Little Caesars

Jul 30, 2022 | Insights, Restaurant Research

Little Caesars, the 3rd largest player in the $1B+ pizza chain segment, enjoys simple, effective brand positioning around: low price points; a HOT-N-READY access model which means no waiting for an in-store pick-up of menu products kept in inventory; a Reserve-N-Ready system which allows customers to customize & pay for app/website orders before retrieving them from the store’s Pizza Portal with a QR code which opens a door; and a DoorDash delivery option. Its value distinction is expressed by the lowest every day, a la carte price points with a $6.29 HOT-N-READY classic large comparing favorably to Domino’s $7.99 large pizza carryout special (online only) and chose any 2 for $5.99/$6.99 each carryout/delivery offer. The brand’s value equation is magnified by use of quality ingredients that include fresh, never frozen, mozzarella & muenster cheese, dough made fresh daily in the stores (only national chain to do so) and sauce made from fresh-packed, vine-ripened California crushed tomatoes. The chain’s predominant carry-out service model provides a significant labor cost advantage relative to its national delivery competitors, helping with low price points in a price sensitive market. LC’s carryout model also represents a competitive advantage relative to the delivery-oriented chains given current delivery driver labor shortages. The brand also has added many new customers via its delivery sales channel which is a good thing as it seeks to extend its reach into a younger, higher income demo. All-the-same, Little Caesar’s comps continue to underperform the pizza segment because of its primary orientation towards a lower income demo (limiting the opportunity for price increases) and because of a lower digital order penetration. While the brand’s core, lower-margin HOT-N-READY Classic large pizza platform drives the majority of sales, the 20-year running $5 Hot-N-Ready deal is now $6.29 (+26%) which represents a big price increase even though 33% more pepperoni was added to the pie. While the brand remains the segment’s low-price provider, absolute price increases may pressure traffic from its core low-income customers. All this is complicated by a system worst unit-level EBITDAR margin driven by AUV & COGs underperformance which necessitates the price increases we are seeing. In conclusion, while Little Caesars maybe the best at carryout, it remains challenged with the need to translate its fun menu and marketing into sustained traffic around its higher price points sufficient to increase unit level profits.

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