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Pizza consumption normalizes after pandemic boom: Analyst

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Bank of America analyst Sarah Senatore joins Yahoo Finance Live to discuss post-pandemic pizza sales, pizza stocks and prospects for earnings growth in the pizza business through 2023.

Video transcript

After a surge in takeout demand in 2020 due to COVID-19, our next guest claims that pizza sales are returning to some semblance of normality in 2022. And she predicts strong growth ahead for the food sector. take away food. Joining us now is Sarah Senatore, analyst at Bank of America.

Sarah, it’s good to see you. Thanks to be here. Pizza has been a really interesting space, actually, over the last couple of years. What does normal look like when it comes to this business?

SARAH SENATOR: Yes you are right. For a segment that’s been around for a very long time, and for most of us, it’s somehow been a part of our existence if not daily, weekly, or monthly. There’s been a lot of change over the past two years, mostly catalyzed by COVID, I think.

And, as you said, we think most of that was transitory. And we’re back to a point that’s a lot more like it was before COVID, at least in terms of the rate of consumption or how people access pizza versus delivery versus service at flying. But pizza, like every other part of the restaurant industry, has really seen a huge shift with the onset of COVID in 2020 as everyone shifted to more at-home consumption. And, of course, the big pizza chains, it’s really their stock and business, provide food for people to eat at home.

So a big tailwind from a consumption point of view, as I said, certainly at the start. But we’ve given some of that back more recently. And I think we now collectively see three-year trends or growth rates that are very consistent with what we saw before the pandemic hit.

Sarah, who wins the pizza category on the third-party delivery side based on your analysis?

SARAH SENATOR: People who use aggregators are very loyal to the aggregators they use. And I think that’s only been amplified by subscription services. So what we’re seeing is that among restaurant businesses, when they partner with aggregators, they generally choose to partner with all aggregators because they see that there really are incrementality with each aggregator platform because they have a different customer base, whether that’s because of geographic strength or just habit or some other consumer preference. So it’s, I think, less about which aggregator wins in a specific space and more about a restaurant’s perspective, the aggregators, what they offer in terms of customer access.

Sarah, why have burger and fries stocks outperformed pizza stocks this year? And can this continue next year?

SARAH SENATOR: I think it’s really a function of that normalization that we talked about. So when you think about pizza consumption, a very significant amount of push forward, if you will, 2020 and into 2021. So we kind of see that correction or adjustment.

Comparable store sales growth at Domino’s is now 17% year over year for the industry – sorry, for the whole business. So 17% over three years is a pretty healthy and robust number. It ends up averaging somewhere in the 5 and 1/2 percent range.

This is very consistent with previous run rates. It’s just that it was unevenly distributed. So slower than that this year, although we are certainly seeing a recovery and faster than the previous two years. So I think that’s different from some of the other QSRs that have seen more of what I’ll call more consistent growth, not as fast in 2020 or 2021 as pizzerias, but faster in 2022.

And again, I think what we’ll see next year is that there’s been a lot of standardization. And we should expect virtually all restaurants to reconverge to their historic prices, so faster for pizzerias and potentially slower for some others.

Joining us today is Sarah Senatore, Analyst at Bank of America. Thank you so much for the pizza and other fast food reviews. We are all hungry and ready for lunch here. Enjoy it, Sarah.

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