A Research on Pizza in Bangladesh: Practical Analysis

Prepared For
Dr. A.K.M SaifulMajid Professor Institute of Business Administration, University of Dhaka

Prepared by
Z. FerdousNur-E-Shashi Sifat Ishtiaq Hossain TanzeerSiddiquee JarinTasnimNoshin Roll: 09 Roll: 10 Roll: 49 Roll: 50

BBA 19th batch, Institute of Business Administration, University of Dhaka Date: November 21, 2011
Table of Contents 1

Page No 1.0 2.0 3.0 4.0 5.0 6.0 Letter of Transmittal Executive Summary List of Figures List of Tables List of Abbreviations Body of the Report 6.1 Introduction 6.1.1 Origin of the study 6.1.2 Background 6.1.3 Current market scenario 6.1.4 Objectives and scope 6.1.5 Methodology Integrating 10 Principles into product research 6.2.1 How people make decision 6.2.2 How people interact 6.2.3 How the economy as a whole works Economic Model 6.3.1 Circular flow diagram Market and competition 6.4.1 Definition of market and competitive market 6.4.2 Is pizza market monopolistic? 6.4.3 Price comparison 6.4.4 Pricing Strategy 6.4.4.1 Skimming strategy for Pizza Hut and Domino’s Pizza 6.4.4.2 Penetration Pricing for Pizza corner 6.4.4.3 Cost-plus pricing for Pizza Inn 6.4.5 6.5 Survey 20 04 05 06 06 07 08 08

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6.3

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6.4

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Current Market Demand and Supply 6.5.1 Demand curve 6.5.1.1 Shift in the demand curve 6.5.1.2 Factors affecting current demand and shift in demand curve 6.5.2 Supply curve 6.5.2.1 Shift in the supply 6.5.2.2 Factors affecting current supply and shift in supply curve

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6.6 Equilibrium 6.7 Elasticity 6.7.1 Price elasticity 6.7.2 Cross-price elasticity 6.7.3 Necessity or luxury 6.7.4 Graphs to show elasticity of supply 6.8 Government Policy 6.8.1 6.8.2 7 8 9 10 Conclusion Recommendation Reference Appendix Taxation and VAT Mobile Food court

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1.0 Letter of Transmittal
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Without your guidance and help this learning experience would not have been the way it has been.0Executive Summary 4 . Z. Hope you enjoy reading the report as much as we enjoyed writing and working for it. Regards.M Saiful Majid Professor Institute of Business Administration.K.November 27. We are hereby presenting the report titled „A Research on Pizza in Bangladesh: Practical Analysis‟. and assure you submission of our report in compliance with the instruction envisaged. 2011 To. Dr. University of Dhaka Subject: Presentation of Report Sir. Ferdous Nur-E-Shashi Sifat Ishtiaq Hossain Tanzeer Siddiquee Jarin Tasnim Noshin Roll: 09 Roll: 10 Roll: 49 Roll: 50 2. A.

We have done a detailed research on the current market situation in order to portray the new market context. In fine. The prices of complements (such as sauce. several sales promotions have brought changes in expectations. But the change in taste is the most important factor affecting the demand of pizza. and forecast probable market outcomes. Trade off 5 . Bangladesh has her fair share of action. 3. processes) has advanced. Being a part of the developing countries. Today. Putting the above two changes together. The income levels of the pizza consumers have gone up and resulted in higher purchasing capabilities. Domino‟s Pizza. Moreover. due to the profitability in this market. garlic bread) of has gone down as well. Numerous factors affecting the demand and supply of pizza industry has come into play. we conclude that the supply has increased for the pizza market. as a whole the demand for pizza has increased. The cost of ingredients (wholesale price of cheese. sudden escalation of demand has incited a broad change in the pizza industry. Pizza Inn and Pizza Corner are the only licensed pizza franchises in the country. bread) of pizza has also decreased. More and more people are consuming pizza. many new firms have come forward to selling pizza. Pizza is mainly geared towards the younger end of the market and the employees of the fast paced corporate world. we find a higher price and a higher quantity of pizza sold. In case of the supply. Pizza Hut. The technology involved in preparing pizza(oven.0 List of Figures 1. So. the suppliers even supply additional quantities. Consequently. And on the wake of sales promotions.Recently the pizza industry has boomed in our country. The prices of substitutes of pizza(such as chicken broast/burger etc) have gone down due to extreme competition in those product markets.

Priority b. Demand schedule 4. CFD 3. Inflation rate schedule 2. Supply curve 6. Price comparison schedule 3.2. Toppings preference 4.0 List of Tables: 1. Survey on consumption frequency 4.0 List of Abbreviations: 6 . Survey a. Supply schedule 5. Market share c. Demand curve 5. Equilibrium 7.

FC: Fixed Cost 6. VC: Variable Cost 5. MR: Marginal Revenue 7 . CSP: Central Selling Proposition 4.1. MC: Marginal Cost 7. CFD: Circular Flow diagram 2. USP: Unique Selling Proposition 3.

We were acquainted with some important Microeconomics concepts under his efficacious instruction. Today. we discovered that 86% of pizza lovers would like to choose their own toppings rather than order a pre-customized pizza. pizza franchises offered a variety of promotions. Pizza can be clearly distinguished from snack/confectionery items by its perishable nature. these four are the only licensed pizza franchises in the country. Now. 8 . evident from the continuous crowds the restaurant successfully draws in. Pizza was first introduced in Bangladesh in 2003 by Domino‟s Pizza at Mohakhali among all the international franchises. A. In our survey. Bangladesh has her fair share of action. consistently keeping their business up to date with current trends in the food industry.K.1.1. the first International Chain Restaurant in Bangladesh. pizza franchises are always inventing new innovations to the traditional pizza concept. Pizza Hut. In an attempt to restart sales.0 Body of the Report 6. As a result. opened its flagship restaurant in 2003 at Gulshan. Saiful Majid. innovative trends like Hilsha Pizza and World Cup Pizza soon proliferated across the pizza industry. The preparation and service times are relatively quick in case of pizzas.3 Current Market Situation: With the recent increase in the price of key pizza ingredients like meat. that this industry truly began to escalate.1. Being a part of the developing countries. reviving the industry after its decline during the price increase in key ingredients. when the Pizza Inn and Pizza Corner franchise launched. Now we are allotted to integrate those concepts with the product we are studying here. It was not until 2005. One of the greatest highlights of the pizza industry is its high versatility and customization for consumer preferences. the costs of production elevated.1 Introduction 6. 6. consequently making a large hit to the pizza industry.6. Later in the same year.M. altering their marketing strategies through websites and other forms of social media.2 Background: Pizza is mainly geared towards the younger end of the market and the employees of the fast paced corporate world.1 Origin of the Study: We are basically assigned to do the study by our honored faculty Dr. From the day of its launching Pizza Hut remains the acknowledged leader of the Pizza Industry. cheese and wheat. 6.

 It is easier to relate our product to the concepts that we studied since we all have a generalized idea about it.1. In fact. we found out children of ages 8 -13 claim to prefer pizza or burger out of all lunches and dinner selections. As long as this sense of innovation never runs dry (and so far. revamping their business strategy to maintain long term profitability. in our survey we found out that only six percent of people in Dhaka have ever placed a pizza order online. and gas. there is no evidence that it will) the pizza industry will continue its success in the future. All in all. nearly one half of pizza eaters will search for recommendations on blog sites or Facebook before deciding on their purchase. These quick-service pizza concepts allow people to take advantage of the new technologies that are available at home. Our product is “Pizza”.  Real-life examples related to the theories were also cited which made the learning an easier process.  Our report may hold slight deviations from the ideal report writing which we are hoping to knock out by our authentic and arduous effort. The bright sides are Theories of Microeconomics were elaborately described in the class. Additionally. It is more clearly the practical implication of the concepts that we accomplished through our learning process. Bangladesh‟s social media network is more involved than ever before. What could feed a hungry family better than a heaping stack of hearty pepperoni pizzas? In a survey conducted by us. For example. Bangladeshi fast food lovers have started to trend away from dining out and towards take out and fast-delivery foods. pizza has proved to be popular among people of all ages up to 40. all the while subtracting the extra fees from tips. Despite the concentration in Bangladeshi families and the stigma that they prefer rice over any other fast food item. and pizza franchises are taking advantage of this recent trend in their marketing strategies. And we hope those will be considerately pardoned by our wise and judicious examiner. pizza franchises are constantly on their toes.  We all are well-aware of the reliable external information sources which incited a veritable flow of information.4 Objective & Scope: Our objective here is to relate the Microeconomics concepts that we learned throughout the semester with the product that we chose. 9 . drinks. 6. In spite of all these we still undergo through some limitations Since we are no experts on Microeconomics so there might be some amateurish slips.  A workshop regarding the making of the report set a pattern of an ideal report before us. ordering online and through text messaging is a youth-targeted trend that is expected to continue to expand in the future.Additionally.

Best examples for this is if we want to go to “Pizza Hut” for lunch then more likely we are in no state of going to “KFC” afterwards. We generally go for good pizza shops if we feel like having pizzas. 10 . So accepting all our limitations we focused on our strength and came up with the report. chicken fries. The tactics are         Studying few widely appraised Microeconomics books and journals. burger or sandwich rarely serve good pizzas. It is because we lose the appetite for the other if we have one of those. Now in case of consuming “Pizza” we have to fight against our appetite for chicken fries. So trade-off is clearly visible in case of “Pizza”. Effective brain-storming through group discussion. Moreover the food shops which serve good chicken fries. Data processing and analysis. It‟s because behavior of economy reflects the behavior of the individuals who make up the economy. So study about individual decision making is important.1. Face-to-face interviews of few persons directly associated with “Pizza” market.2 Ten principles of Microeconomics: 6. We did a survey on 50 people about what they would prefer among pizza. Surveys (questionnaire) done on both consumer and market level. Sharing of our knowledge regarding the Microeconomics concepts that we used during the study. Money constraints are also involved here because these food items are not that cheap. Data gathering.But there is no exception of trying hard. burger or sandwiches. and burger.5 Methodology: Our methodology constitutes all the tactics we implemented to do the study. Principle 1: People face trade-offs Making decisions calls for trading off one thing against the other. Internet research. That is to get one thing we like we have to give up the other thing we like.2. We have to eat either of these food items.1 How people make decisions The 1st four sets of principles are all about how people make decisions. Advices and instructions from our erudite professor. 6. Integrating 10 Principles into product research 6.

So these could be included as opportunity costs as well. we are also giving away our traditional food habit and leaning to outside. Here benefits of consuming pizza might be satisfying appetite for having it or savoring Italian dishes.5% 15% chicken fries/burger 50% pizza anyone of them none 30% 25 of them answered with chicken fries or burger and 15 with pizza. More incisively. So opportunity cost here is the satisfaction that we were supposed to get after having the food items other than pizzas. burger or sandwiches most likely the other food items are the costs here. They would rather have pizza occasionally rather than regularly to differentiate everyday food course. This won‟t cost them much and won‟t make a disadvantageous effect on their health. Their decision making is often tempted by comparison between marginal benefits and marginal costs. Principle 2: The cost of something is what you give up to get it Since people face trade-offs so while decision making comparing costs and benefits of alternative courses of action is crucial. Rational people would balance their personal satisfaction and costs of having pizza. given the opportunities they have. the health complications (e. Opportunity cost is whatever must be given up to obtain some item. This is absolutely dependent on individual‟s personal taste. Now if one chooses to have pizzas instead of chicken fries.) we face due to over eating pizzas or our apathy towards the traditional foods. Here comes the concept of opportunity cost. acidity etc. Principle 3: Rational people think at the margin Rational people systematically and purposefully do the best they can do to achieve their objectives. So a clear and distinct trade-off is visualized here. Principle 4: People respond to incentives 11 .g. obesity. The costs here is the money we are paying for it.home food if we have pizza on a regular basis.

In case of pizza consumption. “Pizza Hut” first opened its branch at Gulshan in 2003 making it available only for the high income range people. Eventually we the customers are having better quality and yummy pizzas more than before and the shops are making profit out of it. In our pizza market a feeble competition lies between “Pizza Hut” and “Dominous Pizza”. So the principle states that markets are a good place to practice organized economic activities. vegetarian etc. An incentive is something (such as the prospect of a punishment or a reward) that induces a person to act. It also made adjustments to its pricing in a subsequent manner. This has been a successful move due to customers‟ huge response. So market is a big factor in economy. The Ramadan offer of “Pizza Hut” which includes unlimited pizzas and drinks at a fixed reasonable price is quite a good example of this. They can get to influence us mainly because of the interaction that takes place among us. Pizza lovers can‟t do without responding to the scrumptious looking pizzas as they go through the newspaper. Later it focused on outside Dhaka market and opened another branch at Chittagong. So it is harmless on both ends.2. 12 .2 How people interact If we think really deep then we can realize that many of our decisions are also molded by other people. Economists Adam Smith talks about an invisible hand here which serves both the sellers and buyers to get desirable outcomes. But both the shops are trying continuously to improve due to the competition they will be facing if they start going to other shops. small size. Principle 6: Markets are usually a good way to organize economic activity A market economy is an economy that allocates resources through the decentralized decisions of many firms and households as they interact in markets for goods and services. so subsequently they will respond to incentives. all income ranges and people of all tastes.As rational people take decisions comparing costs and benefits. crusted. “Pizza Hut” also publishes newspaper advertisement on arrival of a new pizza. to serve all age groups. Then it planned to broaden the market by including higher middle class people and initiating a third branch in Dhanmondi in 2008. But the later provides pizza for a cheaper rate and already created a market of its own for the customers who prioritize price over quality.” Pizza Hut” rules out the later because of its superior food quality and better taste. Price is a very important factor here. So the following three principles bear on how people interact with each other. Principle 5: Trade can make everyone better off Trade brings in the competition and thus allows each one to specialize in its strong points leaving the whole market a better exposure. It initiated divisions like normal. customers bump in while there is a discount offer in pizza shops. A survey of ours among people of 15-25 age group shows that out of 30 people go to “Pizza Hut” during the Ramadan offer and 21 people plan to taste the new pizza after the watching the newspaper advertisement. All these actions bear witness to the above principle. Finally it came down to middle class with a fourth branch in Baily Road. 6.

The main reason behind inflation is the growth in the quantity of the money. This money will later on be allocated for public welfare. Sometimes this inflation leads to syndication i. When a government creates large quantities of a nation‟s money. Moreover.e. the state when the market goes under control of a specific group. US rank 6 in living standard list and Bangladesh ranks 96. That surely incurs a big difference in our productivity.Principle 7: Government can sometimes improve market outcomes Government ensures property right and certain other policies making the market a fair ground for both the service providers and the customers. And 94% of Americans have pizza every day.1 2008 8. Pizza production is also no exception as well.9 13 . This is what ensures the rights of the pizza shops over the things they produce and serve. government allowed Transcom Food LTD to work as franchisee for “Pizza Hut” under the franchising policy of our country. This is how our government let the pizza shops do their businesses and make money.15%) on the pizzas we are having which is increasing government‟s money. By productivity we mean the quantity of goods and services produced from each our of a worker‟s time. So we can estimate that government can play a vital role even in this moneymaking market economy.1 2003 5. In the US pizza accounts for more than 10% of all food service sells with an annual sales of approximately $6 million. This results in unreasonably high pricing of goods and commodities. Property rights assure the ability of an individual to own and exercise control over scarce resources. Principle 9: Prices rise when government prints too much money This principle is concerned with inflation.2 2007 9. Principle 8: A country‟s standard of living depends on its ability to produce goods and services This principle puts stress on the relationship between a country‟s standard of living and its productivity. 400-450 thousands daily. we are provided with tasty pizzas as government allows the pizza shops to do so. Country Bangladesh 1998 9 2000 5.6 2004 6 2005 7 2006 7.2. Inflation means an increase in the overall level of prices in the economy. So pizza production and consumption has a lot to do with country‟s living standard.3 How the economy as a whole works In first seven principles we talked about decisions and interactions which all together make the “economy”.8 2002 3. The last three principles deal with how the economy as a whole works. Moreover. we are paying VAT (generally9%. the value of money falls. “Pizza Hut” in Gulshan and Dhanmondi alone earns Tk. 6. On the customers‟ end.

“Pizza Hut” used to charge Tk. Though most economists agree on this. inflation i. according to the information that we collected from the authority is that back in 2004. Eventually more hiring of workers stands for lower unemployment rate. inflation rate on consumer prices was 9% and in 2010 it was 8. Though inflation is omnipresent here.1%.In 1998. it didn‟t show any drastic change in product pricing.e.1% and lowest in 2002 which was 3. Principle 10: Society faces a short run trade-off between Inflation and Unemployment According to most economists. Now to meet up this raised demand quantity of goods produced should be increased which results in more hiring. So inflation has meager effect on pizza pricing. But regarding unemployment issue pizza shops here are offering quite a good number of job opportunities. increased amount of money is followed by more spending and rise of demand for goods and services. this effect is rather short-run.1%.260-380. The inflation rate was highest in 2007 which was 9. 250 for a small size pizza and right now the price of small pizza is in between Tk. In case of pizza pricing. 14 . Since inflation has its least effect on pizza pricing so this principle really doesn‟t work here.

capital and land required for pizza making.6. Pizza Hut.3 Economic Model 6. Salaries. Pizza Corner -Hires waiters. Wages of waiters Capital of Investors Floor of landlords Markets for Factors of Production:  Wages. private investment) Labor Market Land market Land. Pizza Inn. Profit   Capital Markets(DSE. chefs and management staff -Produces and Sells Pizza HOUSEHOLDS:   Buy Pizza Owns and Provides labor.1 Circular Flow Diagram Revenue Pizza sold Markets for Goods and Services: -Firms sell Pizzas -Households buy Pizzas Spending on Pizza Pizza Bought Firms: Dominoe’s.3. Labor and capital Income for Households 15 .

4.1 Definition of Market & Competitive Market: By market we mean a group of buyers and sellers of a particular good or service.4. So apparently presence of many sellers in pizza market is evident. The households spend their money(income) on pizza. Households spend money to buy pizza from the firms and the firms sell the pizza to the households and receive revenue. 16 . The inner loop of the circular flow diagram represents flow of pizza and services. So. 6. Pizza Inn. But there are other non-branded pizzerias as well. Though Pizza Inn maintains a reasonable share as well.2 Is Pizza Market Monopolistic Market? Analysing the pizza market in our country we have reached a conclusion that we have a monopolistic competition.Circular flow diagram of pizza industry: The outer loop of the circular flow diagram represents the flow of Taka. Those are Many sellers: In this report we talked about Pizza Hut.4 Market and competition: 6. Some other food shops also include pizza in their menu. labor and capital flows into the firms in exchange of the income and Pizza is transferred to households in exchange of the price. The main reason is more than half of market share is possessed by Pizza Hut as per our survey. Markets exist because we aren‟t self-sufficient but instead consume many products produced by other people. the other two have least and negligible share. the flow of money is perceptible. A typical person is not self-sufficient but instead specializes by doing a particular job and uses his or her earnings to purchase goods and services. Other than that we can discuss the three main characteristics of monopolistic market here. A competitive market is a market in which there are many buyers and sellers so that each has a negligible impact on the market price. Dominos and Pizza Corner. Land. 6.

As a result. Again. the market demand and brand name of Pizza Hut has flourished manifolds in the meantime. the costs of producing a smaller volume cannot be so high that they cancel the advantage of charging more. 17 .4. But as we have discussed before. However. Pizza shops differentiate the names of their pizza for the sake of attracting the customers and it also helps them to justify the different pricing strategies they follow in pricing their trademark dishes. Domino‟s Pizza has failed to capture the Bangladeshi pizza market as opposed to Pizza Hut due to poor marketing strategy. Pizza Hut has used this strategy far better than Domino‟s Pizza. For market pricing strategy to function properly. Slightly differentiated products: If we all go through the menu of those four pizza shops we‟ll barely find any identical names there. 6.1 Pizza Hut and Domino’s: Being the leaders in the global pizza market as a whole. the product‟s quality and image must support its higher price and enough buyers must want the product at that price. From the price comparison table we can see that the price of beef and chicken pizzas offered at Pizza Hut and Domino‟s Pizza are relatively similar. So it can be inferred that pizza market of our country is undergoing through a monopolistic competition.3 Price Comparison: Pan Pizza Pizza Hut price Domino‟s Pizza price Smal Med l ium 250 250 490 490 Larg e 890 890 Pizza Inn price Pizza Corner price Smal Med l ium Beef Chicke n Cheese Vegeta bles 260 260 500 500 Larg e 900 900 Smal Med l ium 240 240 470 470 Larg e 870 870 Smal Med l ium 230 230 450 450 Lar ge 850 850 210 210 380 380 700 700 220 220 400 400 720 720 230 230 440 440 800 800 200 200 380 380 650 650 6. The same goes for cheese and vegetable pizzas. On the contrary.4. a strategy where high initial price is set to „skim‟ revenues layer by layer from the market.4. More of the evidences appear in the next section. the globally recognized and esteemed brand name of Domino‟s Pizza has not worked in their favor. So there is a slight difference in prices.  Each seller may set price for its own product: Each of the pizzerias follow different pricing strategies and that allows them to price their menu accordingly.4. both Pizza Hut and Domino‟s Pizza use market skimming pricing strategy.4 Pricing Strategy 6.

4. Cost-Plus Pricing for Pizza Inn: A pricing method used by companies to maximize their profits.4. 18 . The firms accomplish their objective of profit maximization by increasing their production until marginal revenue equals marginal cost. Quality is least considered as the customers assumed that it comes with brand factor. 16 14 12 10 8 6 4 2 0 Brand Price Taste Quality It is evident that most of them go for a better brand and then there is a slight difference in terms of price and taste. Then analysing the data we came up with following chartsThe first chart is about the first thing that comes to a customer‟s mind while choosing which pizza he/she would consume. 6.So we can conclude that Domino‟s Pizza needs to change its pricing strategy to compete with Pizza Hut in Bangladesh. 6. They currently have the lowest price and they are increasing their share of market with this price. In case of brand choosing we again asked them questions and the following pie-chart shows the result.5 Survey on pizza: We have done a survey among 50 people a few questions. and then charging a price which is determined by the demand curve.4.2 Penetration Pricing for Pizza Corner: Pizza corner is a relatively new player in the pizza market and it intends to enter the pizza market with a lower price proposition.

Dominos pizza and Pizza Corner hold least shares. Finally we wanted to know about the taste of the customers about their pizza topping and the chart went on like this- Cheese Vegetable Mushroom Chicken sausage Beef sausage 0 5 10 15 20 Here beef sausage and chicken sausage topping have minimal differences in terms of customers‟ demand. mushroom and vegetable toppings.Pizza Hut Pizza Inn Dominos Pizza Pizza corner 9% 6% 51% 34% So we can see Pizza Hut grabs the more than half of the customers and is followed by Pizza Inn. 19 . They are followed by cheese.

When price of the pizzas are more. 600 500 Price 400 300 200 100 0 0 200 400 600 800 1000 1200 The quantity demanded Here we can see that when the price is lower the pizza sells much and rise in price cuts down the sale.6. the quantity demanded grow lesser. The quantity demanded explicates the amount of pizzas that buyers are willing and able to purchase. The following demand curve verifies the fact. The price of pizzas and the quantity demanded are negatively related to each other. The decline in price sets the bar for quantity of pizza demanded much higher.) 275 425 550 quantity demanded 1050 700 450 20 . According to the law of demand.5.1 The demand curve for Pizza market: The demand curve for pizza basically demonstrates the relationship between price and quantity demanded.5 Current Market demand and Supply: 6. The negative relation between price and quantity demanded is better clarified in the demand schedule below: Price of Pizza (in TK.

For example. the demand for pizza will rise according to the law of demand then it will cause a movement along the demand curve.1. In this case.  Price of related goods: a. are the complements of Pizzas. If something happens to alter the quantity demanded at any given price. As a result. It is because we are to consume beverage and sauce along with more pizzas. if he/she loses job or experiences a cut down in income. he or she is likely to spend less for pizza consumption. Sprite. if the price of chicken fries/burger tends to fall. holding constant the many other factors that might influence consumers‟ buying decision.1 Shifts in the demand curve: The demand curve for pizza depicts how much pizza people buy at any given price. the demand curve will shift from right to left. mayonnaise and beverages like Coke. Chicken fries and burger are the main substitutes of pizza. Pepsi.. then he or she will spend more money for pizza consumption. if the price of pizza starts to fall. demand for pizza will become less.5. Mountain Dew etc. b.  Taste: This is a very important determinant of customers‟ demand for pizzas. But if in case it is revealed that kitchen of the pizza shops are not hygienic then people tend to have less pizza although the price remains unaltered. Now there are certain aspects the change in tastes. On the other hand. 21 . the pizza shops bring variations in toppings and breads. When price of pizzas fall then we have more pizzas subsequently raising the demand bar for sauces and beverages. Considering the fact of diversified taste of their customers. So we can infer that. Pizza is a normal good. the demand curve of pizza will shift or move. More people are now eating pizza. So when the income of a pizza lover rises. Complements: Sauces like tomato sauce. Factors responsible for shift in demand curve of pizza:  Income: Income is an important issue for the consumers when it comes to their demand for pizzas. Changes in price of any of these items can cause noticeable change to demand of pizza. garlic sauce etc. Substitutes: Changes in the price of substitute goods tend to cause changes in demand of main good. The taste of people have changed and this one of the main reasons of the big increase in demand of pizza.6. this demand curve doesn‟t need to be stable over time.

Again if someone is expecting of running short of money at the end of the month he would inhibit his demand for pizza at that moment. Pizza Hut even has the freedom for the customers to customize their own pizza incurring some extra charges. In case of pizza assumption it can be induced that demand for pizza has increased over time.Topping: Toppings like beef sausage.  Number of buyers: We all know that market demand is a summation of individual demands.  Expectations: Expectations about future might affect demand for the present. Bread: Breads are differentiated with sausages making the two categories for pizzas. are available to satisfy customers of all tastes. mushroom. So customers might expect the same for next Ramadan. This is how expectations make a demand shift. 22 . Now if he feels like having pizza just a week before Ramadan then his future expectation about coming Ramadan might diminish his demand for a time being. when number of buyers in the market increases. no matter what the price is the demand increase and experiences a shift. So. cheese. So. vegetable etc. Pizza Hut offers an unlimited pizza consumption offer during Ramadan. It is only because pizza is being a popular dish among general people especially the youngsters and eventually number of buyers increased. demand for pizza increases if the customers are satisfied with taste and vice versa. chicken sausage. This is happening for past few years.plain bread or sausage bread. onion.

The price of pizzas and the quantity supplied are positively related to each other.2. The positive relation between price and quantity demanded is better clarified in the supply The quantity supplied schedule belowPrice(in TK) Quantity supplied 575 1000 425 700 300 500 6. When price of the pizzas are more.6. According to the law of supply. If 23 .5. The turn down in price keeps quantity of pizza demanded much lesser.1 Shifts and movement in supply curve: The supply curve for pizza shows how much pizza producers offer for sale at any given price. holding constant all factors other than price that influence producers‟ decisions about how much to sell. the quantity supplies rises. which is represented by a shift or a movement in the supply curve. This relationship can change over time. The quantity demanded is the amount of pizzas that sellers are willing and able to sell.2 The supply curve for Pizza market: The supply curve for pizza basically pictures the relationship between price and quantity demanded.5. This has been testified in the following supply curve700 600 500 400 300 Price 200 100 0 0 200 400 600 800 1000 1200 Here we can see that when the price is lower the pizza supply decrease and rise in price cuts increase the supply.

2 Factors responsible for shift in demand curve of pizza:  Input price: Cheese. If the pizza business expects the price of pizza to rise in future. 6. If the amount of bread production decreases because of the occurrence of natural disaster. It has also reduced the cost of production. Mixers. Let us consider the example. But if the supply changes even for the constant pricing.  24 . The more the sellers selling pizza products.5. Besides. it will cause a shift in supply curve. It might make them to gain more profit in future by selling pizza in higher price. Technology: Advancement of technology has increased the production amount and decreased time and labor forces. When the price of cheese or bread rises.    Numbers of sellers: Number of sellers also affects the supply of pizza. Expectations: Future expectation is another factor causing shift in supply curve. for some reason. Change in cost of any of these inputs is responsible for the change in pizza supply.2. machine are some of the basic raw materials for pizza preparation. company will buy less cheese or bread with the previous investment and thus produce less supply causing a shift in supply curve. bread. the more the supply increases. Availability of raw materials: Availability of raw materials is another issue for supply shifting. These things have substituted the labor force and raised the supply of pizza. Rise in input cost will cause less supply and cost reduction in inputs causes increases in production and thus increase in supply. production buildings and labor forces are also considered as input price for pizza preparation. Pizza production companies will tend to buy more cheese with previous investment which will allow them to prepare more product than before and thus increase the supply for pizza. sausage.supply increases with the increase of product price. pizza making oven are some of the pizza making machineries. it will put some of its current production into storage and supply less to the market in present. supply of pizza will decrease because of the shortage or unavailability of raw material. the price of cheese falls down. it will cause a movement along the supply curve.

This intersecting point stands for what we call market equilibrium. But this situation has a very low probability factor.6. It is computed as the percentage change in quantity demanded/supplied divided by the percentage change in price. 6. According to our research our pizza market will acquire an equilibrium stand if we manage to keep the price per pizza Tk. The down-sloping curve shows the demand curve and the upward sloping curve shows the supply curve. We can exemplify this with Pizza Hut‟s Ramadan Deal 2011 which offered customers to have pizza as many as they can and bottomless Pepsi at an amount of Tk.425 and if the quantity of pizzas can be limited to 700. Equilibrium price is the price that balances quantity demanded and quantity supplied. 799 for last 15 days. At this price the quantity of pizzas that the buyers are willing and able to buy exactly balances the quantity of pizzas the sellers are willing and able to sell. Equilibrium is a situation in which the market price reaches such a level at which quantity supplied equals quantity demanded.699 for 1st 15 days of Ramadan and Tk. This offer increased the daily sales of Pizza Hut by 70%. So we are yet a far away from establishing equilibrium in our pizza market. Price elasticity is a measure of how much quantity demanded/supplied of a good responds to a change in the price of that good.6 Equilibrium: The figure below shows the equilibrium point of market of pizza. Variation of price staggeringly alters pizza consumption. This is also called “market-clearing price” since this price satisfies all.7.1 Price elasticity: Price elasticity seems to have an enormous effect on pizza production. 700 600 500 400 300 200 100 0 r 0 200 400 600 800 1000 1200 The above graph portrays the state of equilibrium in the pizza market.7 Elasticity 6. Up above. the figure displays that demand and supply curve merges at a certain point. 25 .

It is because it has gained popularity among youngsters here. 20 this month the price of pizza in normal pizza shops increased. This is computed in percentage as well.7. 16 14 12 10 8 6 4 2 0 This is a survey done among 50 people of 15-25 age groups about their pizza consumption. But in case of branded pizzeria like Pizza Hut and others it showed negligible effect. But it can‟t be called a luxury anymore. This has feeble effect on pizza pricing.2 Cross-price elasticity: This is a measure of how much the quantity demanded/supplied of one good responds to a change in the price of another good. 15 of them consumed pizza more than twice a month. 6. First of all this is not our traditional food item.So the above example clearly speaks for price elasticity. This also lessened the pizza consumption by 4%. Cross-price elasticity is visible when price of necessary ingredients for pizza preparation increases.7.3 Necessity or luxury? Pizza here is a way far from being a necessity. So we can visualize pizza in the transition state gradually leaning towards being a necessary good. When price of white flour (a major pizza ingredient) went up by Tk. Considering all the above mentioned points and logics we can conclude that pizza is a moderately elastic as a food item. 26 . 6. Even pizza was officially brought here in 2004.

(xii)Tax Base for VAT in import stage: Customs Assessable Value + Customs duty + Supplementary Duty Pizza shops here are the service providers and the same VAT policy applies for them making the money flow fair for everyone.6.000) are exempt from VAT. Existing statutory SD rates are as follows: On goods: 20%. 15% & 35%. The important aspects of the VAT policy are(i) VAT is imposed on goods and services at import stage. (v) VAT is applicable to all domestic products and services with some exemptions. 250% & 350% On services: 10%. 100%. 35%. 65%. (iv) Turnover tax at the rate of 4 per cent is leviable if annual turnover is less than Taka 2 million.1 Taxation & VAT Value Added Tax or VAT was first introduced in 1991 by Bangladesh Government. (viii) Export is exempt. (vi) VAT is payable at the time of supply of goods and services. 1991. (vii) Tax paid on inputs is creditable/adjustable against output tax. (ix) Cottage industries (defined as a unit with an annual turnover of less than Taka 2 million and with capital machinery valued up to Taka 3. 27 . (x) Tax returns are to be submitted on monthly or quarterly or half yearly basis as notified by the Government. (xi) Supplementary Duty (SD) is imposed at local and import stage under the VAT Act.8 Government policy and rules: 6. 00. manufacturing. (ii) A uniform VAT rate of 15 per cent is applicable for both goods and services. wholesale and retails levels.8. (iii) 15 per cent VAT is applicable for all business or industrial units with an annual turnover of Taka 2 million and above.

8. the adverse effects will hinder the business progress of all the franchises. the three franchises apart from Pizza Hut have been unable to cope with the change in the demand-supply scenario. All these government initiatives helped to protect the customers from food adultery and ensured proper share on the profits of pizza shop owners maintaining transparency. A couple of loyal and trustworthy officials. They not only heavily fined the condemned shops. were handpicked for the task who would not fall for any bribe by any means. It was found that innumerable restaurants in Dhaka and other parts of the country serve unadulterated.This caused a major upheaval among the food court owners and the majority of them took head and improved their shops as much as they could. 7. but they also arrested the owners of these shops and put them in prison. the fine will be augmented by 1 lakh more and the duration of imprisonment will be three years. 8. If issues of high prices of the key ingredients for making pizza are not resolved. From the makeshift ones to the big ones – no restaurant could avoid being inspected and most of them were fined severely for unsatisfactory standard of hygiene. having suffered chronically from mismanagement issues and inability to reap substantial benefits from favorable public policies. 207). even that of Pizza Hut. (Law and our rights. led by Magistrate Rokon Ud-Doula.6. With the increasing demand that has been continuing since 2003. the government introduced a bill in the national parliament proposing a fine of Tk.0 Conclusion: The increasing raw material prices for making pizza are a source of concern for all franchises involved in the pizza value chain and also for consumers as a whole. The main reason this endeavor was successful is because of the level of harshness and sever ness it implied. For the second time. Furthermore. stale food with detrimental substances which is sure to inflict serious damage to our health. 75.000 and one year‟s labor imprisonment for convicted if they are caught for the first time.0 Recommendations: On a micro level. the following suggestions would help the pizza franchises in Bangladesh to minimize the adverse effect of price increase of key ingredients for making pizza:    Buy raw materials while sharing individual auction lots with other buyers so as to minimize the upward push excessive bidding exerts on prices Purchase higher volumes at the auctions so as to gain further bidding power and influence over auction prices Evaluate the possibility of introducing imported blends of ingredients so as to counter the diluting effect current high pizza prices have on portfolio margins 28 .2 Mobile food court The mobile court was found by the government in April 3rd 2005 to battle the unhealthy and unethical practices of the corrupt restaurant owners all over the country who did not hesitate to serve impure food containing harmful substances for their benefit.

the other things unchanged. Circular Flow Diagram: Visual model of the economy. the other things unchanged. Rubinfeld and Prem L. Robert S.pizzahut. 6. 4th Edition Economics. C.com.0 Appendix: A.bd www. 5. 2.com. People face trade-offs The cost of something is what you give up Rational people think at the margin People respond to Incentives Trade can make everyone better off Markets are usually a good way to organize economic activity Government can sometimes improve market outcomes Country‟s standard of living depends on its ability to produce goodss and services Prices rise when the govt.0 1. Law of Supply and Demand: The claim that. D. Samuelson and William D. Law of Supply: The claim that. Law of demand: The claim that. x. References: Principles of Microeconomics. the price of any good adjusts to bring the quantity supplied and the quantity demanded for that good into balance. 7. iii. Ten Principles of Economics: i.org www. prints too much money Society faces a short-run trade-off between inflation and unemployment B.bd www. that shows how money flows through the firms and households.9. Nordhaus. F. 7th Edition www. the quantity supplied of a good increases when the price increases E. 4. 3. 15th Edition Microeconomics.com 10. vii. viii. Paul A. 29 . ix. Daniel L. iv.pizzainn. vi. Pindyck. Mehta. N Gregory Mankiw. the quantity demanded of a good falls when the price of a good rises.wikipedia. Elasticity: A measure of responsiveness of quantity demanded or supplied to one of its determinants. ii.theeconomist. v.

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