Case study: Pizza Hut, Inc.

Table of Contents

1. About Pizza Hut

2. Strategic Analysis
2.1. External Environment
2.1.1. Pizza Market
2.1.2. Competition in the Pizza Market
2.1.3. Demand on the Product
2.1.4. Features of the Product
2.2. Firm Internal
2.2.1. Franchising at Pizza Hut
2.2.2. Pizza Hut Franchisees – The IPHFHA
2.2.3. Finance
2.2.4. Suppliers
2.2.5. Marketing strategies

3. Strategy Formulation
3.1. Business Level
3.1.1. Delivery at Pizza Hut, Inc
3.1.2. Strength
3.1.3. Weakness
3.1.4. Opportunities
3.1.5. Threads
3.2. Corporate Level

4. Strategy Implementation
4.1. Adapt Structure to Strategy
4.1.1. Location Regard
4.1.2. Business Proposal
4.2. Strategic Leadership

5. References

1. About Pizza Hut

On June 15th, 1958, two brothers opened the first Pizza Hut restaurant in Wichita, Kansas (U.S.) by purchasing second-hand equipment and renting a small building on a busy cross-road. The concept was relatively new at the time and the brothers quickly saw the potential of this new enterprise. A short time later, they begun to open new restaurants and developed schedules for franchised outlets. Their chain started growing up very fast, ten years later Pizza Hut Inc. counted almost 300 restaurants. In 1986, it had 5,025 domestic units and annual sales of almost $2 billion. Half of the outlets were franchised.

A Pizza Hut restaurant is characterized by a particular freestanding design with a prominent red roof. The restaurants are full-service, eat-in/carryout with about 60 to 90 seatings, open from 11 a.m. to midnight.

Pizza Hut´s franchisees have special rights to most of the smaller restaurants, company-owned outlets stand in metropolitan with a high population density.

2. Strategic Analysis

2.1. External Environment

2.1.1. Pizza Market

The pizza market grow up rapidly, when the possibility of home delivery was accepted by the consumer. In the mid-1980s pizza was the fastest growing up food at the fast food market. There are 3 segments comprised the pizza restaurant market. At first the traditional eat-in, where consumers can enjoy their food like in ordinary restaurants or pubs, at second the carryout ( many stores had seperated windows to provide this service ) and at last the delivery-home service, where consumer can call and order their food. Many companies competed at least in 2 of these segments. For example, Pizza Hut´s carryout accounted for 40% of the profit.

2.1.2. Competition in the Pizza Market

Pizza becomes more and more a typically dinner food in the U.S.. Many consumer view it as an evening snack, it is a personal and sensual experience for many people. They did not believe that great pizza fast food chains could be made it like others did it with hamburgers.

Pizza Hut dominated the eat-in pizza segment nationwide, Godfather´s Pizza, which is another eat-in/carryout chain, competed in many of the same local areas and was the most significant national competitor.

Domino´s Pizza posed a serious competitive threat to Pizza Hut´s leadership position in the nationwide pizza market. In the time between 1984 and 1985 it redoubled its profit to more than $ 1 billion, to more than $ 1.5 billion by the end of 1986. The chain opened 950 new outlets ( total: 2.839 ). Two-third of Domino´s stores were franchised, but it still was a delivery-only chain. By 1986, Domino´s intended to gain total market leadership when it begun to extend its expansion into smaller towns with smaller population density, which were already controlled by Pizza Hut franchisees.

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Fig. a : adapted from Nation´s Restaurant News

2.1.3. Demand on the Product

The consumption of pizza in the U.S. depends on regional reasons. Tastes of pizza varied significantly by region, the strongest consumption is in the northern and eastern parts of the U.S.. For fast food chains like Pizza Hut it represents a challenge, to sell a product with its same taste in each outlets all over the U.S., all over the world as well.

2.1.4. Features of the Product

Pizza as a typical dinner food is often used by two-career families, which are using carryout or home delivery. Tastes in pizza depends regional, but Pizza Hut, Inc. found a taste, which is accepted everywhere. So Pizza Hut products have to be the same taste in every store in every state.

The food service industry today is one of the fastest growing industries in the United States. Beginning with the original thin crust pizza first served in 1958, Pizza Hut continues to refine its product and develop new products to suit its customer's tastes.

2.2. Firm Internal

2.2.1. Franchising at Pizza Hut

Nearly half of all Pizza Hut outlets are managed by franchisees. The company itself operates 2,173 restaurants and 361 delivery-only units. Franchise-partner are large companies, almost two-thirds operate 10 or more franchise areas. It is very exeptional and different to many other franchising programms. Franchisee sell its holdings only to the Pizza Hut Inc. or to other franchisees, no new franchise areas are been offered to the public since 1971.

Franchising rights and obligations are specified in agreements, each franchisee is obligated to develop its exclusive market area in accordance with a five-year development schedule. This agreement obligates the franchisee to open an agreed-number of new stores in a scheduled time. This is necessary to control new areas and to get no trouble in opening two stores in a short distance. In no case there can be establised a new outlet within 2 miles of an existing one.

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Fig. b : Open Pizza Hut Systzems Traditional Restaurnats and Delivery Units

Starting with the delivery programm in August 1984, Pizza Hut was able to increase the count of its outlets in a very short time. Most of delivery-only units are company-owned, franchise-partners are not totally convinced of this kind of business. Competitors like Domino´s are already present in almost every area.

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