Pizza Hut, Inc.
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Transcript of Pizza Hut, Inc.
Pizza Hut, Inc.
Case Presentation
Discussion of Case Presentation and Report Format
General Presentation and Report Format
Begin with brief overview of the key point(s).Next a discussion of the key case info.
Assume we have read the material. Identify a good organizational scheme, such as:
SWOT AnalysisRelevant 5 C’s and 4 P’s discussionChronological discussion
Make recommendations lastBe sure to provide discussion points
I encourage you to include class discussion as you go
Pizza Hut Case – Key Decisions
Should Pizza Hut enter the delivery segment of the pizza market?
If they move into the delivery segment of the pizza market, what operational approach should they use?
If they move into the delivery segment of the pizza market, how do they convince their extensive franchise system to participate with them?
If they 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?
Industry Trends
Food Prep moving out of the homeFood Consumption moving back in home
1982 delivery = 1.3% of pizza sales1986 delivery = 20% of pizza salesDelivery growing at 61% rate Carryout growing at 12% rateEat-in growing only at 4.25% rate
Expected by 1990 delivery would = 48% and carryout would = 43%
Discussion Questions
How much of a threat does Domino’s pose to Pizza Hut’s existing operations?
How much of a threat does Domino’s pose to Pizza Hut’s future operations?
Competitive Positions (Exhibit 1)
Brand Sales(mm) Units Channel
Pizza Hut $1,934 5,025 Most Eat-in
Domino’s $1,550 3,696 Delivery
Little Caesar $520 1,308 Eat-in
Pizza Inn $278.7 748 Mix
Godfather’s $275 650 Most Eat-in
Competitive Positions
Pizza Hut dominates eat-in and carryout
Domino’s dominates delivery-only
Discussion Question
Why would consumers choose each of the three pizza segments, eat-in, carryout, or delivery?
Consumer Purchase Behavior
Consumer Segmentation by ChannelEat-In Carryout Delivery
Benefit Atmos. Time Time Quality Convenience
Price Lowest Modest HighestSensitivity
DemoProfile Couples Families Families
Delivery Factor
While the added convenience of delivery is a feature that customers might be willing to pay for, Domino’s has changed this perception by pricing below Pizza Hut
Discussion Questions
Is it more likely that the growth of the delivery segment is cannibalizing existing eat-in sales or bringing in a new customer?
If delivery cannibalization is a concern, won’t Pizza Hut deliveries cannibalize existing operations?
Impact of Delivery Business (Scenario 1)
Lost sales due to cannibalizationAssumes 20% of carryout and 5% of eat-in is lost
% convert % of business Sales Sales Affected
Carryout 20 * 40 * $1,934mm = $154.7mm
Eat-in 5 * 60 * $1,934mm = $58.0mm
Total $212.7mm
Sales Affected Profit Impact % Profit (Loss)
$212.7mm * (13.1% - 8.8%) = ($9.2mm)
Impact of Delivery Business (Scenario 2)
Gain from home deliveryAssumes Pizza Hut delivery share is 15.4% = overall
share
% Potential Share Ind. Delivery Sales New Sales
15.4% * 2.6 bil. = $400.4mm
New Sales Margin Profit (Loss)
$400.4mm * 8.8% = $35.2mm
Impact of Delivery Business (Scenario 3)
Lost sales from not offering home deliveryAssumes 10% of current sales lost to competitors
Sales Lost to Comp. Lost Sales Margin Profit (Loss)
$1,934mm * 10% = 193.4mm * 13.1% = ($25.3mm)
Discussion Question
Should Pizza Hut pursue the delivery segment?
Delivery Strategy
Retrofit existing restaurants vs. delivery-only
Use Customer Service Centers
Engage in Upsizing/Up-pricing
Discussion Question
What are the pros and cons of the Delivery-only system versus retrofitting existing restaurants?
Retrofit versus Delivery-only
Delivery-only results in higher initial capital investments (especially a problem for the franchises)
Delivery-only would increase overall the number of outlets. Some managers are already concerned with oversaturation
Delivery-only would lead to the need for an entirely new operation system
Delivery-only would lead to human resource issues because managers would need to be trained on the new career paths and existing employee issues
Discussion Question
What are the pros and cons of the Customer Service Center system?
Do these pros and cons differ for the company units versus the franchise units?
Customer Service Centers
Would increase operating efficiencies and reduce the number of “stock-outs” (customers being unable to reach a local restaurant phone number)
Would be expensive to implement, specifically a problem for the franchises
Would allow a more consistent overall brand image and marketing strategy
Could be used long-term for more directed target-marketing programs
Upsizing and Up-pricing
Would allow a spreading of new operational costs over larger orders. Customers would pay more for somewhat equivalent orders
Might be viewed by the customer as a delivery charge
Might cause confusion among customers between delivery-only units and non-delivery units
Could increase costs due to increased materials or operational costs
Are there others ways to increase the average order size without changing the product mix?
Winter Franchise Meeting
Key IssuesResolve any bad feelings with franchisesConvince franchises of opportunities in deliveryCome to a compromise on the operations in the
new segmentObtain system-wide agreement
Winter Franchise Meeting
I recommend:Propose a strong move into the delivery segmentPropose a more extensive retrofit operationAllow short-term royalty reductions for franchises who
are willing to operate delivery-only unitsConvince system to buy into the CSC. Use some form
of short-term incentive to offset some of the costs, also point out the lower costs associated with retrofitting units which will offset some of the CSC costs.
Maintain consistent product mix, not engaging in upsizing. Sales can be increased through suggestive selling of appetizers, desserts, and offering promotional efforts to increase order size.