Marketing Analysis of Pizza Chains Restaurants
Team Project II HTM 531
Issue I:
The National restaurant Association, an industry trade group, estimates that
overall foodservice industry sales were $475.8 billion in 2005. Among which, the
limited-service restaurant (fast-food restaurants) boasted 134.2 billions of dollars of all.
However, ready-to-eat pizza segment (7.2%) occupies a moderate percentage of the
whole restaurant market share compared to Sandwich (40.8%).
The nation’s largest purveyor of pizza is Pizza Hut (sales of $5.2 billion in 2004),
followed by Domino’s Pizza Inc. ($3.2 billion). Papa John’s International Inc. ($1.7
billion) and Little Caesar’s ($1.2 billion) are also large nationally known pizza concepts.
These four front-runners account for more than 92% of the top 100 pizza chains’
aggregate sales.
Although the pizza segment is large, the sales on the quickservice side are about
as flat as a thin-crust pie. Much of the gain comes from higher-end concepts, such as
Wolfgang Puck or California Pizza Kitchen, rather than the Quick Service Restaurant
(QSR) leaders--Pizza Hut, Domino's, Papa John's, and Little Caesars. There could be two
main direct reasons: the fierce price wars and flashy new products.
Pizza, in the public mind, is cheap and usually comes at a discount. Discounting is
the golden rule of the pizza market. The larger the category, the more the promotions:
ready-to-eat pizza marketers, despite their efforts to get away from price wars, run the
most. A focus on price reduction of commoditized products may do more harm than good
if it leads to significantly lower earnings margins. What’s more, according to consumer
surveys by the National Restaurant Association, most adults say that they are likely to
take advantage of price promotion. But once the bargains end, “swing” customers-patrons
lured by low prices-are likely to move on to the next chain promoting low prices. Often,
the additional traffic obtained through price promotions fails to offset the corrosive effect
on margins.
Over the past several years, pizza chains have begun to extend their menus to
include other items like chicken, salads, pizza dough and cheesy bread stick. Not many of
them are still kept on the menu though. It could be described as once a chain launches a
new menu, the other competitors would imitate the new item or launch a similar one.
This “flashy” product competition failed to build up customer loyalty and differentiated
brand image.
However, one could not ignore the factor underlying those two phenomena: those
pizza chains have all targeted the same market segment heavily (related to Chapter8).
And that’s the reason the competition within this field is so fierce.
Baby boomers comprise the first generation to have been acquainted with pizza
their entire lives. A generation of young adults who grew up "favoring pizza over
anything else" is now heading up its own households Because many of them have started
families by now, creating a second generation of pizza lovers. As at least 70% of women
currently in the work force, pizza's convenience induces parents to accommodate family
members’ desire for it. For all the reasons above, pizza chains have unanimously cast
focus on the home delivery market. Business executive from Pizza Hut stated that
families are the heart of the pizza category. Despite of that, the “home delivery crisis” is
already looming ahead.
To compete in the delivery business, pizza companies have also invested a great
deal of money and human resource on developing new technology to faster the delivery
speed. Domino’s in U.K have started the GPS system to help customers locate pizza
outlet. Many other competitors are also considering using wireless technology to
facilitate the delivery.
However, with much ready-to-eat pizza growth due to the expansion of the
chains, it is inevitable that the United States will be saturated with pizza chains at some
point. Consequently, the pizza home delivery market segment will be saturated following
the expansion.
In addition, although the “home meal replacement” market will continue to grow
for a long period, the pizza chains are facing increasing competition from full-service
restaurants that are aggressively trying to enter the market like “Outback Steak House”
and “Applebee’s”. This market segment, therefore, deserves a degree of caution
considering its segment structural attractiveness. Papa Murphy could be the first pizza
chain trying to jump out of the home delivery market and they target for home bakery
segment. The company’s strategy proved to be quite successful due to their competitive
pricing strategies that their average is $2.00-$.300 per pizza cheaper than those ready-toeat ones. Despite of that, home bakery segment is still considered as a part of the big
“home meal replacement” market. There is some level of overlap of target market
between home delivery market and home bakery market. The new low price may arouse
a new pricing war between the four big pizza chains and their new competitors.
Furthermore, the pizza chains lack the efforts to further segment the home
delivery market. For example, while McDonald’s have developed kid’s menu to view for
kids’ attention, pizza chains seemed to be too focusing to attract working mums rather
than their kids who actually make more influential decisions in families. Although Pizza
Hut developed “4 in one” pizza in 2003 which allowed family members to have more
choices of toppings, the underlying marketing strategy was still to gain the whole family’
businesses.
A product’s position is the way the product is defined by consumers on important
attributes-the place the product occupies in consumers’ minds relative to competing
products. The major pizza chains didn’t use unique products to differentiate themselves
to draw the attention of niche market. Their product categories, to some extent, are
similar to each other without capitalizing on inherent attributes of the products. In the
same way, it is hard for those pizza chains to build up strong loyalties among customers.
Besides that, the pizza chain restaurants haven’t established distinctive location
images among customers. As the competition of outlet expansion escalates, the short of
location strategy becomes more salient. The pizza chains are virtually trying to cover
every corner of the place where a potential market might be lying due to undifferentiated
marketing strategy. No pizza chain has tried, for example, to open restaurants beside the
nursery homes consistently, which could be considered as a niche marketing strategy.
When thinking of recommended solutions for the pizza industry, you must think
outside the box to find a concept that will differentiate themselves from their competitors
and give them a new edge. Found from the Top Market Share Pizza Chain Restaurants
Survey In 2002, from breakfast to midnight snacking pizza is ranked as America's fourth
"most craved food." By making a children's or a breakfast menu concept are ways to
attract this every-day market.
Children's menu items should include such items as: finger foods, toys or prizes,
and an exciting menu to look at. Pizza Hut cut into the market for finger foods when it
introduced the new "Dippin' Strips". Made just for dipping, it is a rectangular pizza sliced
into 16, 1-inch by 4-inch slices. On the other hand, Domino's came out with "Domino's
Dots", small round balls of cheesy bread covered in cheese and seasoning.
Why heat up the pizza from the night before for a quick breakfast before you start
your day? When all you need is a topping of shredded cheddar for a breakfast-menu pizza
omelet with scrambled eggs, onions and sausage over a tenderly made crust. Even a
cream-cheese-and jelly pizza can make an eye-catching addition to a children’s menu and
for adults who can’t resist the ease of ordering a pizza for breakfast.
Another recommendation to the pizza industry is the Point of Sale System (POS).
Initially used for cash management, they're now being used for marketing, labor
management, inventory and security. Chains know the ability to collect data in one
location is crucial to overall performance, maximizing promotional efforts and, as
always, bottom-line results. By using this system, it can tell them how many pizzas to
expect to sell per hour so they can be prepared. The same could be used for a pizza buffet
operation, where the report would tell them how many pizzas need to be out on the line
during a given hour of the day.
More fast food restaurants are showing up in the strangest locations. Little
Caesars is now in K-Mart and McDonald's is now in Wal-Mart. This trend will continue
as increased competition and saturated markets cause fast food companies to become
more creative in selecting their locations. A fast growing trend in the fast food industry is
the multi-brand restaurant concept, where two to three recognized brands sell food sideby-side under the same roof. This may be done through the use of separate counters, so
that the restaurant looks like a mini food court, or one brand may dominate the menu and
offer a few favorites of another brand. Yum! sells its Personal Pan Pizzas through the
drive-thru window of some Taco Bell and KFC stores. Multi-branding has proven
successful since it provides additional convenience and food choices for customers, while
allowing companies a way to introduce multiple brands to an area that they may not
otherwise target due to the high cost of property or low population levels. Instead of
building and maintaining two or three separate units, the company operates one store.
Yum! was looking to expand the multi-branding concept beyond its own brands, so they
acquired A&W All-American and Long John Silver’s restaurants.
Another industry trend is the industry growth. Most large food service companies
have found growth happens faster through acquisitions than through development of their
own sites. However, growth for many was still focused on franchise development and
expansion into foreign markets. In recent years the leading players of the pizza industry
offer cheap, quick and heavily promoted food, making them a popular choice amongst
consumers both in long-standing markets like the US, and newer markets such as AsiaPacific.
Issue II:
The homogeneous marketing target also caused the pizza restaurants failed to
position their products uniquely. Their product categories, to some extent, are similar to
each other in terms of inherent product attributes, benefits and user category without
capitalizing on the opportunity to give their products the greatest advantage in selected
target market. Pizza customers generally enjoyed the same convenience of home
delivery, freedom to choose toppings, and same cheesy flavor. In the same way, it is hard
for those pizza chains to build up strong loyalties among customers. In particular, pizza
chain restaurants have not differentiated location images among customers. The pizza
chains are virtually trying to cover every corner of the place where a potential market
might be lying. As the competition of outlet expansion escalates, the sort of differentiated
product location positioning becomes more salient. No pizza chain has tried, for example,
to consistently open restaurants beside the nursery homes, which could be considered as a
niche marketing strategy.
When diversifying from other pizza chains it is key to use market segments that
are measurable, accessible, sustainable, and actionable. However, it may seem easiest to
use the male segment who watches football; this is limiting the market and future
opportunities to break into a new niche.
The highest percent influencing the family decisions to eat-out are by children and
households. This commonly-used demographic segmentation is continually changing by
age and life-cycle. There has been a shift away from the American "traditional
household," once consisting of a husband, wife, and two children. Now the percentage of
nonfamily households is increasing: singles that are living alone, cohabitations, divorces
with single-parent households, marrying without children, and people living with other
relatives. Another trend is the rising number of working women which is influencing the
increased food budget being spent on restaurant foods. These "nontraditional households"
and working families just do not have the same amount of time to prepare meals
anymore.
Another market segmentation to consider calls for dividing the market into
different geographic units. The location of accessibility for your target market still
contributes to the overall success of any fast food pizza delivery. For an example, selling
a thin crust pizza on the east coast of the U.S. might not be as profitable because they are
known for their deep-dish pizzas like Pizza Hut's "New Yorker."
These marketing segmentations capitalize on opportunities but companies still
need to evaluate and select their target markets. The pizza companies need to analyze
major structural factors that will determine long-run segment attractiveness. The pizza
industry has many strong and aggressive competitors making it less attractive. However,
it is inevitable when several competitors are aiming at such large segments to have heavy
competition; which may lead to price cutting, price wars, and larger marketing costs. A
way to avoid this is to adopt a market-niche strategy.
When thinking of market-niche solutions for the pizza industry, you must think
outside the box to find a concept that will differentiate themselves from their competitors
and give them a new edge. Found from the Top Market Share Pizza Chain Restaurants
Survey In 2002, from breakfast to midnight snacking pizza is ranked as America's fourth
"most craved food." By making a children's or a breakfast menu concept are ways to
attract this every-day market.
Children's menu items should include such items as: finger foods, toys or prizes,
and an exciting menu to look but is still similar to the adult menus. Pizza Hut cut into the
market for finger foods when it introduced the new "Dippin' Strips". Made just for
dipping, it is a rectangular pizza sliced into 16, 1-inch by 4-inch slices. On the other hand,
Domino's came out with "Domino's Dots", small round balls of cheesy bread covered in
cheese and seasoning. Yet, knowing how to target families by targeting their kids, few, if
any, pizza chains have a complete kid's menu.
Why heat up the pizza from the night before for a quick breakfast before you start
your day? When all you need is a topping of shredded cheddar for a breakfast-menu pizza
omelet with scrambled eggs, onions and sausage over a tenderly made crust. Even a
cream-cheese-and jelly pizza can make an eye-catching addition to a children’s menu and
for adults who can’t resist the ease of ordering a pizza for breakfast. This will open new
opportunities for pizza chains to be open in the mornings by being a breakfast solution
and cater to both working adults and parents serving a quick meal to their children in the
mornings.
Women now represent a very important market segment and are more commonly
known for preparing and deciding on a family's meal. From the University of Guelph,
researchers found that single women living in a city are more likely to increase their
spending after a salary increase on restaurants than single males or even married couples.
Pizza industries should take advantage and start targeting to women who are looking for
fresh, healthy, low calorie, and fast meal options; compared to the male dominant pizza,
buffalo wings, and sports channel approach. This design taking females into
consideration will be attractive to women, but these same aspects could also be attractive
and appealing to men as well.
After looking at some market-niche solutions, pizza companies should come up
with possible competitive advantages which they can build a position strategy. One that is
becoming more relevant is location differentiation.
More fast food restaurants are showing up in the strangest locations. Little
Caesars is now in K-Mart and McDonald's is now in Wal-Mart. This trend will continue
as increased competition and saturated markets cause fast food companies to become
more creative in selecting their locations. A fast growing trend in the fast food industry is
the multi-brand restaurant concept, where two to three recognized brands sell food sideby-side under the same roof. This may be done through the use of separate counters, so
that the restaurant looks like a mini food court, or one brand may dominate the menu and
offer a few favorites of another brand. Yum! sells its Personal Pan Pizzas through the
drive-thru window of some Taco Bell and KFC stores. Multi-branding has proven
successful since it provides additional convenience and food choices for customers, while
allowing companies a way to introduce multiple brands to an area that they may not
otherwise target due to the high cost of property or low population levels. Instead of
building and maintaining two or three separate units, the company operates one store.
Another industry trend is the industry growth. Most large food service companies
have found growth happens faster through acquisitions than through development of their
own sites. However, growth for many was still focused on franchise development and
expansion into foreign markets. In recent years the leading players of the pizza industry
offer cheap, quick and heavily promoted food, making them a popular choice amongst
consumers both in long-standing markets like the US, and newer markets such as Asia-
Pacific.
Overall in differentiating our pizza industry product, we have identified potential
advantages, introduced new ideas, and increased competitive advantages. Physical
Attribute such as: using fresh, healthy, and low calorie foods or toppings will
differentiate them; which can lead to customer loyalty, a public relations opportunity, and
higher profits. Service differentiation by a faster home-delivery system and providing a
fun treat for a children’s menu will achieve satisfied customers. Location Differentiation
such as positioning by nursery homes or other niche strategies is a very strong
competitive advantage. Finally, image differentiation basing on brand image, whether it
is co-branding with another business or marketing to a foreign market, a pizza company
will be able to enhance and support memorable experiences for their customers.