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Pizza Hut Case Solution

Pizza Hut is considering offering home delivery and analyzes three scenarios: 1) Loss from cannibalizing carryout/eat-in customers, 2) Potential gain from entering the delivery market, 3) Lost sales from not offering delivery and losing customers to competitors. The analysis finds Pizza Hut could lose $9.14 million from cannibalization but gain $35.24 million by entering delivery. Not offering delivery could lose $17.02 million in sales to competitors annually. Overall, Pizza Hut should offer delivery to gain market share and profits.

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343 views2 pages

Pizza Hut Case Solution

Pizza Hut is considering offering home delivery and analyzes three scenarios: 1) Loss from cannibalizing carryout/eat-in customers, 2) Potential gain from entering the delivery market, 3) Lost sales from not offering delivery and losing customers to competitors. The analysis finds Pizza Hut could lose $9.14 million from cannibalization but gain $35.24 million by entering delivery. Not offering delivery could lose $17.02 million in sales to competitors annually. Overall, Pizza Hut should offer delivery to gain market share and profits.

Uploaded by

parth2k
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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Pizza Hut Inc.

Scenario 1: Loss due to cannibalization- assuming 20% of carryout and 5% of eat-in business is converted to home delivery Carryout Eat-in % Convert 20% 5% % of Business 40% 60% Sales affected $212.74 Sales ($MM) $ $ 1,934.00 1,934.00 $ Exhibit 4, Page 14, Traditional Profit % = 13.1% Delivery Profit = 8.8% Scenario 2: Potential gain from offering home delivery- assuming Pizza Hut's share of the delivery would match its share of overall pizza market delivery segment would match its share of the overall pizza market ( 15.4% from Ex-2) % Potential Share 15.4% New Sales $ 0.40 Industry Sales (Billn) $ 2.60 Margin 8.80% New Sales($Billn) $ Profit ($MM) $ 35.24 Exhibit 4, Page 14, Net field contribution due to delivery = 8.8% 0.40 Sales Affected 154.72 58.02 Profit (Loss) -9.14782

Scanario 3: Lost sales (Profit) due to not offering home delivery assuming 10% of current sales lost to competitors Sales ($M) $ 1,934.00 Lost to Competitor 10% Lost Sales 193.4 Margin -8.80% Exhibit 4, Page 14, Net field contribution due to delivery = 8.8% Profit (Loss)($MM) $ Inferences : i. With the arrival of the delivery channel, Pizza Hut cannot stick to its old channels and if it does, it will lose out on 17.02 million dollars to competition. ii. Franchisees would lose out on 9.12 million dollars, but this revenue would go back to the Pizza Hut Delivery Channel. iii. Entering the delivery channel gives Pizza Hut a profit of 35.24 Million Dollars. iv. For the above listed reasons, Pizza Hut should go for delivery channel. Number of Delivery Units Dominos Pizza Hut Godfather Roundtable Shakey Mr. Gatt -17.02

3,696 749 650 535 386 319

Percentage of pizza hut's 1986 revenues from home delivery $6,000 COMPANY- OPERATED UNITS FRANCHISEE- OPERATED UNITS PER STORE WEEKLY AVERAGE 1986 284 66 350 $6K $17,04,000 $3,96,000 $21,00,000 TOTAL WEEKLY DELIVERY SALES $21,00,000

* 52 WKS TOTAL WEEKLY DELIVERY/$1934mm TOTAL SALES IF RETROFITS ALSO SELL DELIVERY-ONLY UNITS RETROFITS $6000/WK 350 $21,00,000 241 $14,46,000 591 $35,46,000 $6000 52Wks TOTAL WEEKLY DELIVERY SALES/$1934mm TOTAL SALES

$10,92,00,000 5.6% $10,92,00,000

$18,43,92,000 9.53% $18,43,92,000

Avg PH Traditional Sales Avg no. of trad units in 1986 Company Owned Trad restaurants Franchisee Owned TOTAL 1986 SALES MINUS DELIVERY UNIT SALES SALES OF TRADITIONAL UNITS SALES OF TRADITIONAL UNITS $1,934MM 109.2MM 1824.8MM 406867.3 $7,824 PIZZA HUT DELIVERY $8,000 14.70% 5.90% 8.80% $36,608 DOMINO'S $9,121 14.70% 0.00% 14.70% $69,721

2,208 2,277 4,485 (350 UNITS* $6000*52) DIVIDED BY NUMBER OF UNITS PER YEAR PER WEEK

Weekly Sales Contribution%(Before CSC and ordering costs) CSC/odering costs Net Field contribution% Contrib/yr Assuming comparable investment Return on Assets Employed,Delivery Units ( Store level)

Assumed equal to PH No CSC cost fo Dominos

22% 350

43% 3696

Assuming average investment of $128500-$198500 per store Exhibit 1,Page 4, Para 2, Line 4

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