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Is the Pizza Hut – Eagle Boys merger a threat to Domino’s Pizza Enterprises Ltd?

Pizza Hut has taken over the struggling Eagle Buys pizza chain, boosting its store count to more than 320 – and potentially gaining the scale to take on market leader Domino’s Pizza Enterprises Ltd (ASX: DMP).

Pizza Hut CEO Lisa Ransom has told Fairfax Media, “It’s a significant opportunity to grow the distribution and brand presence of Pizza Hut for our customers and take advantage of the economies of scale that come with being a bigger organisation.

Eagle Buys has 114 stores and less than a 10% market share, while Pizza Hut has around 270 stores and an estimated 20-25% of the $3.7 billion Australian pizza market. Domino’s is the market leader with 714 stores and an estimated 50% market share.

Retail Food Group Limited’s (ASX: RFG) brands Pizza Capers and Crust Gourmet Pizza have ~335 outlets combined.

But whether the combined Pizza Hut/Eagle Boys operation can make a dent in Domino’s lead remains to be seen. Domino’s has pioneered several new concepts for takeaway and home delivery pizza, almost making it a technology company that delivers pizza. The company also recently delivered the first pizza by drone in New Zealand.

Pizza Hut/Eagle Boys will need to find a way to compete against Domino’s and Retail Food Group’s brands, whether it’s by offering lower prices (which might be tough), more gourmet offerings, a wider range of pizzas (which might be more expensive), or by taking other steps like all you can eat buffets Pizza Hut used to offer.

But given the changes in the pizza sector over the past decade or so, I can’t see the newly formed group having much success, and it’s likely to remain a small player in the market, perhaps even losing more market share to Domino’s, Crust and Pizza Capers.

Foolish takeaway

The pizza sector is likely to evolve again over the next ten years or so, although Domino’s and Retail Food Group’s brands show no signs of slowing down their growth. That may come at the expense of the likes of Pizza Hut.

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Motley Fool contributor Mike King has no position in any stocks mentioned. You can follow Mike on Twitter @TMFKinga

The Motley Fool Australia owns shares of Retail Food Group Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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