Bringing Pizza Into the 21st Century with Piestro

Key Stats:

Summary

Piestro has been selected as a “Deal to Watch” by KingsCrowd. This distinction is reserved for deals selected into the top 10%-20% of our due diligence funnel. If you have questions regarding our deal diligence and selection methodology, please reach out to hello@kingscrowd.com.

Problem

Pizza is a ubiquitous food. In practically every country the product is consumed by a large swath of the population. This makes it one of the largest segments of the broader food industry. While this is great, high competition between the countless firms in the space, combined with issues generally afflict the food industry, has resulted in generally low levels of differentiation and low margins. On the margin side, significant hindrances for market participants are labor and real estate costs.

Solution

One company looking to address these problems is Piestro. The company, at its core, really is simple. Its goal is to build large machines that, with the push of a button, can quickly prepare a ‘high-quality, artisanal’ pizza. Within 3 minutes, the pizza is ready, boxed up, and prepared to take home. Though still an early-stage business with only a working prototype, the company has high goals moving forward. Their objective is to transform the food service industry entirely. They will do this by building on-demand, machine-prepared food from sustainably-sourced ingredients.

There are numerous advantages to any company that might utilize Piestro’s technology. If managed appropriately, the machines will result in zero food waste. For consumers, the benefit is competitively-priced food and consistent quality. It will also be set up to require no human contact during its preparation. This makes their product appealing to consumers who are on-the-go.

In order to generate revenue, management has two key strategies it’s looking to employ. The first is that it would like to operate its own network of machines. The second is to sell the units to operating partners who could pay a fee in order to have the devices white-labeled. Examples of prospective partners here are existing pizzerias, as well as new ones getting up and running. On that end, there would be considerable advantages compared to setting up a new pizza shop.

The expected setup costs for a Piestro location are around $50,000. This is around one-third to one-fifth what many pizza shops spend in order to get up and running. Instead of taking months to set up shop, a Piestro location could be launched in as little as two weeks. Only one or two part-time employees would be needed to service the 32-square foot unit. That alone would help to reduce labor considerably. In one hypothetical scenario, management said that a Piestro location might generate operating margins as high as 48%. This is more than double the 22% they estimated the average pizzeria generates.

So far, Piestro has been successful in developing its prototype. But the firm hasn’t achieved much else beyond that point as of this writing. Revenue in both 2018 and 2019 was $0. The firm did, however, generate losses in both years. In 2018, the company’s net loss totaled $15,652. In 2019, this loss grew to $28,588. Operating cash outflows also worsened during this period, growing from $23,537 in 2018 to $43,870 last year. Even though these numbers are all in the red, they don’t seem to be all that unreasonable. Given the time and energy that has likely gone into the business so far, these losses and cash outflows are fairly small in the grand scheme of things. This is especially true when you consider where the firm is in its development process.

A Massive Market

The pizza industry is truly global in scope. According to one source, the global market for pizza should grow at a rate of about 10.17% per annum through 2023. By that point, it should be about $233.26 billion in size. The global frozen niche space, which Piestro could be seen as an alternative to, was worth about $12.2 billion in 2017. By 2026, with an annualized growth rate of 6.59%, it should expand to $20.8 billion in size.

Geographically, the largest market for pizza is Europe, but the US appears to be Piestro’s primary target for the time being. Every year, more than 3 billion pizzas are sold in the US. That works out to about 350 slices of the product every second. An impressive 93% of Americans eat at least one slice each month, and sales from pizza account for 15% of the fast-food industry. The big franchise names like Pizza Hut and Papa John’s have seen attractive growth in recent years. Even so, independent shops account still for around 41% of the industry’s revenue. In fact, more than 95,000 pizza businesses exist across the US alone, employing well over 1 million people.

All of this creates an attractive opportunity for Piestro. Restaurant industry sales in 2019 totaled about $46.34 billion. This is up from $36.79 billion seen in 2012. The much smaller frozen pizza niche is still quite large itself, accounting for an additional $5.5 billion in revenue last year. According to one source, the industry has grown at an annualized rate of around 3.7% in recent years and it’s likely that this trend will continue.

This is not to say that expansion for Piestro will be a simple process. Surely, the company has a competitive position from the perspective of price. But quality will probably be an even bigger determinant of the company’s success. A full 49% of American pizza eaters consider the authenticity of their pizza important. Those consumers regularly frequent their local pizza parlors, eschewing the big franchised locations. Even if the competition is on the franchise side of the equation, there could be problems. Piestro’s business model is geared toward the on-the-go consumer. More and more every year, society is moving toward quick and easy delivery options for food. 40% of franchise delivery sales these days come from mobile. Will consumers find it easier to hit a button, wait three minutes, grab their box and go? Or will they prefer to mash a few buttons on their smartphone and wait 30 minutes for their GrubHub, DoorDash, or Uber Eats driver to show up?

Terms of the Deal

To continue developing its platform, the management team at Piestro is seeking a fresh raise of capital. The company already has some support from Wavemaker Partners, a venture firm with $400 million in AUM. But it has found it desirable to raise some cash outside of that network. In all, the business is trying to raise up to $1.07 million, but it can close its round with as little as $9,998.42. In exchange for an investment, investors receive common stock in the enterprise. Units are priced at $1.63, and the minimum required to participate is $249.39. As of this writing, the company has received commitments from its raise of $174,302. This means that investors don’t seem to mind the $6.02 million pre-money valuation.

An Eye on Management

The key member behind the Piestro team at this time is Massimo Noja De Marco, the company’s founder and CEO. Massimo has extensive experience in this space. Previously, he co-founded Kitchen United, a company that went on to raise $50 million from venture capital firms. It was last valued at $140 million. He was also an owner of and COO at PH&E Consulting, a consulting firm focused on the restaurant, hotel, and bar markets. At this time, he is also employed as the COO at Home Team Kitchens. Though Massimo is the only founder of the business, another key member appears to be Kevin Morris, Piestro’s COO. At this time, Morris is serving as the CFO at Wavemaker Labs, and as the CFO at Miso Robotics. He was also, at one time, the CFO and COO at DSTLD.

The Rating: Deal To Watch

Our team has elected to rate Piestro a Deal to Watch. The company has an interesting concept that offers significant competitive advantages over its competitors. So long as quality and that presence of authenticity can be ensured, the firm could have something really groundbreaking. Not only for the pizza space but for food service more generally. The pizza industry is hyper-competitive, which many would look at as being a bad thing for Piestro. But if it can maintain these advantages, then it could generate significant growth over time. The management team at the business also appears impressive, particularly the company’s founder. The firm’s valuation also seems to be quite appropriate given the stage of development.

There are, however, risks to consider. Consumers are finicky. Because of this, building a product that captures enough attention is imperative for survival. There’s also the longer-term picture to consider. With these proposed advantages, if the business really does take off, then it won’t be long before other market participants follow suit. That could create, ultimately, a race to the bottom where consumers end up paying less and margins for Piestro and its rivals shrink over time. In all, we don’t see any of these risks outweighing the potential upside of the business at this time.