Pizza Hut Inc

Introduction

Pizza Hut, Inc. was started on June 15, 1958, by two college students Dan and Frank Carney from Kansas. In 1968 they were a chain of 296 restaurants. It went public in 1968 and was acquired by Pepsico in 1977. In 1981 Pizza hut became the largest Pizza restaurant in the world accounting for sales worth $1 billion. By 1986 it had 5025 domestic units. All Pizza hut restaurants were fully serviced eat-in and carry out family restaurants. The Pizza market is a fast growing one. Over the years it had evolved into 3 broad categories –

* Eat-in
* Carryout
* Delivery

In 1982, delivery system consisted of only 1% of the total revenue of pizza market. This was estimated to grow to 32% by 1990. Carry out segment accounted for more or less the same percentage of the market share (approx. 41%) while eat-in decreased from 57% in 1986 to 27% in 1990. Pizza Consumer

* Second most popular food after Ham burgers
* Consumer research shows that Pizza was personal
* Pizza was considered to be a Dinner food/evening snacks
* Consumption of pizza varied from place to place
* People increasingly preferred home delivery and carry out rather than cooking or eating in restaurants
* Pizza was considered as an eat-at-home food

Competition

* Dominos pose a serious threat to Pizza Hut due to delivery model structure * Godfather’s Pizza was initial rival to Pizza hut most significant national competitor The Franchisee System
* Franchising was an integral part of the pizza hut strategy since its founding * In 1986, 135 individuals, partnerships and corporations operated 2395 pizza hut restaurants and 96 delivery-only units as franchisees * The company by itself operated 2173 restaurants and 361 delivery-only units

* Each Franchise was given an initial Five year development schedule * Franchisees paid Pizza Hut an initial fees of $15000 for each system restaurant opened * They also paid it an ongoing franchise fee of 4% of monthly gross sales * The franchise invested about $466000 to $816000 to open each Eat-in or carryout restaurant * Delivery only units required $128500 to $198500 of investment Problems

The major competition was from Domino’s which was a delivery-only firm. The management wants to apply delivery model in all the franchisees, but the franchisees are weary of such a scheme. The support within the franchisees for such a delivery system was limited. The fact that the franchisees were powerful and had exclusive rights in their territories hindered the plans of expanding it as delivery system. The franchisees are apprehensive about the operational complexities that such a system may accompany.

Objectives
Short term:

1. To instill confidence amongst the Franchisees to adopt Delivery model 2. Implement delivery units successfully in existing restaurant chains Long term:
1. To maintain the Leadership positioning of Pizza Hut
2. To diversify and introduce innovative products
Action Plan
Pizza Hut can tackle the problems as follows:

1. Central ordering system would ease the marketing and advertising difficulties related to delivery system. Franchise owners should be explained this fact that this would lead to higher customer satisfaction and more business. Moreover, lowered customer call wait will be achieved through this only. This would also lead to serve customers according to their previous orders which would lead to higher customer retention in a competitive market. Thus Pizza Hut must try to implement CSC in both its own units and that of the franchisees.

2. By going for upsizing Pizza Hut can make sure the franchisees get good margins thereby making lower risks arising due to cannibalization of carry out units by the delivery model.

3. Pizza Hut is known as a premium brand and hence it can win over Dominos by concentrating on product quality and innovation.

Alternatives

The opportunity cost that Pizza Hut

Customer Service Centre (CSC)

Benefits of Customer Service Centre
* Capable of handling vast number of calls with large number of delivery units * Easy track of Customer records and Sales
* Reaching more number of customers
* Less waiting time than other services
* Low labor cost

Pros and Cons of Delivery Model
Pros:

* Largest pizza chain in the world, so delivery model would reach to the wider population. * Delivery model trend is increasing year on year, Dominos are on similar service. * As per consumer survey by National Restaurant Association identified home delivery as the most important new fast food concept. * Rapid growth of in-home video rental market together with increasing number of baby boomers might further increase this model. * Consumer viewed Pizza as eat at home food.

Cons:

* The new model needs more workforce and additional investment. * The price increase with an increase in the size of the pizza (up-sizing) was not identified with the customers who perceived only small, medium or large pizzas as standard sizes. * 65% of franchise owned outlet located in smaller towns with population under 50,000 so, delivery in those areas is not economical. * Most franchise sees no reason to risk business by expanding eat-in restaurant into delivery model. * Franchise also objected the need of expensive CSC system as Domino’s didn’t have any. * Delivery units might cannibalize the traditional restaurant business in which the infrastructural investment has already been made.

Conclusion

1. Product quality: Pizza hut should realize that customer is quality sensitive. Since their traditional in‐house pizzas are not very suitable for delivery purposes, they should focus more on the deliverable pizza development. This would give them an advantage over Domino’s. 2. Restaurant quality: Pizza hut should focus more upon their restaurant experience and add premium to it. This would ensure that people, who would have otherwise opted for eat‐in category, would not shift to delivery option. 3. CSC system: Central ordering system would ease the marketing and advertising difficulties related to delivery system. Franchise owners should be explained this fact that this would lead to higher customer satisfaction and more business.

Moreover, lowered customer call wait will be achieved through this only. This would also lead to serve customers according to their previous orders which would lead to higher customer retention in a competitive market. 4. Upsizing: This would come under grey area. Since customer won’t be charged for delivery, higher bill amount would only lead to fair margins. But in case of price sensitive customers, this would lead to reduced overall sales. However as it is mentioned that Domino’s has done the upsizing as well, this might nullify the effect of increased price. 5. Product innovation: Pizza hut should come forward with innovation in delivery pizza which would ensure quality even while being delivered. This would give it competitive advantage over Domino’s in a price sensitive market.