1. Case Presentation Discussion of Case Presentation and Report Format
Pizza Hut, Inc.
Case Presentation
Discussion of Case Presentation and Report Format

2. 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 C’s and 4 P’s discussion
Chronological discussion
Make recommendations last
Be sure to provide discussion points
I encourage you to include class discussion as you go

3. 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?

4. 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%

5. 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?

6. Competitive Positions (Exhibit 1)
Brand Sales(mm) Units Channel
Pizza Hut $1,934 5, Most Eat-in
Domino’s $1, ,696 Delivery
Little Caesar $ , Eat-in
Pizza Inn $ Mix
Godfather’s $ Most Eat-in

7. Competitive Positions
Pizza Hut dominates eat-in and carryout
Domino’s dominates delivery-only

8. Discussion Question
Why would consumers choose each of the three pizza segments, eat-in, carryout, or delivery?

9. 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

10. 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

11. 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?

12. 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
= $58.0mm
Total
$212.7mm
Sales Affected
Profit Impact %
Profit (Loss)
$212.7mm
* (13.1% - 8.8%)
= ($9.2mm)

13. 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%
* bil.
= $400.4mm
New Sales
Margin
Profit (Loss)
$400.4mm
* %
= $35.2mm

14. 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%
= mm
* 13.1%
= ($25.3mm)

15. Discussion Question
Should Pizza Hut pursue the delivery segment?

16. Delivery Strategy Retrofit existing restaurants vs. delivery-only
Use Customer Service Centers
Engage in Upsizing/Up-pricing

17. Discussion Question
What are the pros and cons of the Delivery-only system versus retrofitting existing restaurants?

18. 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

19. 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?

20. 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

21. 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?

22. 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

23. 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.