A slice of wisdom: supermarkets can take a few cues from pizzerias when it comes to making dough.

FEW INDUSTRIES FACE CRUSTIER BARRIERS TO MUSHROOMING PROFITABILITY THAN THE PIZZERIA BIZ. Yet even in this highly competitive environment, the best executors deliver plenty of dough. On the flip side, the lesser operators fail to grease the skids of success.

[ILLUSTRATION OMITTED]

OK, I've peppered the opening of this column with every pizza pun I could think of. It's time to get serious before readers start throwing tomatoes at me. I will now assausage (assuage) fears that this column will avoid substance.

But seriously, folks, we can learn a lot from comparing and contrasting the two publicly reporting pizzeria chains, Papa John's and Domino's. While Pizza Hut is part of the public company Yum Brands, it represents only about 25% of the company's revenues, which makes specifics about its performance harder to slice.

Papa John's and Domino's have similar business models--e.g., having some corporate stores but many more franchise units. Papa John's (hereafter referred to by its stock ticker symbol, PZZA) is valued at 13x year-ahead earnings, vs. Domino's (symbol DPZ) at only 10.5x. PZZA shares have outperformed DPZ by 40% over the past 52 weeks.

PZZA has generally beaten Wall Street earnings expectations, whereas DPZ has generally missed. PZZA is forecast to grow earnings 10% in 2008 vs. 4% at DPZ. In the most recent quarter PZZA had slightly positive system-wide comp store sales, vs. -1.6% at DPZ.

PZZA's solid performance is particularly notable, as it comes despite some of the most challenging conditions in the history of the pizza industry. Pizza's perception as an unhealthy food is causing consumers to shift to other quick serve restaurant categories. The exhaustion of new toppings possibilities is causing consumer interest to grow stale (oops, another pizza pun). Pizza consumers skew toward the lower income spectrum, making them especially strapped in the current recessionary environment.

Meanwhile, the cost of every significant commodity in the pizza business has skyrocketed to record highs, yet only some of the rising operating costs can be passed along to consumers. Year over year, cheese is up 65%, wheat is up 200%, minimum wage is up 9% and the gas used for deliveries is up 36%.

No wonder results at DPZ, along with Pizza Hut, have been ailing. Peeling the onion (there goes another pizza pun) of the same-store sales performance gap, we see it's all about execution. PZZA is currently generating about equal comps from corporate and franchise stores, whereas at DPZ corporate units are +1% vs. -2% for franchisees. This 3% outperformance in favor of corporate units is the exact inverse of the prior historic 3% gap in favor of franchisees. PZZA overcomes the adverse environment by getting the blocking and tackling done systemwide--local marketing, focused promotions to build loyalty, store ops excellence, fast penetration of online and other alternative ordering methods like texting (about 18% of PZZA sales vs. 6% at DPZ).

Meanwhile, back at DPZ, franchisees end up as deer in the headlights despite management attempts to support and help. They either do nothing in hopes the storm will pass, or react in a knee-jerk fashion by slashing prices and sacrificing profit unstrategically and unnecessarily, according to the admirably candid DPZ management.

The 50% market share held by independent pizzerias testifies to the importance of local execution. In highly affluent/discriminating market areas, independents often dominate at 85+% share and grow wealthy themselves.

The supermarket business is not easy nowadays, but it is nowhere near as tough at the pizza biz. Strong execution can win out in pizza, as seen at PZZA as well as at Casey's, the 1,465-unit convenience store chain focused on small towns, in which it often serves--and succeeds quite nicely--as the local pizzeria.

So detail at retail can certainly be the secret sauce for supermarketing success, ensuring that sales and profit don't arrive cold. And with those final pizza puns, I lay down my pen.

Gary M. Giblen is executive vice president of Goldsmith and Harris, a money management and institutional investor research firm established in 1982.