California Pizza Kitchen Is a Gourmet Pizza

California Pizza Kitchen is a gourmet pizza restaurant that provides unique pizza styles, as well as other entree options, to their customers. The client base primarily orders pizzas, which California Pizza Kitchen gladly caters to (CPK.com, 2011).

California Pizza Kitchen marketing strategies emphasize quality unique pizzas while providing upscale yet casual customer service. The restaurant was founded in 1985 by then-attorney's Rick Rosenfield and Larry Flax, who introduced flavors from around the world (CPK.com, 2011). The products of California Pizza Kitchen are now consumer brands, and the customer base is quite loyal. The company has grown to serve customers at 265 restaurants in 32 states and ten foreign countries (CPK.com, 2011).

The California Pizza Kitchen market has reported a profit margin of 17% in the last twelve months, and aims to raise this number to its five-year average of 19% (Forbes, 2011). With the unique style, advanced customer service, and accessible product line, California Pizza Kitchen will be able to meet this goal.

2.0 Introduction

In this paper, an overall analysis will be completed on the California Pizza Kitchen, a company classified by the North American Industry Classification System (NAICS) as a Sector 72-Accomodation and Food Services business (NAICS, 2011). After discussing Porter's Five Forces and conducting a PEST analysis in reference to California Pizza Kitchen, a reader may understand the company's strength within its industry.

3.0 Porter's Five Forces

Porter's Five Forces is a model that displays how a business is influenced within its own industry. When a business desires to gain an advantage over their competition, they may use Porter's Five Forces -- Rivalry, threat of substitutes, supplier power, barriers to entry, and buyer power -- as a way to analyze how to gain a competitive advantage (QuickMBA.com, 2010).

Rivalry is initiated when more than one business exists within an industry that can provide the same or similar products to consumers. Any business attempting to survive will try to gain competitive advantage above their rivals. The degree of rivalry that California Pizza Kitchen has within the restaurant industry is constantly raising and lowering (QuickMBA.com, 2010). In times of good economic growth, California Pizza Kitchen may lose business to new sit down restaurants or carry out pizza companies. California Pizza Kitchen has created some competitive advantage by having specialty pizzas and by being one of only a few gourmet pizza restaurants.

Unfortunately for California Pizza Kitchen, if a consumer wants pizza, many may settle for California Pizza Kitchen competition for pricing purposes. Customers may find that they receive equal satisfaction with cheaper products from local stores or cheaper restaurants (QuickMBA.com, 2010). To counteract this risk, California Pizza Kitchen joined forces with Nestle and produced pizzas that were accessible at grocery stores (CPK.com, 2011). Because California Pizza Kitchen caters to such a specific market, they also have a high risk of losing customers to other non-pizza gourmet sit down restaurants.

In an industry where a supplier is provided with power, a company is able to set the price for their product. Because the amount of suppliers to customers is so high for the pizza industry, California Pizza Kitchen is not able to have a strong declaration in how high they wish to set their prices. The supplier power is weak, and customers have limitless options as to where they may obtain their pizza (QuickMBA.com, 2010).

Rivals pose a threat to all others in an industry. To keep the number of rivals at a minimum, companies compete by having barriers to entry into their industry. To do so, most companies keep a relatively low mark up of their products. This way, their business is sustainable and when in poor economic times, may prove to be stronger than those exiting the economy. California Pizza Kitchen is known for a particular product and demonstrates relatively competitive pricing, but because of capabilities to enter the food industry are quite easy, the barriers of entry are quite low (QuickMBA.com, 2010).

A buyer is provided with power when the number of suppliers is greater than the number of buyers, known as monopsony. Though monopsony only exists in a small amount of cases, the principles of the concept are prominent in businesses with a low consumer rate. The buyer power helps keep industry prices competitive, and because the number of pizza consumers is so large and fragmented, this population has not demanded a lower price for their product (QuickMBA.com, 2010).

3.0 PEST Analysis

A PEST analysis will observe the external macro-environment that California Pizza Kitchen must endure on a daily basis, including: Political, economic, social, and technological factors. This acronym helps organizations scan their external environment to observe what factors may be changing or influencing their business (QuickMBA.com, 2010).

In California specifically, taxation can have a damper on the restaurant industry. In mid-2010, the California statewide tax rate was at 8.25%. Raising higher due to local taxes, Los Angeles experiences a rate of 9.75%. The California Board of Equalization states that taxable food and beverages applies to both restaurant and to-go items if a restaurant experiences more than an eighty percent profit rate from their sales of food and beverage (Nero, 2010). Considering national economic struggle, California Pizza Kitchen has not seen much variance in their gross profit margin. The company experienced a lowering of only two percent from their five-year overage (Forbes, 2011). It appears that taxation has not harmed California Pizza Kitchen dramatically.

Economic struggle hit hard as the decade came to an end. Many businesses, big and small, were closing, and people were losing their jobs. By 2008, large companies including Starbucks, Applebee's, and the Cheesecake Factory were struggling with sales as unemployed consumers cut back on unnecessary spending. The economy has a big influence on California Pizza Kitchen sales. The National Restaurant Association concluded that 49% of restaurants experienced sales losses and 54% reported customer traffic loss (Horovitz, 2008), and California Pizza Kitchen is not immune to such losses. As with all industries, the restaurant business currently experiences high economic risk.

Social factors also demonstrate a role in restaurant activity. Within the last decade, the industry has experienced a more health-conscious consumer, and the concern with health only seems to be growing. In 2010, the Obama health reform began to take place. One result of such was the requirement that businesses provide health information on their menus for customer awareness. In doing so, the hope was that Americans would make better food decisions, possibly ordering less while at restaurants (Rosenbloom, 2010). The risk that California Pizza Kitchen runs is high, except that the company has accommodated to their health-friendly customer base with salads, soups, and healthier pizza options.