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Pizza wars.


The competition among Winnipeg's pizza producers has reached fever pitch. But, are customers really getting a bargain with two-for-one and three-for-one specials?

Pizza wars have broken out in Winnipeg. What's at stake is market share for the 268 restaurants that serve pizza or offer it as a take-out product.

Market share is what the combatants are after. If any one chain can get enough volume then it can win what the phenomenally successful Pizza Pizza chain has achieved in Toronto. Pizza Pizza has a single number for the entire city, 967-1111. Stores blanket the city. Central computer dispatch sends ordered pizzas flying to destinations. Competitors can't match that kind of service. Pizza Pizza has burned deeply into Torontonians' consciousness.

It's also the ultimate stake in Winnipeg's pizza wars. Explains John Howlett, president of Garbonzo's, "Right now, the weak guys are dying. On average, there are 2,354 people for each pizza operation in the city, not counting the grocery stores. Nobody can make it with those numbers."

One chain, Pizza Perfection, has tried the one-number, multi-store system, but failed to develop the volume that would justify its expense. Now it offers quality pizzas with deals up to three pizzas for the price of one. Competitors around the city offer two for the price of one deals. Says Joe Grande, a partner in Mona Lisa Restaurant, "We're not giving away any pizzas, but the operators who are trying that are going to die. Or at least serve lousy pizzas."

There have already been casualties in the wars. Last summer, Mother's, an eastern Canadian chain with seven locations in Winnipeg, closed its doors. It was eaten by a smaller rival, Garbonzo's, a local chain with five locations in Winnipeg.

The pizza wars appeared to heighten when Bill Spiropoulos, owner and manager of Gables Restaurant and co-founder of the Pizza Perfection chain, started the two-for-one deals in early 1987. Other operators matched him, but prices actually rose 10 to 30 percent. Still, customers were ahead.

Then the pizza market literally went crazy. Since apparent prices per pizza were falling, sales volume rose for the entire industry. Owners' friends told friends, cooks' cousins told their cousins, and in the ethnically concentrated restaurant industry, outsiders began to invest in pizza joints. Says Spiropoulos, "The number of pizza restaurants rose by 75 percent in the last year and a half." Lack of central pizza planning, was allowing competition to intensify just as profit margins were actually falling. Spiropoulos estimates that food costs rose from 30 to 50 percent, making profits shrivel like overcooked pepperoni. In the restaurant business, food costs are supposed to be no more than a third of the total costs. Rapid overexpansion began to threaten the city's entire pizza industry. In addition, each producer has invested some $50,000 or more in ovens, leasehold improvements, etc., and on the sidelines are the grocery stores that sell frozen pizzas, pizza kits and ready-to-bake pizzas.

Today, the pizza business is in a "Mexican standoff." Paul Simeonidis, owner of a Santa Lucia franchise in the upmarket Winnipeg suburb of River Heights, says 80 percent of Winnipeg's pizza operators give two-for-one deals. "But they're doing it by shaving quality," he says. Desperate to maintain some profit margin, many operators are putting on less cheese, using cheaper pepperoni. Now the question is how long customers will accept second rate pizzas?

For pizza operators, the problem is more desperate. There are limits to how finely Winnipeg's pizza pie can be sliced. Bill Howlett believes that limit was hit long ago and that market rationalization is inevitable. Domenico Mandaliti, a partner in the Mona Lisa Restaurant, sees the combatants killing themselves off. His own restaurant, located in a choice spot virtually on the border between River Heights and Tuxedo, doesn't do two-for-one deals, but it hasn't been able to raise prices in two-and-a-half years.

The pizza wars have not witnessed any strategic gambit into gourmet pizzas. Says Mona Lisa's Mandaliti, "This is a town where people buy what they know. We offer artichokes on our pizzas and even sell them for the price of less expensive ingredients. But nobody's buying." If operators could high profit fancy pizzas, they could develop special niches and hold up their profits. But Winnipeg wants nothing more than pepperoni and mushroom and maybe ham and pineapple, agree pizza restaurant owners. In that tightly defined market pizza businesses are dying.
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Title Annotation:competition among pizzerias in Winnipeg
Author:Allentuck, Andrew
Publication:Manitoba Business
Date:Jun 1, 1989
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