Pizza Hut began operation as a single pizza shop run by two brothers, Dan and Frank Carney, in Wichita, Kansas on June 15, 1958. The chain grew to 43 restaurants in 1963 and 296 in 1968. Pizza Hut went public in 1969 and was acquired by PepsiCo, Inc. in 1977. By 1981 Pizza Hut had become the largest pizza restaurant chain in the world both in sales and number of restaurants. At that time there were 5,025 domestic units and annual sales of almost $2 billion. Before 1984 Pizza Hut saw no real competition from Domino’s in the overall pizza market.
COMPETITION: NEED FOR HOME DELIVERY
The challenge of Domino’s changed in 1985 when they opened 954 new outlets bringing their total to 2,839 which was the largest expansion which had ever occurred in the food service business. Since Domino’s was essentially a delivery-only chain the pressure was placed on Pizza Hut to compete for the market. The expansion of Domino’s had led to competition in the locations where Pizza Hut had been the only local pizza shop. After the aggressive competition by Domino’s the market share of Pizza Hut declined by 3% to 15.4% in the $53 Billion fast food market. Another important reason for Pizza Hut to enter the Home Delivery market was to capture the fast growing market of Home Delivery that increased to $7 Billion from just $0.1 Billion in a span of 8 years.
In the time span of 1984 and 1985 the home delivery of pizza grew to be the newest and fastest growing fast food concept. People who had enjoyed dining out for pizza were also ordering delivery pizza for additional meals or even evening snacks. The market was opening up and becoming very successful. Pizza Hut felt they needed to jump into this area of sales. By 1986 there was a surge of business in the pizza market. The main reason for this increase was the home delivery of pizza which had suddenly gained great popularity.
FRANCHISING CONCEPT ; ITS DISADVANTAGES
Pizza Hut had a logistical problem with the delivery aspect of sales being added to the market. Franchising was done for each restaurant Pizza Hut opened. The initial fee was $15,000 for each system. The company or franchise also paid 4% of monthly gross sales to the company. An investment of $466,000 to $816,000 was made when the dine-in/carryout restaurants were set up. The delivery-only units required a much smaller investments estimated at $128,500 to $198,500.
In 1967 the International Pizza Hut Franchise Holders Association was formed to provide a home group of companies which held a loyalty to their product and their sales. By 1986 the organization handled all advertising and promotions of the Pizza Hut stores. Market areas were also determined by this group and even accessed some local co-ops in prime market areas.
CANNNIBALIZATION AND MAINTENANCE PROBLEMS
The delivery phase of Pizza Hut was difficult to add to the market place without confusion and what was referred to as cannibalizing of the other phases of Pizza Hut. Dine-in/ carry out establishments were not developed to add the delivery aspect. This meant that staffing had to be changed and the possibility of creating shortages in dine-in stores was a reality. When the delivery aspect was added, the idea of store owned delivery vehicles had to be considered. Not many of the stores wanted to handle this additional charge of owning and maintaining vehicles. This meant they needed to hire drivers who were willing to use their own cars and realize the wear and tear on their cars.
In addition to the vehicles and drivers, there were other concerns about the addition of delivery to established stores or the set-up of delivery-only facilities which involved less cost and less land area. The delivery-only facilities did not need to maintain large parking lots. They only needed a small area for the employees, including the delivery people. The company tried using a computerized central ordering system called the Customer Service Center (CSC). The use of one single number to order pizza from Pizza Hut sounded good but it was less than efficient.
EXPENSIVE AND INEFFICIENT CUSTOMER SERVICE CENTER
The principle was