Last week, the fast-casual pizza chain PizzaRev was sold for $1.1 million. But that probably overstates its actual price.
As my colleague Heather Lalley pointed out, the sale included only $100,000 in cash. The rest was through seller financing, a vehicle sellers use to get a price they couldn’t get otherwise. Either way, it’s a tiny price for a concept that at one point had an inside track at becoming the leader of the burgeoning fast-casual pizza sector.
It’s also a lesson in betting on concepts given the label “the next Chipotle,” and yet another reminder of what had been an excessive period in which investors couldn’t throw enough money at unproven concepts simply because they were “fast casual.” PizzaRev, in fact, might have been the poster child for this era.
The chain was founded in 2012. Fast-casual anything was huge at the time. Investors were hoping to find concepts in all kinds of sectors that could generate the kind of growth enjoyed by Chipotle Mexican Grill—one of the hottest consumer stocks in the country.
Investors threw money at any concept that called itself “fast casual” and gave customers the ability to “customize” their orders like Chipotle customers customized their burritos. We got customized noodle bowls, salads, burgers, Asian anything and, of course, pizza. And then when these concepts painted their interiors and came up with a new menu item or two we got weird ideas like “fast casual 2.0.”
This trend drew in big names, including giant private equity firms that were suddenly pumping money into unknown three-unit restaurants. McDonald’s began testing customization believing its key to success was not an easy drive-thru but whether customers could have their Quarter Pounders with fancier buns. Chipotle began dabbling into its own concepts, creating an Asian concept and investing in, you guessed it, pizza.
Fast-casual pizza and its investors were major beneficiaries of this frenzy. PizzaRev was discovered within a year, when it had just three units, by none other than Buffalo Wild Wings—which had started investing in growth fast-casual concepts itself.
Numerous concepts, fueled by this investor cash, were appearing out of nowhere, generating stories wondering if they were going to be “the Chipotle of pizza.” Yahoo in 2016 said that Blaze Pizza “could unseat Pizza Hut.” Blaze had 200 units at the time to Pizza Hut’s 7,000.
The problem with fast-casual pizza is that takeout was growing, too, and more rapidly than any consumer desire for “customization.”
2021 sales by industry sub-sector
Fast-casual pizza chain sales declined last year, while quick-service pizza chains increased.
Source: Technomic Top 500 Chain Restaurant Report
Now, fast-casual pizza on balance is great. Many of these concepts have great products and good food and interesting experiences and they treat their customers well. But consumers really like staying at home and ordering pies and have cut back on eating inside restaurants. For a concept built around the customer experience, that proved to be a problem.
Along the way, we got “innovations” like larger-sized “sharable” pizzas, drive-thru windows and, of course, delivery—all of which made these concepts look a lot like the bigger chains they were trying to replace.
Meanwhile, some chains began having some real problems. Pie Five, one of the pioneers of fast-casual pizza, has had sales issues for years and has been working to revitalize its brand for ages. It has half the number of locations it had just three years ago. Sales declined more than 35% last year.
By early 2017 Buffalo Wild Wings closed its PizzaRev units. By the end of that year it sold its stake in the concept to Cleveland Avenue, an investment firm started by former McDonald’s CEO Don Thompson. At the time the brand had more than 50 locations and another 200 under development.
PizzaRev only declined after that, however. It finished 2019 with 32 units closed another 20 since then. It has been sold for what is mostly a seller’s note.
Overall, the fast-casual pizza sector’s sales declined by 11.5% last year, according to Technomic. By contrast, old-fashioned quick-service pizza chains grew more than 5%.
A lot of that difference was exaggerated by the pandemic, of course. And none of this is to say that there isn’t a future for fast-casual pizza—MOD Pizza, the largest of that group, saw sales decline just 4.7% last year, not a terrible result for any kind of fast-casual chain, let alone its own sector.
But it’s a lesson to avoid industry fads. Sometimes the simplest strategy works out best. Easy, quick ordering has thrived. Delivery has taken off—even before the pandemic.
Had many of these fast-casual pizza investors simply put their money into Domino’s they’d be a lot better off today: A $1 million investment in the Ann Arbor, Mich.-based pizza chain at the time of the PizzaRev announcement would be worth $8.4 million.