International Business of Pizza Hut

Running a business is a difficult task for the management team, as well as, the owners.
The managers and owners must face the challenges and the risks involved in managing
a business, especially if it spans internationally. Pizza is one of the most popular foods
in the world. Almost every people in this world, at some point in their lives, have tasted
Pizza. Pizza marginalised the social status of the people, from class A to E individuals
eat Pizza. Therefore, the demand for the food is high and businesses catering to this
market have emerged over the past years. One of the most popular Pizza parlours in
the world today is the Pizza Hut. The company is one of the oldest chains of restaurants
in the industry today, having been in the food industry for almost 50 years. Pizza Hut
continues to flourish in the business, adding more chains in every part of this world.

This paper describes the appropriate tools and techniques in the strategic
analysis in order to examine the current trends and issues in the business environment
of Pizza Hut. In addition, at the beginning of this paper a brief history pf Pizza Hut will
be provided. In the strategic analysis of Pizza Hut different methods will be used. For
the analysis of the impact of the external environment a PEST analysis will be used, in
determining the mobility barriers and the strategic space, strat6egic group analysis will
be utilised. Moreover, for the determination of the competitive advantage of Pizza Hut,
Porters Five Forces Analysis will be used and competitor analysis will be used for the
determination of the wherabilities of the competitors in order to assess the opportunities
and threats in the industry.

Pizza Hut was established on June 15 1958 in Wichita, Kansas by two brothers
Frank and Dan Carney. The brothers had the concept of opening a pizza parlour which
was relatively new during the 1950s and the potential of this business was seen by the
two. They borrowed around $600 from their mother to buy second-hand equipments
and rent a small space to open the first Pizza Hut. The next year, the second store was
opened in Topeka, Kansas and for only just a decade Pizza Hut already has 310 pizza
parlours in various locations serving approximately a million people. In the year 1970,
Pizza Hut was listed in the New York Stock Exchange under the symbol PIZ. In 1986,
Pizza Hut already had 5,025 branches in the United States alone with half of it
franchised. During the same year, the company introduced the concept of deliver
service; the total amount of the sales of the company in 1986 alone amounted to $2
billion dollars. In the years 1990, the total sales of Pizza Hut reached $4 billion dollars
world wide. By the year 1996, the sales in the domestic market, which is the United
States, have reached over $5 million dollars; the company had the largest share of the
market in that year for 46.4%. In the year 1998, Pizza Hut launched their campaign,
“The Best Pizzas under one Roof,” in celebration of the company’s 40th anniversary.
(Pizza Hut, 2007)

The restaurant of Pizza Hut has a particular concept and design which is a
prominent red roof. The services of all the restaurants range from eat-in and carry out
with approximately 60 to 90 seating for people.

Pizza Hut, no longer dominates the pizza industry, a number of restaurants have
emerged, and thus the playing field for this particular industry have been more
competitive in the past decades. In order to keep up with the competition and remain
one of the top players in the industry Pizza Hut must examine the trends and issues
using the proper techniques and methods.

Impact Analysis

The external environment plays an important role in the sector of

business. According to the Chartered Management Institute (2005) the PEST
Analysis is a method utilised in order to examine, identify and assess the external
forces that have a huge impact in the performance of an organisation. In addition,
the PEST Analysis is used to aid an organisation to obtain a better
comprehension of the broader environment in the sector of business and can be
used in carrying out the continuous process of environmental analysis. PEST
stands for Political, Economic, Social, and Technological Factors.
Political Factors- the policies and actions of the government wherein Pizza hut is
located, whether national of local affects how the business is being conducted.
The political and legal conditions that could affect the business of Pizza Hut are
the policies of the local and national government towards business, if the
government is more open in the establishment of numerous Pizza Hut
restaurants, then more restaurants will be established. On the other hands, if the
policies do not protect the business then fewer restaurants will be established.
Another factor is the regulation of the business and the environment. If the
business environment is not friendly with the company, then there is a possibility
that Pizza Hut will not open a restaurant and instead move to a more business-
friendly government.

Economic Factors- this part is concerned on the overall perspective of the

economy. The macro economy of a nation has a huge impact on the business
such as Pizza Hut. Factors in the economy include the gross domestic product,
the unemployment and inflation rates, the foreign trade deficit and surplus. If the
overall economy of a country is not favourable, lesser people will franchise Pizza
Hut because they will most likely loss a great amount of money instead obtaining
profits.

Social Factors- it is the most difficult from the four factors because the attitudes
and beliefs of people are difficult to quantify. Aside from the attitudes and beliefs,
demographic factors such as population and life expectancy are also important
aspects in the analysis of the social factors. The influence of the values and
beliefs affects the business of Pizza Hut, example in Muslim countries such as
Egypt and Middle East; the recipes of the Pizza do not include pork. In the case of
India beef is not served in the Pizza. The changing trends in the taste of the
consumers also play an important role in the external analysis of the
environment, if the current trend in food is Thai, Japanese or Vietnamese,
therefore Pizza Hut can add an additional food such as Vietnamese or Thai soups.
If the current trend in the society is being health conscious, thus consumers will
demand that the foods be healthy.
Technological Factors- the fast changes in technology nowadays has far-
reaching effects in the businesses. The factors that have a huge impact are the
research and development, internet and e-commerce, and new technologies. The
research and development has effects on the business of Pizza Hut because
through R&D new products are developed for the business, the internet and e-
commerce also contributes to the technological factors because through them
customers can give feedback regarding the products of Pizza Hut which can also
aid in the research and development, and the service of the company.

Strategic Group Analysis

According to Harrigan (1985) strategic group analysis is an analytical technique

that gives insights in the various approaches utilised by the competitors in the
marketplace and the resulting indirect indications for the performance of the
organisation. According to Bensoussan (2003) there are five steps in which strategic
group analysis can be applied and these are:

Analyse industry structure- in the analysis of the structure of the industry wherein
Pizza Hut markets, Porter’s Five Forces Industry Analysis can be utilised.

Threats of New Entrants- new entrants in the pizza industry could be a threat in
Pizza Hut because it can lessen the market share of the company. Usually new entrants
offer cheaper products than the established; therefore more customers could be lured in
buying their products which eventually would shift from Pizza Hut to these new entrants.
The new entrants in this field usually offer cheaper prices of products; therefore Pizza
Hut should create measures to counter the approaches used by the new entrants.

Bargaining Power of Suppliers- the supplier power is the capability of the

supplier to control the cost and supply of the raw materials used in the market. Pizza
Hut uses raw materials in creating their products; in order to shift the power from the
supplier to the company Pizza Hut can alter it in a number of ways, such as replacing it
with substitutes that are cheaper than the prices of the suppliers, Pizza Hut should order
in bulk so that the prices will be cheaper, and if Pizza Hut thinks that the suppliers are
over-charging then shift to another supplier.
 Threats of Substitution- it exists when the demand for the product decreases
because there are substitute products that performs better at a cheaper price. Although
the Pizza Industry has low threats of substitutes, still it poses threats such as instant
pizzas, and sandwiches that have pizza flavours.

Bargaining Power of the Buyers- the power of the buyer can either be low or
high. In low buyer powers the conditions of the market allows the companies or
entrepreneurs to enter easily because of the wide markets. On the other hand, a high
buyer power the entry to the industry could be hard. In the case of Pizza Hut, the buyers
have low power because almost all the people love Pizzas and there arte only few
players in the industry, therefore entering to new markets in different parts of the world
is easy for Pizza Hut.

Degree of Internal Rivalry- it is the final factor in the Five-Force theory, the
degree of rivalry can either be low-level or high-level. In the case of Pizza Hut the
competition is in the high-level, although the market is wide, the degree of competition is
tough, in order to gain the biggest market share, Pizza Hut must have aggressive
advertisement and competitive pricing.

Map the Strategic Groups- In mapping the strategic groups, Pizza Hut should list the
relevant competitors into strategic groups, and the senior managers should look at the
following:

Mobility Barriers- the barriers to entry in the pizza parlour industry is relatively
low, due to fewer barriers in the entry and the employees do not need to be highly
experienced.

Bargaining Power- the bargaining power of the suppliers and buyers in the
industry is low, therefore the threats to these two is low, however Pizza Hut must still be
aware on the changes that may occur.

Threat of Substitution- Just like, the mobility barriers and the bargaining power,
the threat of substitution is also low; therefore Pizza Hut must also be aware with the
entry of the substitutes so that they could create measures to counter it.
 Rivalry from other strategic groups- the rivalry is stiff in the case of the food
industry and in order to come out on top, Pizza Hut must develop attractive menus, as
well as, prices so that the company could be one of the top players in the industry.

Gauge the Strength of barriers between groups- gauging the strength of the barriers
has five steps in which Pizza Hut must follow; first is to determine the factors that
prevent companies in a strategic group to compete with companies in another group.
Second, Pizza Hut must identify the strength of bargaining power between the buyers
and suppliers and the strategic groups and the industry. Third, identify the threats of
substitutes between the strategic groups. Fourth, is to examine the strengths of the
rivalry between the strategic groups. Last, is to utilise the Porter’s Five-Forces Analysis
on strategic groups.

Understand the strategy of the firm vis a vis strategic group’s interaction- Choose
the membership of Pizza Hut in the prime strategic group. Use the Porter’s five forces
model of the strategic group in which Pizza Hut belongs and assess the weaknesses
and strengths of the firm. Determine the strategic group that will provide the greatest
opportunity to utilise the strength of the company and decrease the weakness of Pizza
Hut.

Identify the appropriate strategic responses- in identifying the right response to the
evolution of the food industry, Pizza Hut must analyse the strategic opportunities and
threats that come with the changes in the industry. There are two types of strategic
response that could be use in order to meet the challenges and these are mildly
proactive and intensely proactive.

Based on the analysis the positive scenarios that could be seen in Pizza Hut is it
will penetrate more markets in various parts of the world and the company will gain
more shares in the market. However, there are also negative scenarios in the future
such as more competition from the new entrants in the market, substitutes would be
created in the future, and suppliers may be fewer in the near future.

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