As globalisation continues to dominate and domestic markets become saturated, Pizza Express has become the latest chain to arrive in unknown territory. If you did not already know, they have a rapidly expanding international operation seeking further growth in markets that are reactive to such an entrance. In fact, Pizza Express is quite well-established in places such as Mumbai and Hong Kong.
So why has Pizza Express been sold to a Chinese firm for £900m? Why China if they are seeking international growth? In short, they want to take the growth strategy in Asia to the next level. Sounds easy – but clearly it is not as it is one of the most difficult markets to be successful in. They only opened the first restaurant in Beijing earlier in the year so time will tell. If Pizza Express wants to dominate and be renowned globally, especially in affluent cities then this is a key turning point for them. The huge population in China usually translates to huge demand for products. This is very much the case for slightly more affluent brands (where there is a much larger gap in the market) compared to organisations such as KFC, McDonald’s and Pizza Hut.
Here is a quick break down of where Pizza Express is at:
• 436 restaurants in the UK plus 68 internationally including 12 in Hong Kong plus 22 of which are just in China and 9 just in Shanghai employing around 9,000 people
• The deal was Pizza Express being sold by UK Gondola Group to private equity firm Hony Capital
This is reflective of a much broader trend globally with Chinese firms purchasing British businesses to help them with ambitious Asia growth plans. Similarly, the idea with this transaction is for Hony Capital to “leverage local expertise” to help diversify the locations of Pizza Express – such breadth and depth of local expertise would have been hard to gain without this transaction. Of course, this does not mean Pizza Express will stop growing in the UK, it has plans here too on the back of its fantastic revenue growth.
So why has Pizza Express been so successful and why is it very popular with private equity firms?
Let’s look at a few contributory factors:
• Pizzas are extremely high gross margin
• The skill required to produce the pizzas is less than average for a restaurant chain
• The ingredients that go into the pizzas are low cost and therefore, less than average
• The kitchen facilities in Pizza Express take up less space than average allowing a higher proportion of property space to be revenue-generating
• The pizzas are very quick to cook
• Low labour costs
• Great brand value and USPs appealing to children, couples and the whole family which presents substantial entry barriers
So is the deal a good move? In short, yes. Personally, I am an absolutely huge fan of Pizza Express and pizza’s in general so knowing they will be everywhere is a purely good thing from my perspective (and many other consumers). In essence, the above is the formula. Now all that needs to happen is what has happened with Pizza Express previously, that is, to replicate the formula. But this time, they are doing it on a global basis which needs support. They need to ensure the formula is adequately adapted to be successful in their target market, however, given the success so far, it most definitely looks very promising.