Vending-machine pizza prepares for US debut
With the 'Let's Pizza' concept sweeping Europe, American pizza chains may have to rethink their strategies.
Since its short-term bottom in July, Domino's Pizza (DPZ) has been a terrific stock for shareholders, running from less than $30 per share to above $40. Likewise, Papa John's (PZZA) has seen a similarly stellar performance in 2012, rallying from near $36 per share in July to more than $50.
Yet a new technology is emerging that just might pose challenges to these businesses: pizza by vending machine. A company called A1 Concepts is planning to bring its "Let's Pizza" vending machines to the U.S. this year. The machines allow customers to purchase a fresh pizza at a suggested retail price per pie of $5.95. It takes the machine only two-and-a-half minutes to produce the pizza.
Of course, the pizza vending machine has yet to really enter American markets, and even then, it suffers from a few disadvantages. Pizzas produced from these machines may prove to be lower quality than those offered by the megachains, and the styles of pizza are certainly limited. On top of that, there can be no delivery, which is a staple source of revenue for the big pizza chains.
But if these machines catch on, they might be able to advance the technology, perhaps reducing the price of their pizzas through technological innovation. Obviously there are a number of cost advantages: no need to hire workers to make the pizza or take orders; no need for expensive real estate and the corresponding maintenance.
There are other advantages, too: 24-hour availability, and for those who are close to the machines, less of a lag between placing the order and eating the pizza.
Analyst Steve Anderson at Miller Tabak is skeptical of the idea that vending machines could replace the major pizza chains. "I think it's going to boil down to taste. The movie from a Redbox machine is the same movie you'd rent from Blockbuster 10-15 years ago, but I'm not sure the pizza from a vending machine will be the same as the one delivered to you,” he said.
Likewise, John Staszak of Argus Research was hardly concerned, commenting that should the niche prove profitable, Domino's would simply enter the market themselves.
At any rate, the market for fast food continues to evolve.
Soon, like Wendy's, the big pizza chains might have to reinvent themselves as well.
While the concept may seem wacky, an American in the 1990s might have thought renting movies from a vending machine was equally as strange. But look what happened to the kiosk-rental business.
Onetime video kingpin Blockbuster filed for bankruptcy in 2011 and was subsequently acquired by Dish Network (DISH). The number of Blockbuster stores in existence has slowly dwindled, as Dish has attempted to use the Blockbuster name to sell an online-streaming service similar to Netflix (NFLX).
While Blockbuster was enormously profitable in the 1990s -- Viacom (VIA) paid $8.4 billion to acquire the chain in 1994 -- that profitability vanished in only a few short years as new technologies undermined Blockbuster's dominant business model. The combination of online streaming video and Coinstar's (CSTR) Redbox proved to be too challenging for the once-mighty movie-rental chain.
Could pizza firms soon befall a similar fate?
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