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'Recession resistant' Pizza Pizza in expansion mode, in the face of economic headwinds

Pizza Pizza is in the midst of expanding its restaurants count.
Pizza Pizza Royalty Corp. chief executive officer Paul Goddard said the company will continue its expansion plans, despite concerns of an economic downturn, calling its pizza business “recession resistant.” (Supplied) (Supplied)

Pizza Pizza Royalty Corp. (PZA.TO) chief executive officer Paul Goddard said the company will continue its expansion plans, despite concerns of an economic downturn, calling its pizza business “recession resistant.”

“We’ve weathered most recessions quite well,” Goddard said in an interview with Yahoo Finance Canada.

“When consumer confidence starts to wane, what we do is pivot to value a little more. The way we’re designed allows for us to shift to that in a weaker economy… It's all about offering value and convenience. Sticking to that should help us weather the storm.”

The pizza chain is the largest in Canada, operating the Pizza Pizza brand, as well as the Pizza 73 brand in Western Canada. The company has 743 locations in total. Last year the company opened 45 new stores, and plans to grow at a similar pace annually, with a target of approximately 1,000 locations in Canada. Goddard says while the Toronto market, where Pizza Pizza started, is well saturated with its 200 stores, he sees opportunity in Vancouver, where there are 30 locations, and in Quebec, which has 60.

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“We want to make sure we’re ubiquitous, to the extent that customers can find us as easily as possible, like other chain restaurant concepts,” Goddard said.

“But we also want to make sure we’re not hurting our stores by being too saturated and putting unit economics at risk.”

In fact, the pockets of saturation in the Canadian market have prompted the company to look for expansion opportunities abroad. Last month it opened two new locations in Mexico under a new PZA Pizzeria branding, with the help of Mexican-based franchise operator Food Gurú. It has plans for 10 locations in Mexico by the end of the year.

But Pizza Pizza's expansion plans come amid a period of economic uncertainty. Despite the strong start to the year, CIBC economist Andrew Grantham said “the Canadian economy had already hit a wall by March.” The most recent advanced GDP estimates showed that the economy slowed in March, falling by 0.1 per cent.

Pizza Pizza 'trying to find a balance with pricing'

Pizza Pizza has started to see consumers slightly change their habits. Goddard said there are more people opting for pickup instead of delivery, avoiding the fees that come with getting pizza brought to your door.

While admitting the company is not “recession proof”, Goddard said Pizza Pizza is well positioned in the event of a downturn, offering customers value and avoiding excessive price increases. Inflation on input costs has slowed from the double digit increases seen through the COVID-19 pandemic, Goddard said, but the company has still had to pass price increases onto consumers.

"The bulk of our customers are value conscious and want to get value for money," he said, adding that the company does not pass on price hikes "lightly."

"As long as we play in that space, and don't forget that core and fundamental principle, we should be okay. We're always trying to find that balance with pricing... I think the market and our results indicate that we're hitting that balance quite well."

So far, demand has yet to slow. This week Pizza Pizza reported that same store sales, a key metric in the retail industry that excludes recently opened locations, surged 13.6 per cent in the first quarter ending March 31. Adjusted earnings per share increased 16.2 per cent to 22.3 cents per share, up from 19.2 cents per share during the same quarter last year.

Goddard said the improved quarterly results were driven by increased traffic, digital ordering, and positive responses to marketing initiatives, including the company’s “fixed rate” pizza deal, a four topping, extra large pizza with the price locked in at $16.99 until the end of the year.

At the same time, Pizza Pizza is looking at leveraging the latest artificial intelligence technology to improve its operations and lower costs, a trend consistent with many companies this earnings season. The company is currently looking at testing AI technology that can help optimize and prioritize orders, particularly for delivery.

“Many people are pulling back right now, but we believe we have a great opportunity here,” Goddard said.

“While some are being more fearful, as long as we’re being smart and building profitable stores with good operators, we like the pace. The growth rates are there.”

Alicja Siekierska is a senior reporter at Yahoo Finance Canada. Follow her on Twitter @alicjawithaj.

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