Pizza Hut Porter Five Forces Analysis
Five Forces analysis of Pizza Hut covering threat of new entrants & substitutes, bargaining power of buyers & suppliers and competitive rivalry.
Threat of New Entrants:
Pizza Hut is a leading fast food chain present globally. Threat of new entrants would be low for Pizza Hut. Firstly, a high capital amount is required to make a streamlined Pizza process and expand it internationally. This capital is difficult to arrange for a new business. Many companies have tried to enter into this business, but they were unable to take it to an international level and were restricted to a local level only. Economies of scale also work for Pizza Hut, which helps it keep its price lower compared to the local shops. Brand value also plays its part here. As it is a well known brand, customers prefer to visit Pizza Hut for their food. They can expect a standard product in whichever store they visit. The company also has well established inbound logistics in all the locations it is present. A new entrant has to face the difficulty of establishing a supply chain before starting, which is always tricky for a new business. Pizza Hut also has a lot of patents on Pizza making technology. This also restricts a new entrant from using that technology for their pizza production.
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This concludes the threat of new entrants in the Pizza Hut Porter Five Forces Analysis.
Threat of Substitutes:
Below are the threats of substitute products of Porter’s Five Forces analysis of Pizza Hut:
Threat of substitutes should be high for Pizza Hut. Pizzas comes in a fast food category, and customers have many options in this category.
Apart from burgers, sandwiches, and chicken, customers also can consume local food. These items are sold by food chains like McDonald’s, KFC, Burger King, and local food chains and shops. Thus consumers can choose from ranging at every price, quality, taste, and quantity. With increasing health consciousness, people have started preferring home cooked food or at least a healthier alternative than a pizza. Home made pizza is also an alternative that people look for. Pizza is a type of food that people eat during occasions, and it cannot be included in their regular diet. Packaged food can also be a substitute that people consider when they want a quick snack. The time taken to prepare pizza is one of the disadvantages that packaged food solves.
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Bargaining Power of Customers:
In the Pizza Hut Porter Five Forces Analysis the bargaining power of the customers can be explained as:
Bargaining power of customers is moderate for Pizza Hut. The brand is a Business to consumer company, and no individual customer is significant enough in terms of sales. Thus individually, customers have less power to bargain with the company. Also, there are significantly fewer international brands for Pizza. Pizza Hut provides standard quality and taste to its customers in every part of the world, wherever it has an outlet. So whenever someone wants to eat a Pizza, the brand is one of the options that people consider. Also, Pizza Hut targets middle and upper income market groups that are inelastic to the price changes. However, since there are many substitutes to Pizza as a food, it is very easy for the customers to switch to other food products if they do not like the taste or price.
Thus Pizza Hut needs to work hard to make Pizza the go-to food if people seek fast food.
Bargaining Power of Suppliers:
Following is the bargaining power of suppliers in the Porter’s Five Forces analysis of Pizza Hut:
The bargaining power of suppliers in the case of Pizza Hut is low. This is mainly because most of the raw materials in Pizza making business are readily available commodities in the market. Though Pizza Hut needs to maintain a relationship with its suppliers to maintain its supply chain, it still has many suppliers to choose from if a supplier does not work in its terms. So here, the suppliers are the ones who are weak, and they try to maintain a long term relationship with Pizza Hut. Moreover, the brand owns Supply Chain Services, a subsidiary that provides raw materials like ingredients, equipment, etc., to the shops under Pizza Hut and its franchisees. This supply chain helps the brand to maintain standardization and cater to any price fluctuation in the market. This system allows the brand to be in a strong position with its suppliers. The supply chain is also one of the most significant contributors to Pizza Hut’s revenue stream.
Competitive Rivalry:
The impact of key competitors in the Pizza Hut Porter Five Forces Analysis is as follows:
Pizza Hut faces high competition in its pizza business. Domino’s Pizza, Papa Jones, and Olive Garden are some of its major competitors in the international market. When it comes to the local market, local pizza players also give a tough competition to Pizza Hut. If we compare the brand with Domino’s, which is its biggest competitor, Pizza Hut pizzas are considered to be more pricy to that of Domino’s, and Pizza Hut provides a competitive service than Domino’s because Domino’s has self service system. The brand also gives a restaurant feel in its outlets, which is missing in Domino’s. Thus, Pizza Hut differentiates itself from its competitors by catering to customers who can afford a pricy pizza and want a restaurant experience with their pizzas. This also helps Pizza Hut differentiate itself from the local outlets.
Still, since this customer segment is small, Pizza faces fierce competition in the fight to become a market leader in the pizza-making industry.
To conclude, the above Pizza Hut Porter Five Forces Analysis highlights the various elements which impact its competitive environment. This understanding helps to evaluate the various external business factors for any company.
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