Company Background
Pizza Hut is an American restaurant chain. It operates franchises internationally. The company operates in the food industry and offers food items like pizzas, pastas, garlic breads, breadsticks, drinks, and desserts. It provides catering service and franchise opportunity. The company was founded in 1958 by Dan and Frank Carney and is based in Plano, Texas. It is a subsidiary of Yum Brands Inc. (Pizzahut , 2015).
Pizza Hut runs three different formats of restaurants – first is the family dining in restaurants, second is the delivery and carry on types, and third is where the first and second are merged together.
Pizza Hut restaurants aim at providing the best quality product and service to its customers. The vision of the company at inception was to provide a special pizza eating experience and 55 years later, the company still prioritizes customer satisfaction above everything. The vision of the company is to be the number one pizza company in the world and the mission of the company is to bring favor to life. Pizza Hut’s objectives or “customer promise” as they call it, is to invent the most flavorful experiences and never be boring.
The chain has 15,605 restaurants in 92 countries worldwide in 2014 (Yum, 2015). In China alone, there has been a 25% rise in the number of restaurants and 22% rise in the number in India (Yum, 2015). However, the largest number of chains is still in the US, which is the largest market for Pizza Hut.
Situational Analysis
How did the company start?
Two brothers, Dan and Frank Carney, in Wichita, Kansas, started the company in 1958. In the fifties, a pizza parlor was a rarity in America, and when they opened one, it proved to be a successful business venture. Theirs was a humble venture with $600 lent to them by their mother and they partnered with John Bender. A year later they started opening other Pizza Hut restaurants and franchises.
The company believed in a policy of aggressive marketing and it grew fast in the 60s. By 1966, Pizza Hut already had 145 franchises across US (Vlessing, 1998). In 1968, the company opened its first international restaurant, in Canada and by 1970 it had opened restaurants in Germany and Australia.
Due to its fast expansion and aggressive marketing policy, the company had to undergo certain structural changes in order to sustain growth. Their advertising expenditure in the local market increased from $942000 in 1972 to $3.17 million in 1974 (Vlessing, 1998). The company merged in PepsiCo in 1977. Throughout the 80s, Pizza Hut bought new competitors and aggressively acquired those who threatened their number one position.
Initially Pizza Hut faced local competition mostly from regional players like Shakey’s from Denver and Pizza Inn from Denver (Vlessing, 1998). The company faced strong growth through the 80s, expanding rapidly. However, in the 90s, there were challenges and in the early 90s, PepsiCo expanded into the emerging markets. By 1997, Pizza Hut operated in 90 countries around the globe.
PESTEL
Political Factors: Pizza Hut is an international restaurant chain and therefore face various regulatory and political turmoil occurring in various parts of the world. Political issues may include regulatory framework that affects the operations in a particular country. The business is open to risks that are inherent to international operations. They are susceptible to social and ethnic unrest as well as local corruption.
The restaurants must comply with the local government’s license and regulations. In the Middle East, the restaurants are subject to local laws concerning security, labor, health, sanitation, and safety. Internationally, the restaurants are subject to tariffs and regulations on commodities and equipment that are imported. They are also subject t to anti-bribery and corruption laws (See Appendix table 1).
Economic Factors: the global and local economic condition may affect the operations of the chain. Some economic factors that may adversely affect operations of the chain are increased unemployment, fall in disposable income, and decline in consumer confidence.
Other macroeconomic factors such as increasing inflation and dwindling exchange rates may become a serious impediment to sales growth of the chain. UAE has one of the fastest growing economies with booming industries and high consumer spending, which is a positive factor that will influence the growth of the chain in the country.
Social Factors: Pizza Hut is a symbol of American commodification and faces unrest from ethnic and social groups in other countries who oppose Americanization of their culture. Though the company strives to localize their menu offerings and imparting the image of a local chain, it often faces challenge. UAE has a young population with 41% of the population belonging to the age group of 15 to 44 (Agriculture and Agri-Food Canada, 2015). Further the demand for American fast food in the country is increasing (Valdini, 2012).
Technological Factors: Pizza Hut is spending a lot of its revenue on technological advancements in order to meet the demands of the tech-savvy market. For instance, the company is investing amount $30 million in 2014 (Yum!, 2014). It is planning to adopt a smart technology that will anticipate the customer’s need before she places the order (Nield, 2014).
This will help in better services. Further, for delivery orders, the chain is testing Uber-Esque technology to track orders (Taylor, 2015). Thus, updating technology is essential to keep up with the technological changes occurring in daily life.
Environmental Factors: These factors differ depending on the region they are operating in. A company can be charged of being harmful to the environment. One of the reasons that a company can be accused of that is using materials that are not biodegradable, and Pizza Hut does that.
Legal Factors: This includes taxes, quality requirements, and employees’ specifications. Legal compliance is essential in all the countries it operates in order to meet the legal needs and the regulatory framework of the nations. Therefore, to get licenses and permission to operate restaurants, compliance to regulations is essential (Yum!, 2014).
Industry analysis
Pizza Hut belongs to the retail food industry. It is made up of various forms of retailers such as supermarkets, supercenters, warehouse stores, convenience stores, etc. (Yum!, 2014). The fast food casual dining industry in the UAE is growing very fast due to the rise in disposable income, change in high-end shopping mall induced lifestyle, and increase in demand for Western fast food (Valdini, 2012).
Therefore, Pizza Hut does not hold a significant position in the overall industry (Yum!, 2014). The Pizza food service sales in the UAE have been growing at CAGR of 7.8% (Agriculture and Agri-Food Canada, 2015). In the fast food market, the largest brand is KFC based on the percentage of share based on sales. Pizza Hut has the third largest market share in the UAE (Agriculture and Agri-Food Canada, 2015).
The fast food market is expected to grow at a very fast rate in the UAE, with the chained foodservice market to have an expected growth rate of 7.1% (Agriculture and Agri-Food Canada, 2015). Further, pizza sales in UAE are expected to grow at a rate of 12.38% (Agriculture and Agri-Food Canada, 2015).
Competitor analysis
The competitive environment in the fast food industry in UAE is highly fragmented. The market leader in fast food in UAE is Kuwait Food Co. (Americana), which holds 3% value share in 2014 (Europmonitor International, 2015).
Domino’s Pizza is considered Pizza Hut’s number one competitor. The control of the pizza market by Pizza Hut started to be threatened when Domino’s entered the market as a delivery only chain. Other competitors include Papa John’s Pizza and Figaro’s Pizza. Other direct competitors for Pizza Hut are Papa Johns and Figaro’s Pizza that also specialize in pizza and have a number of branches around the UAE, but not even close to those of Pizza Hut (Wong, 2014).
Indirect competitors of Pizza Hut include Subway, McDonalds, and other restaurants located in the food courts. Those restaurants also offer a fast service, a good price, and are located in a lot of places. However, the variety and creativity of Pizza Hut’s menu keeps it going and succeeding.
A recent awareness among the people of UAE about the health hazards about fast food has increased the demand for healthy options provided by companies like Kcal Extra, Healthtrendz, and Live’ly who concentrate on deliveries to homes and offices catering to the health conscious consumers (Flanagan, 2015). Others like DinnerTime and Detox Delight provide food for the health and diet conscious consumers (Flanagan, 2015).
One factor that might affect the industry of Pizza Hut and fast food in general is the increased health awareness. Media and doctors are focusing on promoting a healthy life style. In the GCC and specially the UAE, the number of nutritionists and gyms is highly increasing (Yum!, 2014). This awareness promotes people to taking care of the food they eat and focusing on eating healthy food.
Domino’s Pizza is Pizza Hut’s first strategic benchmark company. Domino’s are working hard on their long-term strategies. They started already with the Customize Your Own Pizza option in some of the countries. Further, the company faces competition from other full-service restaurants as Pizza Hut operates in this market in the UAE.
Customer analysis
The target market of Pizza Hut is both male and females of various age groups from all nationalities. The specific age group targeted is 12 to 40 years. They offer various pizzas that attract various age groups and nationalities. The price ranges at which the pizzas are offered are suited to low and middle income families. The targeted market is men and women, children, students, families, and travellers. The company has no geographic segmentation as it has its operations worldwide.
The company follows lifestyle segmentation in the emerging Middle Eastern market where it has branded its restaurants as upscale dine-in. In the Middle Eastern market, Pizza Hut caters to a specific social class i.e. upper and middle class. More specifically, the target markets are those families who dine-out or order food at least once a week and have a high disposable income where a large portion of the target market’s spending goes to non-essentials.
Target Segment of Pizza Hut
The market size in the UAE is large as the country has a high percentage of young people with high disposable income and a high preference for American fast food. The target market of the chain is segregated based on the food they offer. For pizzas and pastas, they target a demographic group of 10 to 40 years of age, both male and female. Pizza Hut targets families with children, young professionals, and students.
They target middle and upper middle class families in the Asian and emerging markets while in Europe and the US market they target low and middle class families. In terms of geographic segmentation, Pizza Hut puts a lot of importance on its expansion and sale in in the Middle East. The targeted market here is people within the age group of 20 to 40 and belonging to the upper to high-income group.
Potential Size of Target Market
The emerging and developing economies hold much more promise than developed countries. Figure 3 in the appendix shows that the emerging countries are more optimistic about the growth prospects of GDP as well as the future of children in their country. Hence, from a futuristic view, targeting the emerging markets is an opportunity that Pizza Hut should undertake.
According to the US poverty line, a household earning $10-20 daily belongs to the middle class and upper middle class is a household with income over $20-50 (Kochhar, 2015). Households with annual income over $73000 or above annually belong to the high-income group. Kochhar (2015) points out that the rise of the middle-income group has been highest in emerging economies like China, South America, and Eastern European countries.
Further, the major population belonging to the upper-middle class and high-income group lived in North America, Europe, and Asia-Pacific region (Kochhar, 2015). The fast food industry in the UAE had a $8.5 billion market in 2013 and is expected to grow further (Agriculture and Agri-Food Canada, 2015). Hence, the target market of the young professional group belonging to the age of 20 to 40 years will be rising in emerging economies (see figure 2 in Appendix).
Top 3 strategic problems
The three most important strategic problems faced by Pizza Hut are –
- Changing food preference and increasing health consciousness of the target market and introduction of healthy eating alternatives posses a threat to the market.
- Zero sales growth of Pizza Hut in the UAE by change in year on year sales from 2009 through 2013 (Agriculture and Agri-Food Canada, 2015).
- Lack of aggressive promotion in the UAE market of the popular products by Pizza Hut. For instance, Chicken Shawarma Pizza of Pizza Hut is one of the best selling ordered products of the chain, however, marketing for the product was short-lived.
Recommendation
Marketing Mix
In the UAE the highest growth in the fast food service market are for full service casual dining and delivery model-based food service companies. In the full casual dining experience, the Pizza Hut holds the largest market share. However, Domino’s is the market leader in the delivery service (Agriculture and Agri-Food Canada, 2015).
Product Building On Existing Product
Pizza hut concentrates on offering local flavors to cater to the local markets. Pizza Hut needs to expand its menu offerings in the UAE. For example, Chicken Shawarma Pizza is part of the Flavors of the Arabia, which has 5 pizzas with flavors made to meet the Middle Eastern tastes. However, in the UAE only the chicken variant was introduced when there is a high demand for the beef variant.
In addition the range includes Sujuk Pizza, Tawok Pizza, Sujuk Spirals, and Lemon Zaatar wings, which have been advertised in the UAE when the product was introduced, however, remain unavailable in the market. It is a strategic mistake to have made a promise in the advertisement and not committing to it as this creates negative image among consumers.
Price Based On The Competitive Chart
Price should be based on the marketing strategy that Pizza Hut employs and not directly based on the rice chart of its competitors. The prices must be competitive but concentration must be on building a brand and not start a price war. Further, Domino’s is gaining market through its online ordering business while Pizza Hut ahs not been able to match the sales rise in the digital age.
Promotion Strategy
The competitive rivalry between Pizza Hut and Dominos has led both the companies into price and promotional war. However, Pizza Hut has tried to move away from the business model followed by Dominos and caters to the dine-in experience of customers rather than the delivery business. Promoting restaurants with better ambience and happy dining experience will capture the mission and vision of the company and present a different form of competition to Dominos.
Stakeholders
According to the Yum Brand the stakeholders in their business and in turn for Pizza Hut are supply chain solutions board, the franchise associations, local communities, animal welfare societies, environmentalists, health and nutritionists, etc. (Yum! Brands, 2014).
Budget
The company should include three main strategies in their budget expenditure – first, innovating their services by increasing efficiency and better product offerings, second, entering emerging markets as inexpensive luxuries targeting the middle class and not only the upper-middle and high income group, and third, revamping their marketing campaigns. Further, many products are not properly marketed and promotion strategy is short-lived. Hence, proper budget should be in place to promote their products in the UAE market.
Budget Plan
Idea of returns and Sales Projections
Table 3 in the appendix shows the growth of sales and marketing cost of Pizza Hut. The figures show that the sales of Pizza Hut are expected to decline based on the trend of sales in last three years (2012 through 2014). However, the cost of marketing will increase continuously.
Finding the year-on-year growth of sales since 2012 through 2014 was used to project sales of Pizza Hut. The compounded average growth rate is derived using the sales growth figures, which is then used to compute the trend in sales. The marketing cost was projected using the growth rate of marketing cost for 2013 and 2014. This is a warning sign for Pizza Hut, as it should revamp its product offering and boost marketing strategy to increase sales.
References
Agriculture and Agri-Food Canada, 2015. Foodservice Profile – The United Arab Emirates. Web.
Europmonitor International, 2015. Consumer Foodservice in the United Arab Emirates. Web.
Flanagan, B., 2015. UAE health food market booming but is it getting too fat? Web.
Gruley, B., 2014. Twilight of the Pizza Barons. Web.
Kochhar, R., 2015. A Global Middle Class Is More Promise than Reality. Web.
Nield, D., 2014. ‘Subconscious’ Pizza HUt Menu Knows What You Want Before You Do. Web.
Pew Research Center, 2014. Emerging and Developing Economies Much More Optimistic than Rich Countries about the Future. Web.
Pizzahut , 2015. Our History. Web.
Taylor, K., 2015. Pizza Hut Is Testing Uber-Esque Delivery Tracking Tech. Web.
Valdini, C., 2012. Industry focus: Fast food in the UAE. Web.
Vlessing, E., 1998. Pizza Hut Inc. Web.
Yum, 2015. Restaurant Count. Web.
Yum! Brands, 2014. Corporate Social Responsibility Report. Web.
Yum!, 2014. YUM! Annual Report. Web.
Appendix
Table 1: PESTEL Analysis of Pizza Hut.
Table 2.
Table 3: Pizza Growth Rate (Source: 2014 Yum Brand Annual Report).