past five years. Namely, milk and wheat will rise, causing pizza operators’ main ingredient costs to rise. From 2007 to 2012, the world price of wheat increased an average of 3.4 percent per year. Milk, the main ingredient used in cheese, jumped more than 27 percent in 2010 alone, and 9.2 percent in 2011. Restaurateurs have either increased their prices or switched up their menus to deal with these mounting pressures, but profit margins and overall profits have still been affected. Adding insult to injury, gas prices averaged nearly $1 more year-over-year in 2011. But a majority of the pizza players successfully navigated the daunting commodities prices in the past year, and the segment continues to grow. Pizzerias that still haven’t embraced some sort of online component will be left in the dust sooner rather than later. Domino's estimates that about 30 percent of its orders now come from the click of a mouse, and for one week in late 2011, the company processed more than 1 million orders in the U.S. just from online and mobile devices. Online ordering isn't a passing trend and it’s not just for the big players; smaller chains are also accelerating their platforms with early success. Less than a year after its implementation, Minnesota's Pizza Luce's online orders made up more than 20 percent of its business. Social Media Online Ordering TOP TRENDS There are 800 million Facebook users, including an estimated 95 percent of your customers (according to a Market Force study). To understand the breadth of social media’s reach and power, consider that Pizza Hut has nearly 7.5 million Facebook fans. Market Force also found that 86 percent of consumers said they had "liked" a restaurant chain in the past 90 days to look for promotions and to get information about events. Almost the same percentage of people said they read a post from a vendor vs. friends. And a third of those reading a vendor post said it influenced where they would choose to do business. Besides these convincing stats, there are plenty of other benefits to leverage social media. It’s free, for one. Also, it allows brands to crowdsource for product/marketing ideas (for example, Streetza), as well as interact and connect with customers like never before. Restaurants can respond to complaints in real-time, kicking into damage control gear before a disgruntled customer is lost forever. They can also respond to compliments directly, which is an “extra mile” effort that creates loyalty. Consumers not only appreciate this B2C interaction, they now expect it. 24
4 Economy Restaurant operators, like everyone else, are tired of hearing woeful economic news. And while the outlook is more positive than it’s been in years, spirits remain dampened, operators remain anxious and consumers remain frugal. The latter is an especially big concern for the Top 100 advisory panel. Some even listed “the consumer” as the “person of the year.” “How much consumers are willing to increase their away-from-home spending after being conservative the last few years will make a big difference to the pizza segment this year,” one panelist wrote. However, history has proven that even in a slow economy, consumers will always crave pizza. According to IBISWorld, from 2007 to 2012, the segment's revenue growth rate was 1.5 percent – slow, but growth nonetheless. The rate is expected to pick up significantly moving into the next five years. The report estimates in 2012, revenues will jump to 4.5 percent as consumer confidence in the economy improves. leapfrogpos.com 5 Mobile Apps and Commerce Like online ordering and social media, the mobile space seems to be here to stay. A handful of pizzerias have jumped in early – with either iPhone or Android apps or both – and have reaped the benefits. In the past three years, more than 300,000 mobile apps have been developed. These apps have been downloaded 10.9 billion times. And this trend is only expected to accelerate, as Cisco predicts there will be 788 million smartphone-only Web browsers by 2015. Pizza Hut claims it was the first in the segment to launch an iPhone app, and also offers video-ondemand as customers order. In addition to apps and ordering capabilities, mobile also has a commerce component that is expected to account for $670 billion by 2015, according to Juniper Research. And as consumers become increasingly tethered to their smartphones, mobile loyalty programs are also expected to grow quickly. CiCi's Pizza of Tampa Bay, a franchisee with seven units in the Tampa, Fla., market, recently leveraged Sundrop Mobile Loyalty’s solution to reverse a double-digit year-over-year negative sales comparison trend. This program also recently helped generate the highest single-day sales ever for a Little Caesars' franchisee. 25
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Page 32 and 33: leapfrogpos.com Jim Greco President

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