Running Head: IPH In Brazil Case Study
IPH in Brazil Case Study
Audrie Bielskis, Sirah Camara, Mike Butler, Adam Willis
Siena Heights University
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IPH in Brazil
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Introduction
International Pizza House (IPH) is one of the largest restaurant chains in the world and was the
leader in the pizza segment. The first IPH in Brazil was opened in 1989 in a suburb or São Paulo.
The Stern Group was a financially and managerially stable major construction business looking
to expand. In April 1992, the Stern Group bid again 3 other firms for the International Pizza
House franchise for Rio Grande do Sul and was awarded this franchise in May 1992. The
company formed Maxxi Foods S/A in June of 1992 to operate the IPH franchise in Rio Grande
do Sul. Fernando Silva was responsible for the management of Maxxi Foods along with Mr.
Marcos Stern until Stern left the company in 1995.
Situation Analysis
STEEP Analysis
Sociocultural Factors:

Brazilians are very proud of locally produced products (-)

Local products in several categories in Rio Grande do Sul have higher market shares than
highly promoted national and some international brands (-)

Highly inappropriate in the Brazilian culture to put down a competing product or service
while promoting your own (-)

Comparative advertising in Brazil often results in consumers taking the side of the
product intended to be the loser (-)

Italian culture is widely represented in the southern states of São Paulo, Paraná, Santa
Catarina, and Rio Grande do Sul. Inhabitants of these states had long ago established and
appreciated Italian –style pizza (-)
IPH in Brazil
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Pizza is considered an inexpensive food item in Brazil (-)

Most Brazilians consumed 3 meals a day (+)

Breakfast is usually the lightest and quickest meal. Most common breakfast was coffee
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with milk, and bread with butter and jelly, or bread with cheese. Some people also
included some of the many Brazilian fruits such as papaya, mangoes, pineapples and
melons. (+)

Preferred bread is French bread, which neighborhood bakeries produced several times a
day. (+)

Meat, fish, eggs and cereals were not as common at breakfast as in other cultures (+)

Lunch and dinner tended to be heavier and longer to consume. (+)

Lunch and dinner almost always included a meat (steak, chicken, or fish), a starch or
grain (beans, rice, potato), a vegetable (carrots, tomatoes, etc.), and a dessert (fruit or
cake) (+) (-)

Brazilians prefer not to eat alone (+)

Most Brazilians didn’t perceive fast food as a complete meal, but rather as a heavy
snack(-)

Sandwiches and pizza were used a substitutes for lunch or dinner usually because the
person lacked time, hunger, company with whom to share a meal, or money (+) (-)

Success of pizza sales at a particular location could be unrelated to advertising and image
building efforts. Primary success factors were the taste of pizza, location convenience,
price, and/or the locale’s atmosphere (+) (-)

Taste of Brazilian pizza was different from the pizza consumed in the U.S. On Brazilian
pizza the crust tends to be thinner, there is less grease, and less tomato sauce. (-)
IPH in Brazil
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Most popular pizza toppings were cheese and calabresa (a thinly sliced pork sausage).
Pepperoni was an acceptable substitute for calabresa, but was not sold in stores in
Brazil.(+)

When pizza is consumed in restaurants a drink is normally served with it, often this is a
draft beer (+)

An outing to a pizzeria was usually more economical to than going to a traditional
restaurant (-)

Pizza was served through a popular system called rodizio which is equivalent to “all you
can eat” (+)

None of the pizza chains in Porto Alegre offered quality packaging (+)
Technological Factors:

Brazil has a well-developed media infrastructure (+)
Economical Factors:

São Paulo is the most economically developed state and is also the most densely
inhabited, with population equal to 34 million (+)

Rio Grande do Sul is a state with little over 9 million inhabitants (+)

Porto Alegre is the capital of Rio Grande do Sul and is a cultural center for the southern
portion of Brazil with a metropolitan area population of nearly 3.1 million (+)

Cost of Brazilian mozzarella is higher than the cost of mozzarella in other markets (-)

Retail establishments were subject to very high taxes in Brazil and tax evasion was
common (-)
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IPH in Brazil
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Brazil is the largest country in Latin America and was the 8th largest economy in the
world (+)

The Porto Alegre market consisted of 43 pizza restaurants. 3 are chains while the rest are
small family-owned businesses (-)

The success of the Real Plan caused the market to stop tolerating price increases and
consumers to begin to compare prices (-)

Newly stabilized economy created franchising boom in Brazil, mainly in food sector (-)

Average monthly inflation below one percent meant consumers would no longer accept
price increases (-)

2 of the largest construction firms active in the state of Rio Grande do Sul, a national firm
and a local firm had just declared bankruptcy (+)

The franchisee for Rio de Janeiro suddenly and unexpectedly decided to close all of its
stores and to stop all operations due to heavy financial losses. It also began litigation
against IPH (-)

Other fast food franchises that had begun operations in Brazil, such as KFC and Subway,
were also not meeting profit expectations (-)

The Pizza Company held local market leadership (-)

There was rumor that a huge competitor, the market leader in pizza delivery in the USA,
was about to enter the market by making the local Coca Cola distributor its franchisee (-)
Ecological Factors:

No obvious ecological factors
Political Regulation Factors:
IPH in Brazil
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Tax evasion was common especially in small, family-operated businesses such as
restaurants, but such practices are difficult for a company with automated stock,
accounting records, and sales records.(-)

Henrique Cardoso created a new currency, the Real, which began circulation on July 1,
1994 (-)

Brazilian laws were favorable to franchising (+)
SWOT Analysis
Strengths:

One of the largest chain restaurants in the world and is the leader in the pizza segment

It’s located in 63 countries and operations in these countries grossed close to US $1
billion per year

Established franchises in places where they knew there was a lot of foot traffic and their
product would be received well.

IPH had a good reputation, and a successful business.

Had their novelty thick crusted pan pizza that they were famous for. This initially
represented 95% of sales

Fernando and Marcos Stern traveled to the USA for 2 months of training at three IPH
centers for new franchisees and operators. This training included modules on topics such
as store planning, infrastructure development, product preparation, and business
operations and administration. They also attended lectures on topics such as human
resources, implementation of operational and financial controls, etc.
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The 7 stores Maxxi Foods had open in May of 1995 were within the sphere of influence
(living, working, driving) of individuals possessing 70% of Porto Alegre’s income
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IPH in Brazil
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In the beginning, sales increased and the chain’s market share and popularity grew. The
target market was individuals and families classified as social classes A and B (the 2
groups with the highest levels of income and education in the entire population). Many of
these people were already familiar with IPH in other markets.

IPH realized that they were setting a new standard for packaging and charged more
because of this fact
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Introduced many new promotions in 1995. International Collection which introduced
several new pizzas and succeeded in gaining attention and increasing sales. Another
promotion increased lunch sales by 35% and another was successful in reaching its
objective to increase sales on slow days.

A thin crust pizza similar to the Italian style pizza found in pizzerias preferred by
Brazilians was launched in 1998 and was sold at 10% less than other IPH pizzas. This
pizza initially accounted for about 35% of sales in stores that launched it and sales of this
type of pizza stabilized at about 25% of pizza sales
Weaknesses:

Their way of advertising in Brazil. It put down the traditional Brazilian food and that was
offensive to the Brazilians. Initial launch strategy was an indirect knock on local ethnic
cuisine.

Their products were more expensive than other product sold in the local pizzerias. Their
prices were between 20-30% higher than their competition.

The ingredients they purchased were more expensive than the ones their competitors
purchased.
IPH in Brazil
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Because pizza was considered as an inexpensive item in Brazil, their high prices didn’t
help their business.

Their advertising was not consistent.

They were subject to high taxes and because they are a big corporation they were not able
to escape them in any way.

Initial cost to purchase franchise was high. Stern Group’s initial fees were US $10,000
for each of the 20 stores it was authorized to open in the Rio Grande do Sul territory and
a fee of US $25,000 for each store that actually opened. The agreement also required
Stern Group to pay 6% of gross sales, less direct tax

Mr. Marcos Stern left the company

In 1995 Maxxi Foods only had 7 stores in operation which was well below the 20 stores
expected to be open by this time

As novelty of pan pizza wore off, customers returned to their regular pizza restaurants

High operating costs often made profit margins lower than those of local competitors

American franchises received cheese already shredded, but Brazilian franchises received
the product in blocks and had to pay employees to shred cheese

Other IPH standardized items, such as packaging, were also more expensive for Brazilian
franchisee than for franchisees in other markets

Some of the pizza preparation processes, which were automated in the US, were
performed manually in Brazil

IPH realized that they were setting a new standard for packaging and charged more
because of this fact

IPH’s management and cost control systems also revealed operational problems
IPH in Brazil
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Porto Alegre franchise was not large enough to bargain effectively with suppliers so
profit margins began to fall.

Margins of net sales for delivery fell from 30% to 20%

The promotion that increased sales on slow days had a detrimental effect on overall sales.

Discounted prices were initially successful, but soon the sales price became the pricing
reference point in the minds of many consumers

The franchisee received a lot less assistance from IPH than was forthcoming

Some executives in the firm openly raised questions about future investments in Maxxi
Foods

Stern Group was considering going back to only construction and selling the franchise

There were well advanced negotiations for a franchise holder for IPH in Portugal to buy
the stores and operations of Maxxi Foods, but this fell through at the last minute
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The franchise agreement was restricting for the franchisee and did not allow for the most
appropriate products for a market to be used

Another IPH franchise suddenly and unexpectedly closed because it was not doing well
Opportunities & Threats:

Listed in the STEEP Analysis. Opportunities are denoted by a (+) and threats by a (-)
Case Problem Area
The Rio Grande do Sul franchise of International Pizza House needs to determine how to restore
its image and profitability. Marketing strategies should be improved so as not to offend
Brazilians.
Alternative Solutions
IPH in Brazil
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1. Find a way to overcome the negative image so that the franchise can be sold. Make a
more consistent marketing strategy that doesn’t offend the locals. Once sold, go back to
construction.
Positives:

Would improve the image of this franchise territory and possibly the surrounding ones

There is still possibility of a small profit for the Stern Group

A more subtle approach to marketing with less comparative advertising would make the
franchise more attractive to Brazilians
Negatives:

It might not work and they’ll just lose more money. It’s risky.

Marketing is expensive

Could be missing out on future financial gain if there is a better way to turn the franchise
around
2. Incorporate more of the culture into the franchise. Begin a breakfast line by incorporating
a French bread pizza/cheesebread. Get French bread from a local bakery through some
kind of agreement. Expand menu to add pastas or some other food item that Brazilians
enjoy. Also, focus on selling the thin crust Italian style pizza, with limited pan pizza
selections.
Positives:

Increases customer base

Increases profits

Increases their competitive edge, most other pizzerias probably don’t have breakfast
IPH in Brazil
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Brazilians would appreciate the company more for trying to incorporate their culture
rather than trying to force US culture on them
Negatives:

Might not work, could be too big of a change. Risky.

Franchise agreement might not allow this

Competitors might copy this and be able to do it cheaper
3. Begin serving pizza rodizio style in addition to regular menu. Focus on selling the thin
crust Italian style pizza, with limited pan pizza selections.
Positives:

Caters more to Brazilian customers

Increases customer base

Increases profitability/profit margins. Most all you can eats charge you for more than
most people can eat.

Increases competitive edge
Negatives:

Might not increase anything because there is so much competition already doing this.
Recommendation and Implementation
We would recommend the third alternative. It has the most potential and is the easiest to
implement. There are more positives and fewer negatives than the other alternatives.
The target market is still Brazilians in social groups A and B, but is now expanding to include
other social classes as well. The rodizio strategy is attractive to all social classes, but especially
IPH in Brazil
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to those of lower income because they feel that they are getting a lot of food for a good price.
The Italian style pizza also attracts customers who don’t like the pan pizzas. The positioning of
the franchise is good. It’s right in the sphere of influence of individuals possessing 70% of Porto
Alegre’s income. Price of the Italian style pizza is good because it sells at 10% less than the
other styles offered by IPH. The price of rodizio should be reasonable, but still high enough to
make a profit. Focus on making an Italian style pizza that reflects the Brazilian culture and will
attract customers. Promotion should be positive and should not involve putting down
competitors. All in all, we think there is potential to turn the franchise around to make a profit.
This will take a lot of work, but there is great opportunity in the area for IPH to be successful.