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 Analysis
Relevant 5 Cs and 4 Ps discussion
Chronological discussion
Make recommendations last
Be 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 home
Food Consumption moving back in home
1982 delivery = 1.3% of pizza sales
1986 delivery = 20% of pizza sales
Delivery growing at 61% rate
Carryout growing at 12% rate
Eat-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 Dominos pose
to Pizza Huts existing operations?

How much of a threat does Dominos pose
to Pizza Huts future operations?
Competitive Positions (Exhibit 1)

Brand Sales(mm) Units Channel

Pizza Hut $1,934 5,025 Most Eat-in
Dominos $1,550 3,696 Delivery
Little Caesar $520 1,308 Eat-in
Pizza Inn $278.7 748 Mix
Godfathers $275 650 Most Eat-in
Competitive Positions
Pizza Hut dominates eat-in and carryout

Dominos 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 Channel
Eat-In Carryout Delivery
Benefit Atmos. Time Time
Quality Convenience

Price Lowest Modest Highest
Sensitivity

Demo
Profile Couples Families Families
Delivery Factor
While the added convenience of delivery is
a feature that customers might be willing
to pay for, Dominos 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,
wont Pizza Hut deliveries cannibalize
existing operations?
Impact of Delivery Business (Scenario 1)
Lost sales due to cannibalization
Assumes 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 delivery
Assumes 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 delivery
Assumes 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 Issues
Resolve any bad feelings with franchises
Convince franchises of opportunities in delivery
Come to a compromise on the operations in the
new segment
Obtain system-wide agreement
Winter Franchise Meeting
I recommend:
Propose a strong move into the delivery segment
Propose a more extensive retrofit operation
Allow short-term royalty reductions for franchises who
are willing to operate delivery-only units
Convince 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.