PORTER'S FIVE FORCES MODELAND

PORTER'S VALUE CHAINPIZZA HUT

IntroductionPizza Hut is one of the best wide spread international fast food joint. It offers

different styles of pizza along with some side dishes like salads, pastas,

buffalo wings/potato rings, breadsticks, and garlic breads. It is a subsidiary of

Yum! Brands (a Fortune 300 company), the world's largest restaurant

company. It is an American restaurant chain with more than 6,000 Pizza Hut

restaurants in the United States, and more than 5,600 store locations in 94

other countries and territories around the world. It entered India in 1996,

with its first branch in Bangalore and expanding all over thereafter, creating a

large customer base for itself.

Competitive Rivalry

Threat of New

Entrants

Threat of Substitutes

Power of Suppliers

Power of Customers

Porter's Five Forces Model

Competitive Rivalry (Very High)• Pizza Inn competes with some other large global pizza chains, such as Pizza Hut,

Domino’s Pizza, and Papa John. They all engage in international business, fastfood franchise, dine-in and delivery service, which creates intense competition.

• Fierce price discounting and coupons by these top three players also squeezedother pizza sellers.in and delivery service, which creates intense competition.

• Except for those pizza companies, Pizza Inn competes with some small local pizzarestaurants as well. They offer low price products and faster service, taking thecompetitive advantages of Pizza Inn.

• The pizza segment is made more challenging for traditional restaurants by otherclose substitutions, including supermarkets, which not only sell frozen pizzas, butready to bake pizza, and warehouse clubs sell large size pizzas.

Threat of New Entrants (Low)• Pizza chains are dealing with the effects of a deep recession, because of higher

ingredient prices,the slim margins and more competition from non-traditional

channels.

• Existing competitors keep lowering prices and discounting prices, and expanding

distribution channels create barriers to entrants as well.

• Current competitors have first mover advantages, they have mature technology

in specialty production, and a relationship with distribution channels, therefore

if second mover doesn’t have innovation in the industry, they can hardly survive.

Threat of Substitutes (High)• For the quick-service pizza restaurants, it has a high availability of substitute

products.

• Pizza Inn primarily provides pizza which has various substitutes focus on other

fast food chains, such as sandwich chains, chicken fast food chains, family

restaurants etc.

• In much the same way, other traditional food chains offer customers’ fast,

convenient and cheap products and services as well.

• The threat of substitutes influence on the price competition, price is more elastic

since customers have more alternatives.

Power of Customers (Medium/Low)• The buyer bargaining power is low due to the fact that fast food customers are

large in amount, and focus on individual customers.

• Every single customer is unlikely to purchase a large quantity of product, and it’sunexpected that each of them contributes a large proportion of sales.

• QSRs are in high demand, especially in shopping centers, residential areas,college campuses and offices. In addition, buyers are fragmented, with noparticular effect on product or price. Therefore, they will not be hurt by losing asmall amount of customers.

• In the industry, customers are less sensitive to price fluctuations, which isrelatively inelastic, so that providers have large price controlling power.

• Since the QSR is still market demanding in the future because of its speed, priceand convenience, buyer power is relatively low.

Power of Suppliers (Low)• The major suppliers of the fast food industry are raw material suppliers.

Suppliers are weak, because raw materials for food components in the industryare commodity products, such as cheese and flour.

• Many competitive suppliers.

• The industry is labor intensive. However, labor supply is abundant so usuallycompanies are not concerned about their labor force.

• suppliers tend to keep a longterm relationship with the concentratedpurchasers. (less powerful)

• Furthermore, many big fast food chain companies are vertically integrated withthe supplier in order to maintain low costs and high quality products

Value Chain of Pizza Hut

SUPPORT ACTIVITIES

Infrastructure

Human Resource Management

Technology Development

Procurement

PRIMARY ACTIVITIES

Inbound Logistics

Operations

Outbound Logistics

Marketing and Sales

Service and Support

MA

RG

IN

InfrastructureHuman

Resource Management

ProcurementTechnology Development

• Managing employees• Training employees• Appraisals and rewards• Knowledge transfers• Freedom of thoughts• Conducting meetings

• Feedback from customers• Research work • Improvising of their products• Innovation• Launch of new products• Use of IT, databases• Temperature controlled trucks

• Acquiring the resources• Ingredients from local

suppliers• Special ingredients From

Australia

SUPPORT ACTIVITIES

• Funds collection

• Administrative tasks

Inbound Logistics

Operations

Outbound Logistics

Marketing and Sales

Service and

SupportPRIMARY

ACTIVITIES

Purchasing raw materials

• Preparation of pizza base• Customization of pizza• Make pastas and salads• On time delivery

• Customer feels comfortable• Online orders• Home Delivery

• Segmentation• Target Market• Branding• Redefining its menu• Introduction of new products• Pricing• Distribution• Advertising• Promotional offers

• Transporting pizza bases• Serving pizzas hot

http://utsavmahendra.blogspot.com/2012/03/pizza-hut-porters-five-force-model.html

http://www.slideshare.net/singhalshubham/pizza-hut-value-chain-analysis

Reference