Frozen pizza taking a big slice from franchises

Industry

Published: 18 May. 2023, 18:25 Updated: 18 May. 2023, 18:31

Frozen pizza taking a big slice from franchises

Domestic pizza franchise Pizza School [PIZZA SCHOOL]

Big-name pizza places, once popular for families and friends to order from, are now losing momentum as frozen pizza takes its place amid high inflation and consumer preferences for cheaper, smaller pizza quantities.

Inflation and soaring costs are leading pizza brands such as Domino's Pizza and Pizza Hut to raise prices. On average, one large pizza costs nearly 40,000 won ($30) — and some franchises charge extra for delivery. Increased costs and increased one-person households mean consumers are buying less from franchises.

“Due to inflation, more consumers are turning towards meal kits, including frozen pizzas sold by retailers,” said Professor Kim Si-wol of consumer information at Konkuk University. “Plus, the age group which consumes pizza is limited to the younger generation. With the growing number of one-person households, pizza brands are likely to take a hit in their sales.”

The Consumer Price Index for dining out rose consecutively for 29 months, including April. For pizza, the figure rose 24.3 percent, the second highest after hamburgers at 27.8 percent.

Price hikes in pizza are leading consumers to turn toward a cheaper option — frozen pizzas.

Lotte Mart’s sales for frozen pizza jumped 10 percent on year in April. The retailer said sales for products such as CJ CheilJedang's CJ Gourmet Sweet Cheese Pizza and Pulmuone's No Edge Crust Pizza doubled last month compared to the same period the year before. Both pizza products cost less than 10,000 won.

BGF Retail, which runs the convenience store franchise CU, reported that frozen pizza sales in their convenience stores rose 22.5 percent last year compared to the same period the year before. CU also released its own frozen food franchise dubbed "Deuktem," a Korean slang word that translates to having acquired a certain product of good quality at a cheap price. The first frozen pizza released under the brand was “Deuktem Pizza,” which costs only 2,900 won.

“Since the Covid-19 pandemic, more customers tend to visit nearby convenience stores to shop,” a spokesperson from BGF Retail said. “The change in consumption patterns led us to diversify our food brands including frozen pizza. We also noted a rise in demand for smaller pizzas as the number of one-person households increased.”

The domestic market for frozen pizza is steadily on the rise, according to data from market tracker Kantar Korea. In 2016, the market scale was 20 billion won, which surged to 96.6 billion won in 2020 during the pandemic. In 2022, the figure was 126.7 billion won, a 1.5 percent jump on year.

In an annual earnings report released for public disclosure, Cheong-O DPK, which operates Domino's Pizza, its net profit plummeted 72 percent on year to 4.44 billion won, while sales fell 7.31 to 207 billion won. Pizza Hut swung red to report a net loss of 9.2 billion won. Its sales increased 5.63 percent on year to 102 billion won.

Other franchises such as Papa Johns and Alvolo F&C, which runs the domestic franchise Pizza Alvolo, showed similar earnings reports with falling net profits.

Even Pizza School, another domestic brand famous for its cheap prices, recorded a falling net profit of 16 percent to 2.4 billion won, while sales inched upwards 2.66 percent to 8.2 billion won.

BY LEE JAE-LIM [lee.jaelim@joongang.co.kr]