- Nestlé filed a lawsuit disputing California Pizza Kitchen’s (CPK) efforts to rescind its trademark contract that authorizes the Swiss food giant to sell its frozen pizzas in retail, Bloomberg reported. The two companies are in talks to resolve the dispute.
- The pizza chain, which is currently restructuring after declaring bankruptcy in July, is looking to reject its trademark contract with Nestlé as part of its reorganization. Nestlé stated in the lawsuit that CPK “must not be allowed to manipulate the bankruptcy process to unwind a decades-old licensing transaction which operated as an effective sale of its frozen pizza business to Nestlé.”
- While restaurants have struggled during the pandemic, retail sales have benefited as consumers spending additional time at home purchase more groceries. Nestlé currently holds the license to distribute CPK frozen pizzas, but returning this line could be valuable for a bankrupt company looking to restructure.
Nestlé acquired the rights to sell CPK’s frozen pizzas in 2010 after purchasing the license from Kraft as part of a $3.7 billion deal for its pizza business. Since then, the brand has remained one of the top 10 frozen pizza brand choices for consumers, according to Statista data.
Although CPK frozen pizza is popular with consumers, it is far from No. 1. Nestlé’s other brands DiGiorno, Tombstone and Jack’s all rank above CPK for sales from 2011 to 2017, Statista showed. Nevertheless, the Swiss company gains much more than just a pizza brand from its licensing agreement and asked in the lawsuit that the reorganization plan include language that confirms its rights to continue selling the frozen pizzas.
Licensing a restaurant brand gives a CPG company such as Nestlé an opportunity to expand its offerings in the frozen aisle by adding a premium product that has a built-in consumer base for a widely recognized brand.
Nestlé works closely with CPK to ensure the offerings in the frozen aisle match what is actually being sold at dine-in facilities. Before a new product is launched in supermarkets, Nestlé will do a head-to-head taste test between the frozen and restaurant pizzas to gauge the quality of the proposed offering.
The two companies are constantly sharing information, with Nestlé telling CPK what it sees in frozen pizza sales at the store level, the Swiss company told Food Dive last year. The restaurant chain divulges up-to-date information on the latest food trends it sees with consumers.
After CPK successfully launched a cauliflower crust nationwide in early 2018 at its restaurants, Nestlé worked to develop its version of the pizza, which hit store shelves a few months later. This real-time information has proven invaluable to Nestlé and is no doubt one of the reasons the company wants to keep selling the frozen CPK pies.
With financial struggles defining CPK’s current outlook, sales in retail stores could be one of its few bright spots. It likely wants access to the lucrative frozen pizza sales to help in its restructuring and to offset ongoing losses at its restaurants during the pandemic.
Not only is frozen pizza a beneficiary of the increased number of dollars that shoppers are spending in supermarkets overall — grocery sales this August were 9% above the level they posted in August 2019 according to U.S. Census Bureau data — but these pizzas belong to a category that has seen a particularly dramatic increase in sales during the coronavirus pandemic.
Retaining its frozen brand represent an immediate source of revenue for CPK. In addition, chains that license their brand for retail products have posted an average 1%-2% increase in same-store-sales in markets where the products are sold, according to GlobalIcons. Regaining its frozen pizza line would be valuable for CPK, but would also represent a major loss for Nestlé that is not going to give up the brand without a fight.