The journey of Pizza Hut.

1. PIZZA HUT
1958-1967
1967-1999
1999-PRESENT
Submitted by :Wasim Akram

2. 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

3. 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.

4. • 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

5. 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.

6. 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

7. 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

8. PORTERS 5-FORCE MODEL

9. 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

10. 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

11. 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

12. 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

13. CONSUMER SEGMENTATION BY CHANNEL
Eat-In
Carryout
Delivery
Benefit
Atmosphere,
Quality
Time
Time factors
Price Sensitivity
Lowest
Modest
Highest
Demographic Profile
Non-families
Families, timestarved
Families,
convenience

14. COMPETITION FROM DOMINOS & LOCAL PLAYERS
Units
Average
Delivery
Check/Person($)
PIZZA HUT
System wide
Sales
($ millions)
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
PIZZA INN
520
1308
2.75
No delivery
278.7
748
4.3
Separate delivery units
GODFATHER'S
275
650
9.75
Add-on delivery out of restaurant
ROUND TABLE
PIZZA
SHOWBIZ/CHU
CK E. CHEESE
250
535
5
Add-on delivery out of restaurant
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

15. 1979
System net sales ($MM) 732
1980
832
1981
1007
1982
1170
1983
1394
1984
1556
1985
1743
1986
1934
Market share
Units
Company
Franchise
Total
14.9
15.7
17
17.2
18
17.3
16
15.4
1940
1801
3741
1888
1873
3761
1843
1922
3765
1845
1975
3820
1911
2095
4006
2051
2157
4208
2224
2309
4533
2534
2491
5025
196
221
267
306
348
372
395
282
400
289
Company
PSA sales ($M)
(Traditional)
(Delivery)
PSA sales growth
Real
Price
Total
Net sales($MM)
Net sales growth (%)
Total revenues ($MM)
ROAE(%)
Franchisees:
PSA sales($M)
-3.1
6.4
3.3
4.7
8.1
12.8
11.8
9
20.8
8
6.6
14.6
9.8
3.9
13.7
1.8
5.1
6.9
2
3.4
5.4
-2
0.8
-1.2
354
399
12.7
556
6.1
476
19.3
489
8.9
556
16.8
569
16.4
678
21.9
699
21.7
766
13
795
16.9
835
9
867
15
929
11.3
967
12.4
237
280
314
350
386
400
415
495
3.5

16. 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.

17. 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.

18. KEY CONSTRAINTS
• CANNIBALIZING
• CONVINCING THE FRANCHISEE
• SETTING UP THE INFRASTRUCTURE FOR DELIVERY
SYSTEM.
• COMPETITION FROM LOCAL PLAYERS.

19. • 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.

20. ISSUES IN THE CASE - 2
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.

21. ISSUES IN THE CASE - 3
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.

22. ISSUES IN THE CASE - 4
• 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?
EFFECT ON EAT IN RESTAURANT

23. 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.

24. 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