Pizza Hut business model and organizational structure

Pizza Hut

Company Presentation

The fast food industry is very well represented by a few major companies, Pizza Hut being one of them the company was founded in 1958 in Wichita, Kansas, although its current headquarters is in Addison, Texas. The restaurant is generally specialized in American-style pizza, but the menu varies from one location to another, including buffalo wings, breadsticks, or garlic bread (Wikipedia, 2007).

The restaurant chain is present in approximately 100 countries, including: Andorra, Bangladesh, Bulgaria, China, Egypt, Germany, Greece, India, Israel, Japan, Luxembourg, Malaysia, Mexico, Netherlands, Pakistan, Philippines, Romania, Russia, Serbia, Singapore, Spain, Sri Lanka, UK and Ireland. This expanded geographical coverage led to the existence of no less than 34,000 restaurants, delivery-carry out units, and kiosks.

Pizza Hut was nationally acknowledged in 1970, when the company was listed on the New York Stock Exchange. In 1997, the company took a new direction, by being acquired by Pepsico, along with KFC and Taco Bell. In 2002, these three restaurants, along with Long John Silver's and a&W Restaurants have been taken under YUM!Brands.

Pizza Hut products

Pizza Hut understands that for gaining more and more customers and for keeping them, the company must address to all tastes, it must satisfy everyone. As a consequence, Pizza Hut is continuously improving its menu. One of the company's strengths is the variety of the menu and the ability to address all tastes. Generally, the company's products are:

Specialty pizza

Pizza toppings

Appetizers

Sauces

Wingstreet wings

Wingstreet sides and dips

Desserts

Drinks

Bistro menu

Obviously, the company's core product is the specialty pizza that comes in various forms, namely:

Cheese lover's pizza - for those who prefer the two fresh toppings smothered in cheese in consistent amounts

Meat lover's pizza - consisting six kinds of meat: pepperoni, Italian sausage, ham, bacon, beef, and pork toppings

Pepperoni lover's pizza - the double layers of pepperoni and cheese will please customers enjoying their pizza with both cheese and spicy ingredients

Veggie lover' pizza - consisted of fresh mushrooms, red onions, green peppers, tomatoes, and black olives, especially designed for vegetarian tastes

Supreme pizza - created after a Pizza Hut special recipe, mixing pepperoni, beef and pork toppings, green peppers, red onions, and mushrooms (Pizza Hut, 2007).

The crusts sector is also extremely various at Pizza Hut, for example:

Hand-tossed style pizza - this type of pizza is slightly different from the American-style pizza that Pizza Hut usually offers, and more similar to Italian-style pizza. This way, Pizza Hut succeeds at combining the original, traditional, Italian pizza with the modern, adapted, American one.

Pan pizza - it is considered to be customers' favorite type of pizza

Personal pan pizza - the same as the above, only in a smaller variant

Stuffed crust pizza - more unusual than other types of pizza due to its distinguished preparation manner

Thin 'n crispy pizza - for those who prefer crispier crust

The full-house XL pizza - a portion of golden brown perfection, as the company's chefs describe it

Pizza toppings match the diversity of the products mentioned above:

Meat - anchovies, bacon, beef topping, chicken, ham, Italian sausage, pepperoni, pork topping

Vegetables and fruit - banana peppers, black olives, green olives, green peppers, jalapenos, mushrooms, pineapple, red onion, tomatoes

Pizza Hut offers a few appetizers also, like: Quepapas Potato Bites, breadsticks, and cheese sticks.

Wingstreet Wings come in different forms, like: Buffalo Burnin' Hot, Buffalo Medium, Buffalo Mild, Honey BBQ, Garlic Parmesan, Spicy BBQ, Cajun, and Spicy Asian.

Wingstreet Sides and dips include: Taters, Fried Cheese Sticks, apple pies.

Pizza Hut's desserts menu does not match the diversity of the menus presented above, including only baked cinnamon sticks. Drinks at Pizza Hut include mostly sodas.

The bistro menu I quite diversified also, including:

Broccoli Cheddar Soup

Bistro Chicken Alfredo Bake

Spaghetti Meat Sauce

Steak and Cheese Hoagie

Roasted Turkey and Provolone Sandwich

Black Forest Ham and Cheese Sandwich

As mentioned above, customers' favorite Pizza Hut product is the Pan Pizza, especially the small sized one. The variety of toppings and the crust thicker than in other types of pizza have determined customers to choose this type of pizza. After the Pan Pizza, customers' favorite products are: Stuffed Crust Pizza, Hand-Tossed Pizza, Thin 'n Crispy Pizza, or Bigfoot Pizza.

Pizza Hut is continuously expanding its product range, creating completely new products are importing Italian recipes and adapting them to local preferences. However, not all of Pizza Hut's experiments have been a success. Some of them turned into complete failures, like: Chicago Dish Pizza, Sicilian Pizza, P'zone, or Cheesy Bites.

As mentioned above, the Pizza Hut menu is very complex and diversified. The Pizza Hut product strategy is based entirely on diversification, in order to satisfy as many customer tastes as possible. Also, the company's product range is not stagnating. Pizza Hut is continuously expanding its product range, by experiencing all sorts of new dishes. There are two directions that Pizza Hut specialists follow when developing new products:

One variant consists in developing American products, based on what customers have been used to so far

The other variant consists in importing Italian-based products and adapting them to the American way, combining the two gastronomic cultures

Also, Pizza Hut is not focusing its menu on pizza related products, but offers a series of salads and other bistro menus. However, the menu varies from one country to another. The American menu is the most diversified and complex one. Other countries focus only on pizzas and a few types of salads, depending on each country's specifics.

Pizza Hut value drivers

One of the main factors that confer competitive advantage to Pizza Hut is the diversity of the company's products. The wide range of products presented above and the continuous product development at Pizza Hut come to support this statement. Pizza Hut restaurants probably have the most diversified menus in the world. The company is trying to cover all of customers' tastes and preferences.

Another factor that grants competitive advantage to Pizza Hut is integrity, which is considered to be the company's core value, as "one of the most important values within the Pizza Hut culture is integrity. Our people are committed to providing uncompromised quality and to providing service that is personal. In fact, our people strive each day to provide what we call customer mania. We want to give the kind of service that will make our customers tell stories to their family and friends about Pizza Hut" (Pizza Hut, 2007).

Another strong point of Pizza Hut deriving from its integrity is quality of products. The company's tradition, development, and integrity have led to a genuinely acknowledged quality of products that the company proves in everything it provides. The company's success worldwide proves this.

Pizza Hut business model analysis

The Pizza Hut business model cannot be defined as a single, distinguished model, as it seems to be a combination of several models. Basically, "a business model is a conceptual tool that contains a big set of elements and their relationships and allows expressing the business logic of a specific firm. It is a description of the value a company offers to one or several segments of customers and of the architecture of the firm and its network of partners for creating, marketing, and delivering this value and relationship capital, to generate profitable and sustainable revenue streams" (Osterwalder, Pigneur, & Tucci, 2005).

Before analyzing the company's business model, I is recommended to perform a SWOT analysis. The SWOT analysis for Pizza Hut is presented bellow:

Strengths:

Respected tradition

Long history on the market

Wide range of products

Continuous product development

Good geographical coverage

Strong position on the market

Integrity

Quality of products

The company offers an equitable price-product balance

Worldwide presence

Weaknesses:

Some of the company's employees are not qualified enough

Defective human resources strategies, because of high turnover

Opportunities:

New markets expanding worldwide

Increasing number of franchisees

Threats:

Competition: Pizza Hut is facing strong competitors on the fast food market, like Domino's

Increased employee turnover: for hourly employees: 160% per year, for assistant managers: 40%, for unit managers: 19% (Middaugh & Saladin)

When analyzing a company's business model, one must address the following factors: value propositions, target customer segments, distribution channels, customer relationships, core capabilities, partner network, cost structure, and revenue model. These issues are discussed bellow.

Value propositions:

As discussed above, Pizza Hut's core value is integrity. The company cares a great deal about this issue, as it has proven, and customers seem to appreciate it. Another value, which derives from integrity, is the quality of Pizza Hut products. The long experience in the fast food industry has taught Pizza Hut managers that without quality products, a company cannot survive on the market for a long-term. As a consequence, the company is treating its existing and potential customers with respect, by providing good quality products and an equitable price-product balance. Customers have proven to appreciate this strategy, since Pizza Hut has the longest restaurants chain worldwide.

Target customer segments:

Basically, Pizza Hut addresses all types of customers, regardless of their age, race, income, or education. However, the main segment of Pizza Hut customers is consisted of people aged 16-35, with medium incomes, medium education, and low gastronomic education. In addition to this, secondary segments are consisted op people aged 35-55, with medium to high incomes, and medium to high education. Pizza Hut is also addressing the vegetarian segment, by developing products for vegetarians, like Veggie lover's pizza, various types of salads and desserts. Also, by continuously developing its product range, Pizza Hut is trying to gain other customer segments, with more sophisticated preferences.

Customer relationships:

Besides having satisfied employees, Pizza Hut is trying to maintain its customers as satisfied as possible as well. In order to improve its customer relationship management, and therefore, to improve customer loyalty, Pizza Hut has implemented Avaya's Enterprise Manager program, since "fulfilling our promise of fast delivery of hot pizzas to all customers is crucial to maintaining our leadership in this highly competitive market, requiring all our business processes to function faultlessly" (Scodellaro, 2002).

In order to improve its customer relationships, Pizza Hut, along with Domino's, has addressed media channels, the Internet respectively. It seems that "through the cross-utilization of television, the Internet and cell phones, both companies put on unprecedented first quarter blitzes to, in the words of their spokespersons, get core customers to interact with each brand" (Coomes, 2007).

Results from Customer Comment Cards have revealed the following: food quality - 44% good; employees' attitude - 48% good; speed of service - 45% good; unit cleanliness - 61% excellent; value received - 46% good. The customers' top four complaints were: impolite or inattentive service, slow service, food quality, and unconcerned manager. As one may observe, most of the complaints regard the quality of employees, and not the quality of food. This shows that Pizza Hut is dealing with certain problems regarding its employees and their abilities. It proves that the human resources selection, recruitment, training, and retention strategy is inadequate and it calls for immediate measures to correct it.

Pizza Hut Strategies

In order to ensure the company's future well-functioning, Pizza Hut has applied several strategies, regarding cost consciousness, international markets, product innovation, pizza distribution, service delivery systems, or the breakthrough program.

Regarding cost consciousness, Pizza Hut had to rethink its price strategy, due to powerful new entrants on the market that were a threat to the company's well-functioning. Therefore, "Pizza Hut reacted to increased production costs by implementing changes in operations in its restaurants to improve efficiency and control waste" (Middaugh and Saladin).

Regarding international markets, strong competition on the domestic market has somehow forced Pizza Hut to expand abroad. Due to the fact that the company's products were generally appreciated across the world, it did not take long until Pizza Hut became the largest pizza chain in the world. The company's international outstanding position has determined significant positive changes in the company's position on the domestic fast food market.

Another very successful strategy for Pizza Hut is product innovation. The company is continuously using this strategy to counteract competition both on the internal and external market, competition that is becoming stronger and stronger. Pizza Hut is acknowledged to be one of the most innovative restaurants in this industry. Product differentiation has become Pizza Hut's competitive advantage over other major players in this industry that the company has successfully managed to overpass. Due to its continuous product range expansion, the company is also expanding the number of customers.

Significant changes have been produced in Pizza Hut's distribution strategy. In the beginning, and for a long time since then, Pizza Hut was a regular restaurant. However, things have changed in the past 15 years, the company expanding into alternative delivery systems for Pizza Hut products. As a consequence, Pizza Hut has become an important player on the home delivery and carry-out operations market. This market was at the time dominated by Domino's, but Pizza Hut managed to obtain a strong position on this market also.

Although customer relationships have improved significantly over the past few years, there is still room for improvement. One of the segments of the company that needs special attention and immediate changes is related to employees. The main reason for which customers are not fully satisfied with Pizza Hut's services is the fact that employees are not rising to the standards that Pizza Hut has imposed over the years on the market.

Pizza Hut strategies have proven to be successful no only for the company, but for the entire Yum International, that owns Pizza Hut and other major players in the field. The result of Pizza Hut strategies was that "Dallas-based Yum! Restaurants International has added more than 700 stores abroad in each of the past four years, helped by a rapid expansion in China that resulted in the region's being made a separate reporting division" (Ruggless, 2005). Therefore, Pizza Hut is not just an individual success, as it provides resources that help develop new markets.

Another specific strategy implemented by Pizza Hut and Yum International was creating a "Pizza Hut prototype, located in Columbia, which features a larger and warmer interior with softer lighting to enhance the restaurant's dine-in atmosphere" (Lohmeyer, 2003). One may observe the two opposite types of strategy implemented by Pizza Hut: the company tries to preserve the traditional idea of dine-in restaurant, only modernizing it a little, on the one hand, while adding modern distribution means to its strategy, like online ordering, on the other hand.

Future strategies for Pizza Hut are expected to rely on promotions, since "Pizza Hut is probably the most susceptible to volatility. it's more dependent on promotions than the other chains" (Spielberg, 2005). Some expect that the strategic direction will focus on developing new products, and not on discounts (Garber, 2004).

The Future at Pizza Hut

Back in 1991, Pizza Hut strategists had considered that the company's future relied entirely on diversification, as "even as it faces a downturn in dine-in business, Pizza Hut is pushing ahead with a comprehensive distribution strategy that executives hope will carry the chain well into the next century and solidly establish its dominance at all levels" (Frumkin & Howard, 1991). Since then, Pizza Hut has continued on the diversification direction, which will be followed in the future as well.

A novelty that Pizza Hut has come up with in order to attract more customers and to expand its customer segments to lower age averages relies on sponsoring certain programs. Such a program is called Book it. The program is based on rewarding "22 million young readers each year with free personal pan pizzas" (Damlo, 2007). The program has, however, its share of opponents that do not agree with such and incentives program, under the argument that it will only stimulate children to win free pizza.

Also as a direction to be continued in the future, one must take into consideration Pizza Hut's distribution strategy that started to focus on online ordering also. One mean for making this strategy to be successful is the partnership between Pizza Hut and EverQuest II. The company grants Pizza Hut access to its customers, which should help Pizza Hut expand its market share (Liddle, 2005).

Another future step for Pizza Hut in certain countries where it is present is the acquisition of Pizza Hut restaurants by Yum International. It is the case of Pizza Hut UK. Only 50% of it was owned by Yum International. The reason for this total acquisition is that "Pizza Hut is a powerhouse brand around the globe and the leader in casual dining in the United Kingdom, which has historically been one of the strongest markets for Yum! Restaurants International" (Business Wire, 2006). Although UK sales for Pizza Hut have not met the company's expectations, it is considered that the future changed by this acquisition will increase sales in this country.