International Business of Pizza Hut

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, strategic 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 and . 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 companys 40th anniversary. (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 (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 (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, Porters 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 Porters Five-Forces Analysis on strategic groups. Understand the strategy of the firm vis a vis strategic groups interaction- Choose the membership of Pizza Hut in the prime strategic group. Use the Porters 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.

International Business of Pizza Hut In businesses changes always occur in order to cater to the different tastes and trends in the environment. In order to address the changes in the business, strategies are used by the managers and owners so that it could aid in shaping the decisionmaking and strategic thinking process. Pizza Hut is one of the well-known international businesses in the world today. Almost every country in this world has at least two or more Pizza Hut restaurants. The company has been in the business for almost 48 years and it is considered one of the key players in the industry. For the past years, Pizza Hut has faced a number of challenges over the past years, from new entrants in the market that pose threat in the company, to the shifting tastes of the consumers and the company have surpassed and continues to counter those challenges and threats. This paper examines the appropriate tools that determine the strategic capability of Pizza Hut. The techniques the will be utilised in this paper are the resource audit for the analysis of the value and extent of the use of assets, Value Chain Analysis for the examination of the linkage of the value adding activities in order to develop sustainable competitive advantage and core competencies to identify the extent of the exploitation and protection in the business.

It is difficult for a company, like Pizza Hut, to maintain its status for over 40 years and remain one of the top players in the food industry. The restaurants that were established at the same time as Pizza Hut have disappeared completely or have been acquired or merged by other companies. The companies that were not able to withstand the challenges in the business environment were the outcomes of the failure to adapt in the changes in the trends and tastes of the consumers, as well as, the proper utilisation of the techniques in strategic capability and management.

According to (1996) strategic management is defined as a set of decisions and actions that could lead to the development of efficient strategies that could aid in attaining the objectives of the company. On the other hand, according to (2007) strategic capability is the ability of an organisation to deliver the future value of their products and services. In the analysis of the strategic capability of Pizza Hut the following methods will be used: Resource Audit (2007) defined resource audit as the one that determines the available resources to a business. The resources for a business can be categorised in to different categories: Financial Resources- it is the ability of a company to finance the strategy that it will be utilised. In the case of Pizza Hut since it is an established company and has been in the industry ever since it began, it already has significant investments in its new products, capacity for production and other factors concerning the financial capability of the company. In auditing the financial resources of the company it includes: Existing finance funds- which is the cash balances of Pizza Hut, the overdraft of the bank and loans, the capital of the stakeholders, the capital that is already invested in the business and the creditors. Ability to raise new funds- in raising added funds by adding more stakeholders in the company, Pizza Hut must continuously sustain their reputation of having a good business and management team, the relationship between the investors and lenders to Pizza Hut must also remain strong, and the company must remain attractive, especially to the consumers and the stakeholders. If the company attracts more customers in their restaurants then more stakeholders will invest in Pizza Hut. Human Resources- according to Tutor2u the human resources in the business is the skills-base of an organisation, such as the skills possessed by the company. In auditing the human resources of Pizza Hut, these factors must be considered: Existing staffing resources- Pizza Hut must identify the number of staff functioning in a particular area of the business, the location of the staff, the qualifications and skills. In a

business wherein Pizza Hut is operating having a good staff is important in ensuring the quality of products and consumer loyalty. Aside from the existing staff, Pizza Hut must also keep in track the wastage of incompetent staff and must assess these people. The standard of training for particular jobs in the company is also essential in assuring that the employees will deliver excellent products and services to the consumers. Every now and then Pizza Hut must assess their intangibles such as the culture of the business and determine if it still fits the business strategy or not. Changes required to resources- in the human resources of Pizza Hut changes occurred alongside the utilisation of new strategies in business such as new products and locations. In new business strategies the added human resources are required, in the case of Pizza Hut, every time a branch or franchise is opened in various locations in the world, human resources are being added. The human resources in the new strategies of Pizza Hut could be sourced through employment. Physical Resources- the physical resources are the operational resources used by organisations to deliver the business strategy and these include: Production Facility- in the production facilities of Pizza Hut it includes the location of the restaurants and the maintenance and investment of each store whether it is a branch or a franchise, another is the process of production of the food the quality of the process of pizzas and the methods used by the Pizza Hut restaurants all over the world. Marketing Facilities- the marketing of Pizza Hut and distribution is involved in the marketing facilities. Pizza Hut was the first restaurant to launch the service delivery to consumers, therefore, adding to the profits of the company. The company also employed advertisements on television, print, and radio. The distribution channel utilised by the company is through person-to-person wherein customers interact with people, however with the advancement in technology and the internet, people can already order online via their website. Information Technology- Just like mentioned above, Pizza Hut is using technology particularly the internet in interacting with its customers, through the internet, consumers can give feedback and order pizza online.

Intangible Resources- these resources cannot be easily distinguished in a business especially when determining how to deliver the business strategy it includes the following: Reputation- Pizza Hut has a reputation of establishing the first Pizza Parlour in the world and the company already has a good track record in the business, therefore, the suppliers and the consumers will probably support if the company changes some of the aspects in the business. Brands- having a strong brand is important in the success of the growth strategy. Pizza Hut was able to do that and the company was able to penetrate in other markets aside from the United States. The brand of Pizza Hut is very strong wherein individuals all over the world have associated Pizza with Pizza Hut. Value Chain Analysis According to (2007) value chain analysis is a helpful tool in creating and developing the best possible value for the consumers, at the same time, maximising the profit through using the best route possible. Moreover, according to(2007) it describes the activities that happen in the business and associates it to the analysis of the strength of the business in the competition, the work of Michael Porter stated that the business activities can be grouped into two and these are: Primary Activities- the primary activities are those directly concerned in the development and delivery of the product. In the value chain analysis the activities that are involved are: Inbound logistics- in inbound logistics in firms such as Pizza Hut the activities are concerned with receiving and storing the sourced materials such as flours and cheese used in making Pizzas. Operations- in Pizza Hut the operations are when the raw materials are converted into Pizzas, and other foods that are in the menu of Pizza Hut.

Outbound Logistics- outbound logistics activities in Pizza Hut include the delivery of the Pizzas to the customers and serving the Pizza and foods to the consumer dining-in the restaurants. Marketing and Sales- in marketing the products of Pizza Hut, the company uses advertisement in television, radio and print in order to inform the existing and new products of the company, it also includes prices on new products. Most of the time, Pizza Hut offers affordable prices on its new products in order to entice the consumers to try it. Service- the service does not only mean during marketing and selling the product but also in sustaining the quality of the products. In the case of Pizza Hut, maintaining the taste of the Pizzas and food served in restaurants is an important aspect in the business because it is a key to the loyalty of the consumer. Consumers will buy the product, even if it the prices were raised, as long as the taste and quality is sustained. Secondary Activities- these are activities not directly involved in the production but aids in the efficacy of the production. Support activities include: Procurement- it is concerned in the acquisition of the raw materials from the suppliers, in the case of Pizza Hut the products are sourced domestically or locally and the procurement managers negotiate the prices. Human Resource Management- the activities mainly concerned in recruiting, training and rewarding the employees of the company. In Pizza Hut, most of the employees are recruited and trained for the specific jobs they applied for. Technology Development- in this activity, the managers utilised various technologies in assessing the status of every Pizza hut restaurants. Technology development also enables Pizza Hut to identify the current trends in the industry through customer feedback and determine the performance of employees, as well as, the restaurant. Infrastructure- it does not only mean the building that is used by Pizza Hut but also functions such as finance, quality control and senior management. Steps in Value Chain Analysis

The first step in Value Chain Analysis of Pizza Hut is to divide the organisation into important activities under primary or secondary, wherein Primary activities include inbound logistics, operations, outbound logistics, marketing and sales, and service. And the secondary activities are procurement, human resource management, technology development and infrastructure.The next step is adding value in the products through cost leadership strategy or differentiation strategy. Pizza Hut could invest more in creativity, marketing and engineering skills, and the research and development of new products. Last, is to identify the strategies that can be utilised wherein it gives emphasis on activities in which Pizza Hut can gain and sustain competitive advantage. Core Competencies According to (2002) core competencies are the abilities that are crucial in attaining the competitive advantage of the business. Core competencies were developed by and according to them there are three factors that would aid in the identification of the core competencies of the business and these are: Provides potential access to a wide variety of markets- Pizza Hut was able to enter to various markets all over the world because Pizza Hut was able to develop a clear and distinctive brand that give emphasis on a defined group of customers, which are the Pizza and fast-food lovers. Pizza Hut also developed new type of service which is the delivery service to households, in addition to the aggressive marketing campaign. Makes a significant contribution to the perceived customer benefits of the end productPizza Hut was able to successfully capture the market in Pizza parlours because the company was the first to establish the delivery service, Moreover, aside from Pizzas, Pizza Hut also introduced variety of foods in their menu lists making the food offering more diverse. Pizza Hut has an efficient and reliable service delivery, may it be in the restaurant or not. Difficult for competitors to imitate- although the business can be easily copied, Pizza Hut remained on top due to the excellent quality of the products at affordable and competitive prices.

Pizza Hut has its share of strengths and weaknesses. The strengths include brand recognition because Pizza Hut has been the pioneer in the industry; strength is that Pizza Hut restaurants offers full service and delivery services. Because Pizza Hut has restaurants the company could be able to market to various segments of the society. However, the restaurants can also be the weakness of Pizza Hut because the costs would be doubled than its competitors that have no restaurants. Due to the high costs of restaurants, the prices would also be higher than others.

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