PIZZA HUT

1958-1967 1967-1999

1999-PRESENT

Submitted by :-Wasim Akram

GENERAL INFORMATION• TYPE - PUBLIC

• FOUNDED - WICHITA, KANSAS (1958)

• LOCATION - DALLAS, TEXAS

• KEY PEOPLE - DAN AND FRANK CARNEY (FOUNDERS) DAVID C. NOVAK (CEO)

• INDUSTRY - FOOD WHOLESALE

• PRODUCTS - PIZZA

• EMPLOYEES - 250,000 (APPROX.)

• WEBSITE - WWW.PIZZAHUT.COM

PIZZA HUT STORY• 1958: THE LEGACY OF PIZZA HUT BEGAN, WHEN TWO COLLEGE-

AGED BROTHERS FROM WHICHITA, KANSAS, FRANK AND DAN CARNEY OPENS FIRST PIZZA HUT RESTAURANT AFTER BORROWING $600 FROM THEIR MOTHER.

• 1959: PIZZA HUT IS INCORPORATED IN KANSAS AND THE FIRST FRANCHISE UNIT OPENS IN TOPEKA, KANSAS.

• 1968: INTERNATIONAL MARKET ENTERED WITH OPENING OF PIZZA HUT RESTAURANT IN CANADA.

• 1969: RED ROOF ADOPTED FOR RESTAURANTS.

• 1972: PIZZA HUT, INC. LISTED ON NEW YORK STOCK EXCHANGE UNDER THE SYMBOL PIZ.

• 1977: PIZZA HUT, INC. STOCKHOLDERS OVERWHELMINGLY APPROVE MERGER WITH PEPSICO, INC. FOR AN UNDISCLOSED SUM.

• 1986:DELIVERY SERVICE, AS A NEW CONCEPT, IS INITIATED

• 1996: PIZZA HUT COMES TO INDIA WITH A DINE IN RESTAURANT BANGALORE THAT HAS SPECIAL VEGETARIAN PIZZAS.

• 1997: PIZZA HUT OPENS A DINE-IN RESTAURANT IN DELHI.

• 2007: PIZZA HUT BROUGHT OUT OUR THICK N THIN PIZZA AND BEGAN TO RE-FRANCHISE OUR DINE-IN RESTAURANTS.

• 2009: PIZZA HUT OFFERING BAKED FILLINGS IN THE CORNER OF THE PIZZA

OVERVIEW OF THE CASE

• BY 1986, PIZZA HUT’S LEADERSHIP OF THE OVERALL PIZZA MARKET IS BEING CHALLENGED BY DOMINO’S, A DELIVERY-ONLY CHAIN.

• THE DELIVERY SEGMENT ACCOUNTS FOR ONLY 20% OF THE $12.7 BILLION PIZZA MARKET, BUT IT IS GROWING RAPIDLY.

• A CHANGE IN CONSUMER PREFERENCES HAS LED TO THE INCREASED PURCHASES IN THE DELIVERY SEGMENT.

• AFTER YEARS OF RESISTING ENTRY INTO THE DELIVERY SEGMENT FOR FEAR OF CANNIBALIZING ITS EXISTING EAT-IN RESTAURANTS, PIZZA HUT HAS DECIDED IT IS NECESSARY TO MOVE INTO THE DELIVERY SEGMENT.

STRENGTHS• IT IS THE MARKET LEADER IN PROVIDING DIFFERENT VARIETIES OF

PIZZAS

• SPECIALIZES ONLY IN PIZZAS

• HAS FULL SERVICE RESTAURANT AS WELL AS DELIVERY SERVICES.

• STRONG FRANCHISEE NETWORK

WEAKNESS

• HIGH OVERHEAD COSTS DUE TO LARGE NUMBER OF RESTAURANTS.

• HIGH PRICE

• INTERNAL CONFLICTS AMONG FRANCHISEES

OPPORTUNITY • EXPANSION THROUGH ONLINE ORDERING SYSTEM.

• INTRODUCTION OF MORE INNOVATIVE PIZZAS.

• VENTURING INTO SENIOR CITIZENS MARKET.

THREATS

• THE DIFFERENTIATION STRATEGY FOLLOWED BY ANY PIZZA CHAIN IS SOONER OR LATER ADOPTED BY ALL PIZZA INDUSTRY PLAYERS.

• MAIN THREAT FROM COMPETITORS: DOMINOS

PORTERS 5-FORCE MODEL

EXISTING RIVALRY

• RIVALRY AMONG EXISTING PLAYERS

• AT PRESENT THERE ARE 3 MAJOR PLAYERS IN US PIZZA MARKET MAINLY DOMINOS LITTLE CEASERS PIZZA HUT AND THE DEGREE OF RIVALRY IS VERY HIGH

• THE REASON IS NUMBER OF COMPETITORS IS VERY LARGE INDUSTRY GROWTH IS HIGH AND FIXED COST INVOLVED IS HIGH

THREAT OF NEW ENTRANTS

SINCE INDUSTRY GROWTH IS HIGH IT ATTRACTS NEW POTENTIAL FIRMS TO ENTER INTO THE MARKET. HOWEVER, IF THE NEW ENTRANTS IS EXPERIENCED THEN IT WILL BE ABLE TO COMPETE WITH THE EXISTING PLAYERS ELSE THE ECONOMIES OF SCALE ENJOYED BY THE EXISTING PLAYERS WILL FORCE THE NEW ENTRANTS TO EXISTING MARKETS

THREATS OF SUBSTITUTE

THREATS FROM JUNK FOODS SUCH AS HOT DOGS, SANDWICHES AND BURGERS.

THREATS OF BUYERS BARGAINING POWER

FROM CUSTOMER OR BUYERS WHEN THERE ARE NUMBER OF SUPPLIERS OF BUYERS CONCENTRATION IS HIGH OR LARGE AVAILABILITY OF SUBSTITUTE GOODS

THREATS OF SUPPLIERS BARGAINING POWER

ALSO FROM SUPPLIERS WHEN THERE IS LARGE NUMBER OF BUYERS FROM THESE SUPPLIERS, HIGH CONCENTRATION OF SUPPLIERS, HIGH SWITCHING COSTS AND NON AVAILABILITY OF RAW MATERIAL SUBSTITUTES

CONSUMER SEGMENTATION BY CHANNEL  Eat-In Carryout Delivery

Benefit Atmosphere, Quality

Time Time factors

Price Sensitivity Lowest Modest Highest

Demographic Profile Non-families Families, time-starved

Families, convenience

COMPETITION FROM DOMINOS & LOCAL PLAYERS

System wide Sales ($ millions)

Units Average Check/Person($)

Delivery

PIZZA HUT 1934 5025 9.99 Separate delivery units plus franchisee add-on delivery out of restaurant

DOMINO'S 1550 3696 9.5 Delivery only

LITTLE CAESAR

520 1308 2.75 No delivery

PIZZA INN 278.7 748 4.3 Separate delivery units

GODFATHER'S 275 650 9.75 Add-on delivery out of restaurant

ROUND TABLE PIZZA

250 535 5 Add-on delivery out of restaurant

SHOWBIZ/CHUCK E. CHEESE

249 268 5.2 No delivery

SHAKEY'S 197 386 4.25 Add-on delivery out of restaurant

Mr. GATTI'S 139.2 319 7.81 Add-on delivery out of restaurant

TOP PIZZA CHAINS, 1986 (Adapted from Nation's Restaurant News)

1979 1980 1981 1982 1983 1984 1985 1986System net sales ($MM)

732 832 1007 1170 1394 1556 1743 1934

Market share 14.9 15.7 17 17.2 18 17.3 16 15.4UnitsCompany 1940 1888 1843 1845 1911 2051 2224 2534Franchise 1801 1873 1922 1975 2095 2157 2309 2491Total 3741 3761 3765 3820 4006 4208 4533 5025

CompanyPSA sales ($M) 196 221 267 306 348 372(Traditional) 395 400(Delivery) 282 289

PSA sales growthReal -3.1 4.7 11.8 8 9.8 1.8 2 -2Price 6.4 8.1 9 6.6 3.9 5.1 3.4 0.8Total 3.3 12.8 20.8 14.6 13.7 6.9 5.4 -1.2

Net sales($MM) 354 399 476 556 678 766 835 929Net sales growth (%)

12.7 19.3 16.8 21.9 13 9 11.3

Total revenues ($MM)

495 556 489 569 699 795 867 967

ROAE(%) 3.5 6.1 8.9 16.4 21.7 16.9 15 12.4

Franchisees:PSA sales($M) 237 280 314 350 386 400 415Net sales($MM) 378 433 531 613 715 799 908 1005

REASONS WHY PIZZA HUT ADOPTED “FRANCHISING” AS THE ENTRY STRATEGY

• BEST METHOD TO ESTABLISH OPERATIONS WITHOUT RISK OF OPERATIONS IN AN UNFAMILIAR MARKET.

• FRANCHISING ROUTE HELPS IN LEARNING THE BUYER BEHAVIOUR , CONSUMER BEHAVIOUR & MARKET REALITIES.

• IN COUNTRIES WHERE DIRECT FOREIGN INVESTMENT IS NOT ALLOWED , FRANCHISING IS THE EASIEST ROUTE TO ENTER IN THESE MARKETS.

ISSUES IN THE CASE - 1

SHOULD PIZZA HUT ENTER THE DELIVERY SEGMENT OF THE PIZZA MARKET IN AN ATTEMPT TO COMBAT DOMINO’S GROWING POPULARITY AND MARKET SHARE FROM THIS SEGMENT?

• YES IT SHOULD ENTER BECAUSE THE PIZZA DELIVERY MARKET IS AN ENTIRELY SEPARATE SEGMENT IN ITSELF. MOREOVER PIZZA HUT WOULD HAVE COMPETITIVE ADVANTAGE BECAUSE OF ITS BRAND NAME.

KEY CONSTRAINTS

• CANNIBALIZING

• CONVINCING THE FRANCHISEE

• SETTING UP THE INFRASTRUCTURE FOR DELIVERY SYSTEM.

• COMPETITION FROM LOCAL PLAYERS.

• IT DID NOT CANNIBALIZE THE DINE IN RESTAURANT AS BOTH HAVE ITS DIFFERENT MARKET SEGMENTS.

• PIZZA HUT WAS ABLE TO CONVINCE THEIR FRANCHISEES AFTER SUCCESSFULLY PUTTING ACROSS THEIR POINT OF HIGH MARKET POTENTIAL IN THE PIZZA DELIVERY MARKET.

• THEY BUILT A VERY ROBUST AND SUSTAINABLE DELIVERY MODEL.

• THEY GAINED COMPETITIVE ADVANTAGE BECAUSE OF THE NEW CSC SYSTEM.

IF PIZZA HUT DOES PURSUE THE OPPORTUNITY TO MOVE INTO THE DELIVERY SEGMENT OF THE PIZZA MARKET, WHAT OPERATIONAL APPROACH SHOULD THEY USE?

APPROACHES TO BE FOLLOWED

• ADOPTION OF CSC SYSTEM.

• ADEQUATE MAN POWER, DELIVERY VEHICLES AND OTHER SUPPORTING INFRASTRUCTURES.

• PROPER TRAINING OF SALES AND DELIVERY FORCE.

• PROPER DEMARCATION AND PLANNING OF ZONES AND DELIVERY ROUTES.

ISSUES IN THE CASE - 2

IF PIZZA HUT DOES PURSUE THE OPPORTUNITY TO MOVE INTO THE DELIVERY SEGMENT OF THE PIZZA MARKET, HOW DO THEY CONVINCE THEIR EXTENSIVE FRANCHISE SYSTEM TO PARTICIPATE WITH THEM?

• INCENTIVIZE THE FRANCHISEE.

• MAKE THE FRANCHISEE UNDERSTAND THE POTENTIAL OF DINE AT HOME.

ISSUES IN THE CASE - 3

• IF PIZZA HUT DOES PURSUE THE OPPORTUNITY TO MOVE INTO THE DELIVERY SEGMENT OF THE PIZZA MARKET, WHAT WILL BE THE OVERALL EFFECTS ON THEIR EAT-IN RESTAURANT BUSINESS AND THEIR FRANCHISE RELATIONSHIPS?

ISSUES IN THE CASE - 4

EFFECT ON EAT IN RESTAURANT

EFFECT ON THE FRANCHISES

IN THE BEGINNING THERE WAS RESISTANCE FOR THE ADOPTION OF THE NEW DELIVERY AND CSC SYSTEM BUT AFTER LEARNING THE ADVANTAGES OF THESE NEW STRATEGIES AND THE GROWTH POTENTIAL THAT IT WOULD BRING ALONG WITH IT, THEY ADOPTED THESE NEW CHANGES.

RECOMMENDATION• HIGH QUALITY PERSONNEL: TOTAL COOPERATION OF ITS EMPLOYEE’S

THEREBY INCREASING PRODUCTIVITY , BEATING COMPETITION AND ENHANCING CUSTOMER SATISFACTION. FOR THIS HIGH INCENTIVES SCHEMES MUST BE ESTABLISHED.

• FOCUS ATTENTION TO UNTAPPED SEGMENT OF SENIOR CITIZENS: CAN ESTABLISH PIZZA HUT SENIOR CLUBS WHICH WILL ORGANISE ACTIVITIES FOR OLDIES. INNOVATION AND LAUNCH SOME PRODUCT FOR SENIOR CITIZENS.

• CONTINUOUS INNOVATION IN PRODUCTS

• INNOVATION THROUGH CONSUMER FEEDBACKS AND REVIEWS AND WHAT CHANGES THEY WANT TO SEE.

• LOCATION: THE MOST CRITICAL SUCCESS FACTOR FOR ANY HOSPITALITY BUSINESS IS “LOCATION”. PIZZA HUT DOES NOT AIM TO BE A PREMIUM BRAND WITH SELECTIVE DISTRIBUTION, INSTEAD IT AIMS TO BE MAKE ITSELF AVAILABLE ANYWHERE AND EVERYWHERE. THUS, PIZZA HUT MUST INCREASE ITS COVERAGE