PizzaExpress sales fall for the first time since flotation

Shares in PizzaExpress dived 16 per cent yesterday after it revealed that sales at its restaurants had fallen for the first time since the group floated in 1993.

PizzaExpress, which has set the standard for pizza chains since it was founded in the Seventies, revealed underlying sales in its restaurants would be 1 per cent lower in the second half of the year despite rising 1.5 per cent in the third quarter. The group blamed "London economic woes" and slowing sales growth outside the capital for its third profits warning since the start of the year.

David Page, its chief executive, said the group was suffering from "lower hotel occupancies" and redundancies among its target customers, media and financial workers, which had particularly hit sales in central London. Its shares, which traded at more than £9 in January, fell 100p to 513.p

Mr Page also singled out the success PizzaExpress has had with the range of products it sells in Sainsbury's, including 130,000 pizzas a week, to explain why customers were choosing to eat elsewhere. "I don't think restaurant sales will recover until retail sales plateau," he said. "The success [of the retail venture] has surprised us. We had budgeted to sell 40,000 a week."

Mr Page said exit polls conducted among Sainsbury's customers showed that some 26,000 of the pizzas sold weekly in the supermarket would otherwise have been eaten at a PizzaExpress restaurant (where weekly pizza sales have increased to 350,000 from 320,000 last year). Rather than scale back its supermarket sales, the group said it was close to announcing new marketing deals with two other major retailers.

Analysts said the extent of the sales decline outside London, where underlying sales have slowed from high single-digit growth to barely 2 or 3 per cent, suggested PizzaExpress was struggling to cope with stiffer competition. The battle for the wallets of pizza eaters has intensified in the past few years with Ask Central and Signature among the groups that have rolled out their own brands such as Ask, Zizzi and Strada.

"They're good operators, with a great brand and great food appealing to a broad section but they are not the only people doing it," Andrew Saunders, at Numis Securities, said. Greg Feehely, at Old Mutual, added: "For the first time there must be real fears that some of the problems are more company specific [than industry wide] either due to the consumer tiring of the offering or [market] saturation."

Mr Page said the group planned to make its menu more exciting by adding three new pizzas this autumn, including the Parma ham and asparagus-topped Parmense, and more desserts. While he admitted some of the group's 300 restaurants "didn't make any money", he said there were no plans to close any outlets.

Despite franchising the brand in 17 countries around the world, PizzaExpress has struggled to expand internationally, despite testing the water in Spain, France, Japan and India.

Separately, Domino's, the UK's largest pizza-delivery chain, revealed its intention to accelerate its expansion plans by more than doubling its number of outlets to 500 by 2006.