Porter’s 5 Five Forces Analysis of Pizza Hut
|Name||Pizza Hut, Subsidiary of Yum Brands|
|Industry||Pizzeria, Restaurants, Retail Food Industry|
|Headquarters||Plano, Texas ,US|
|CEOs||David Gibbs, CEO of Yum Brands, Aaron Powell CEO of Pizza Hut|
|Revenues||US $6.58billion,2021 (Yum Brands),Fortune|
|Profit||US$ 1.57 billion,2021 (Yum Brands),Fortune|
|Competitors||Domino’s Pizza ,Papa John’s , McDonalds|
Pizza Hut was founded in 1958 in Wichita, Kansas, USA, the first franchise also opened with in a year. Pizza Hut offers ready to eat pizza with delivery and casual dining globally. Pizza Hut is operating in 111 countries and territories with 18,381 restaurants with 99% franchised.Yum! Brands, Inc. generated a recovery revenue of US$ 6.6billion,ranked 490th by Fortune 500 in Year 2021 and 7th by Forbes in ‘World’s Largest Hotels, Restaurants & Leisure Companies’ in Year 2022.
Porter’s Five Forces Analysis
Porter’s Five Forces Analysis is used to determine the company’s competitive position reference to its Industry for better strategizing the companies’ operations for making higher profits andless exposure to competition, defined by Professor Micheal E. Porter in 1979,at Harvard Business School.
Pizza Hut Rivalry among Existing Competitors
- Global Restaurant Industry: The global restaurant industry is projected to generate a record revenue of US$ 108.90 billion in Year 2022, with an annual growth rate of 7.89% and a projection of the market volume of 159.20 billion U.S. dollars by 2027.The number of restaurants only in USA are 194.43 thousand in Year 2021, which is an increase by 3.1 thousand or 1.6 % percent annual grow percentage in terms of units.
- Pizza Hut gave a record sales revenue of 1.02 billion U.S. dollars in Reportable Operating Segments with Operating Profit of 0.387 billion U.S. dollars. Pizza Hut also experienced growth in number of restaurants from 17,639 to 18,381 in FY 2021, compared to previous year, which is 4.2% respectively. Pizza Hut is facing close completion from it’s rivals including Domino Pizza and Papa John’s.
- Battle of the Brands -Domino Pizza gave a record sales of U.S.$4.36 billion revenue with a brand value of U.S.$12.4 billion in 2021.It was ranked 5th in the category of quick service restaurant.In a survey of American Customer Satisfaction Index (ACSI) Dominos Pizza scored 80 in 2021 which is more than Pizza Hut and Papa John’s.
- Battle of the Brands – Papa John’s gave a record sales of U.S.$ 2.07 billion revenue with US$ 885.7 billion of net assetsin 2021.It was ranked 4th in the category of quick service restaurant. In a survey of American Customer Satisfaction Index (ACSI) Papa John’sscored 77 in 2021.
Pizza Hut Threat of New Entrants
- High Capital Investment- Economies of Scale: For setting up a retail food chain high capital investment is required and to be competitive price and service competitive at the same achieving economies of scale is also necessary. In case of Pizza Hut, the company is having edge over local restaurants due to it’s efficient supply chain in terms of prices, which is difficult for a new entrant to arrange.
- Standard Product, Portion, Experience and Service – Efficient Supply Chain – Non Stop Flow of Services: Standard Product and Service is also necessary in restaurant and food business with a non-stop flow of products and services. The commitment to deliver on-time makes develops brand image and customer loyalty which is difficult for a new entrant.
- Technological Advancement- Restaurant Technologies and Digital Technologies: Pizza Hut is investing in AItechnologies for a better customer experience other than traditional technologies like introducing Round Pizza Boxes.Also Yum Brands acquired two tech companies including Kvantum and Tickuk Technologies to bring betterment in their marketing strategies in Year 2021, declared by Forbes.Yum Brands experienced a 25% increase in it’s digital sales which reached a height of $ 22 billion in 2021, mentioned by David Gibbs in Annual Report, FY 2021.
Pizza Hut Bargaining Power of Suppliers
- Food, Safety Concerns –Industry Educator: After COVID-19 increasing trends towards health and safety rules and regulations are in place which also increased the reliability on the suppliers, any outbreak of allergens like Salmonella etc will result into penalties and litigations so special vetting of suppliers is in place. As Pizza Hut is an established brand and huge company,always buying in large quantities, so it is the one influencing the Supplier Industry in terms of food, safety practices.
Pizza restaurant suppliers also experienced a 26% decreased in their sales during COVID-19 time while, 56% experienced an increased in their sales, declared by Statista.
- Basic Raw Material with No Product Differentiation : The raw material for pizza making is basic without any product differentiation so it further neutralizing the Supplier’ bargain power.
- Member of Restaurant Supply Chain Solutions (RSCS): In USA Pizza Hut (included all other subsidiaries of Yum Brands) is a member of a third party company which is responsible for the procurement to supply the products and restaurant equipment called Restaurant Supply Chain Solutions,LLC(“RSCS”).
Pizza Hut Bargaining Power of Buyers
- Presence of Social Media: In this era where the presence of social media can be the reason of any spread of news, opinion and controversy, purchasers have some bargain power in their hands. Scattered customers if belong to a specific niche can be connected via social media apps.
- Price Sensitivity – Competition: Pizza Hut is facing local and global competition, as due to marginal pricing and profits, competitive pricing is necessary to retain the customers and maintain the market share.
In a survey of American Customer Satisfaction Index (ACSI) Pizza Hut scored 77 in 2022 which is drop from 78 compared to previous year.
- Digital Sales and Customer Experience: Pizza Hut in investing in internal and external sources to create an eco-system for easy order to easy service via digital channels for this reason Yum Brands acquire different IT Companies including Dragontail.
Pizza Hut Threat of Substitute Products or Services
- Ready to Eat Meal- By Super Marts – Retailing Industry: Increasing trend of ready to eat meals available at Super Marts are direct substitute of Pizza Hut’s pizza.
- Healthy Alternatives: Any new trending like vegan, gluten free can divert customers to any other food retailer so continuous innovation should be done by Pizza Hut to the customers engaged and retained.
Note: Revenue and Sales are calculated separately while there are different types of sales including and excluding Company Sales and Franchise Sales. Both the terms are not used interchangeably in Retail Food Industry.
- Statista (March, 22 2022).Revenue of Yum! brands 2014-2021, by brand| Statista. [online] .AvailableStatista.
- Forbes, Pizza Hut
- Forbes, (May 12, 2022) The World’s Largest Hotel, Restaurant And Leisure Companies in 2022, Available at Forbes
- Fortune 500,( May 23,2022) Yum Brands, Available at Fortune 500
- Statista (November 2022) Restaurant Delivery – Worldwide | Statista. [online] .AvailableStatista
- Statista (November 22,2022) Number of business in the quick service restaurant sector in the United States from 2011 to 2021,with a forecast for 2022 (in 1,000s) | Statista. [online] .Availableat Statista
- Insider Intelligence (August 10,2021) Pizza Hut invests in AI to drive customer satisfaction. Available at Inside Intelligence
- Forbes (April 5,2021 ) Why More Restaurant Companies Are Investing in Tech Startups. Available at Forbes
- Restaurant Technology News, (11-06-2019) Pizza Hut’s Latest Technology Innovation: Round Pizza Boxes, Restaurant Technology
- Statista (January 26,2022) Change in pizza restaurant sales during the coronavirus pandemic in the United States as of May 2020.Available at Statista
- Statista (July 27,2022) American Customer Satisfaction Index scores of Pizza Hut restaurants in the United States from 2000 to 2022 .Available at .Statista.
- Statista (April 19,2022) Revenue of Domino’s Pizza worldwide from 2006 to 2021 (in billion U.S. dollars) .Available atStatista
- Statista (March 25,2022) Number of Papa John’s restaurant worldwide from 2007 to 2021 .Available atStatista
- Statista (September 3,2022) Papa John’s Pizza –statistics & facts. Available atStatista