Industry Analysis on the Pizza Industry

INTRODUCTION

A. Description

Pizza is the world’s most famoust fast food. We can all agree that pizza is one of the most
go-to foods of everyone. With lots of toppings and sauces to choose from, pizza is a versatile
food that can be consumed as a snack, lunch, dinner, and even breakfast. People have been eating
pizza everywhere, in the streets, in restaurants, in their homes for a long time. Three billion
pizzas are sold annually in the United States, which puts an average of 43 slices of pizza per
person. Pizza has been consumed long ago, from a flatbread that is topped with simple sauces
and savories, then served as simple yet tasty meal for those who can not afford expensive plated
meals, or for those on the go, or even for those who just feel like having them. Before being a
world dominator, it has its ancient roots that started our favorite food.

Created in Naples, Italy by baker Raffaele Esposito around 600 bc., the oftentimes expensive
pizza that we know started as a staple food for the poor. Started as a food for casual laborers who
are always in a rush for their jobs, pizza started out as a food that is cheap and easy to eat. Back
in the days, pizzas were not sold in a shop, instead they are sold by street vendors, in boxes,
carrying them in their arms and according to foreign visitors, pizza is “disgusting” since it was
made as food for the poor. When allied soldiers invaded Italy in 1943, these soldiers asked for
pizza wherever they go, but what made pizza famous is tourism, as more tourists started
exploring food, they became extremely curious in italian food which included pizza. As it
spreaded, new toppings, ingredients and sauces were introduced which created higher prices
which the consumers are willing to pay for.

Pizza found its second home in the United States in the 1900s, started from Lombardi’s in
New York City in 1905, pizza became an american institution which quickly spread across the
whole country which was then taken up by local restaurateurs, adding their own twists. After a
few addition on toppings, sauces, and extravagant designs, pizza was eventually brought into the
Philippines. According to Tayag (2005), the first ever pizza parlor in the Philippines, King Pizza,
was established by Armando Nepomuceno in May 1973 in Sta. Rosario, Angeles City. Not so
long after, other pizza places established their own grounds in the Philippines.
B. Segments
a. Geographic:

Pizza firms are segmented geographically all over the world. Every year, more than 5 billion
pizzas are sold worldwide, with an average 350 slices consumed every second. Pizza can be
found all over the world, and each country has its own version of the dish.

b. Demographic:

The general consumer segment for Pizza Company is the younger generation. But they're
going all out with this. They also split high-income and business-class families into two groups:
those who can afford to buy pizza at the store and those who cannot.

c. Psychographic:

Psychographic segmentation, also known as lifestyle segmentation, is used by the Pizza

Company. The pizza industry has segmented the market by social status, lifestyle, and
personality traits.

d. Behavioral:

The behavioral category of the Pizza Business is the class of people who enjoy spending
money on food. The most critical attribute of a Pizza target customer is that they eat out at least
once a week. He or she is looking for a fast and easy service that allows him to enjoy simple
pizza variations.

The bulk of these customers are either full-time students or working professionals who live in
single-person households. They don't have much time to prepare dinner or lunch, so they depend
on nearby takeaway services. Working professionals often tend to come in groups at lunch time
more than once a week because they have a lot of time on their hands.

PORTER’S FIVE FORCES

A. Threat of New Entrants

Starting a pizza business will rely dependently on on the money available to get a place for
the business, hiring of employees who has the ability to prepare the food item and mainly
manage the restaurant’s operations. Aside from these, the owner would most probably need to
invest in the marketing of the restaurant in order to keep up with the existing competitors in the
business. Therefore, starting a new pizza business business will require an adequate amount of
finances.

However, the pizza industry currently has large firms that are well-known which creates the
barrrier for entry of those who plan to start a pizza business. This will affect the starting pizza
business by putting pressure on them to keep their profitability while competing with the well-
known pizza resturateurs. The new entrants in the pizza industry must offer a much more
appealing price with a quality that is comparable to the existing competitors. Threats of new
entrants on the pizza industry is associated with its ability to achieve economies of scale, which
will be possible once the restaurant is able to form a long term contract with suppliers.

Due to the factors that have been stated above, it can be implied that the pizza industry has a
moderate level of threat of new entrants which implies a moderate barrier to entry which
indicates that new competitors can enter the industry once the factors to enter are fulfilled, and
this threat creates a stagnant profit potential to existing and new competitors.

B. Suppliers

The raw materials needed to make pizza are bought from manufacturers that have a lot of
negotiating power. Local and smaller restaurants have no control over the price of these raw
materials, making it difficult for them to take advantage of supplier contracts.

According to Barrett (2007), cheese is the most consumed ingredient by pizza chains, making
it the highest area of expenditure in the domain power in the case of universal pizza
establishments, but the supplying firms will charge a price that leaves them with a higher level of
profit than in supplier contracts with larger businesses in the case of local and small set ups. As a
result of these dynamics, the pizza industry's suppliers can be assumed to have a moderate level
of bargaining power. Suppliers with influence in the services sector use their power to extort
higher rates from restaurant businesses. The net impact of rising supplier bargaining power on
restaurant profitability is poor. Within this sector, the manufacturers do not compete with other
goods. This implies that there are no other alternatives for the commodity except the ones offered
by the suppliers.
 Pizza companies can build efficient supply chain with multiple suppliers. They can have
different suppliers for its different geographic locations. In this way it can ensure efficiency
within its supply chain. Since the industry is a significant client for its suppliers, they will benefit
from cultivating strong relationships with them that benefit both parties. As a result, suppliers'
bargaining power becomes more powerful within the industry.

C. Buyers

When buyers are large enough to exert collective pressure on companies producing a product
or service, they have bargaining power. This power is greatest when buyers can group together
and account for a significant portion of a producer's sales revenue, or when there are several
suppliers offering the same type of product.

Customers of various ages are targeted by the pizza industry, who have a strong preference
for fast food, particularly pizza. These customers are quality conscious and are seeking different
types of pizzas in affordable prices (DeJournett, Hynum & Green, 2018). Because switching
from one pizza restaurant to another does not come at a high cost, customers can have a greater
influence over the price of menu items. As a result, pizza restaurants are unable to maintain
customer interest in their brand by charging high prices. Some large brand names, on the other
hand, can charge a higher price for their pizzas than their competitors, and customers will
continue to buy from their franchises because of the brand image. As a result, the buyers in the
pizza industry have a lot of bargaining power.

On the other hand, there are things that make the bargaining threat of buyers a weaker force
within the industry. For example, the buyers care about the quality of the products, and they
make frequent purchases. This indicates that industry buyers are less price sensitive. Moreover,
within the industry, there is a lot of product differentiation, which means that buyers won't be
able to find other companies that make the same product. Seeing as switching is difficult, buyers'
bargaining power within the industry is weakened. Nevertheless, the pizza industry or pizza
companies can address this power of buyers through focusing on product differentiation and
innovation that will attract customers and create a huge base of customers that will allow the
company to standardize its sales and manufacturing processes.

D. Substitute Products
 When a new product or service meets a similar customer needs in different ways,
industry profitability suffers. For example, services like Dropbox and Google Drive are
substitute to storage hardware drives. The threat of a substitute product or service is high if it
offers a value proposition that is uniquely different from present offerings of the industry.

Sometimes the greatest competitive challenge comes from substitute products and
services. Fast-food chains are a huge substitute for the pizza industry, especially in economically
hard times. Truly, eating out is discretionary spending. In tough times, consumers can reduce
their eating-out budget or not eat out at all.

Like pizza shops, other fast-food chains run on low profit margins and are always looking
for a way to capture more market share. Pizza shops need to bear in mind that increasing prices
too much could lead to consumers shifting over to the supermarket where they may be tempted
by prepared foods or ready-to-eat salads and entrees. This further decreases pizza industry profit.

E. Rivalry

The Pizza Industry has many things to follow. Independent companies and small ones still
have methods to follow just to have and think strategies to save their business and grow so well.
Just like from the other business industries. They have methods to follow to work so well. To
gain the customers' attention, trust, and good feedbacks. Pizza industry stay managing to stay
focus on its competitors to have a fair and equal performance or colliding their product to any
fast food chain. Them, balancing the wave of its line well, whether it is increasing or decreasing
in the whole world. Pizza industry appears around the world and there are pizza parlors and
companies that are big and well - known. Pizza hut, Sbarro, Greenwich, etc, are the big
companies that are known well. Each company has different ways of competency.

They may be in one industry or in the same industry but different strategies that will change
the old methods which the other companies used until now. In 2018, the rate of the pizza
industry is 10.7% and it was increased in 2019 to 10.17%. Expenses that are involved in the
companies and businesses. This is only the expenses from paying taxes, salaries on staffs or
employees, utilities, bills and changes about business activities level and operational expenses. It
is countable as a record to see the difference or if the sales are still constant in the end of the year
or how much was the company or that business expenses ever period of the year. Pizza industry
spread and appears around the world with different style and flavors. That it was all differs from
equipment, methods and ways, strategies and techniques. Difference in price and quality, also
different from it's cultures.

PESTLE ANALYSIS

A. POLITICAL FACTORS
i. Valid Permit of the business

To be informed and have a proof that the company or business is legal.

ii. Taxes to pay

The counterpart of having a business is being responsible in paying taxes according to BIR as
a record and legally.

iii. Area to build the business

To be aware to the people whose surrounds the area where the business built-in and the
reasons about why you built your business in that particular area.

iv. Connections to be known in the Business Industry

In the world of business, it needed to have an accompany to introduce your business aside
from you. And the privilege to perform highly to meet their expectations more than that.

B. ECONOMIC FACTORS
i. Growing Discretionary Income

The world's population is getting wealthier on a global scale. As a result, people in the lower,
middle, and upper classes all have more money to spend on luxuries, such as food. As a result,
the food industry's total income is rising as people cook less and eat out more. Due to this the
ability of Pizza Companies to raise capital at a reasonable cost is strongly affected by the
efficiency with which financial markets operate. As the cost of raw materials rises as a result of
inflation, commodity prices rise as well.
 ii. Labor Costs and Productivity in the Economy

The increase in discretionary income is due to the fact that laborers are making more
money. The cost of recruiting employees is rising across different industries including pizza
industry. This is due to a rising demand for jobs, as well as increasing government requirements
for minimum wages.

iii. Economic Growth Rate

The macroeconomic environment of a country has a direct influence on business chains like
Pizza Companies. Similarly, the region's gross domestic product, unemployment rates, and
inflation rates influence the sector in general. The greater the influx of foreign direct investment
into the state, the more pizza companies’ franchises will be established.

A high employment rate is generally considered to have a positive effect on a country's GDP.
The country's GDP growth rate would determine how rapidly it is projected to rise in the near
future. In which the country's interest rates influence how much people are able to borrow and
spend. Higher rates would promote more spending, resulting in more economic growth.

C. SOCIAL FACTORS

It is the most difficult from the four factors because the attitudes and beliefs of people are
difficult to quantify. Aside from the attitudes and beliefs, demographic factors such as population
and life expectancy are also important aspects in the analysis of the social factors. These are the
specific factors to be considered:

i. Influence of Values and Beliefs of Consumers

As we all know, there are religions and conservative sectors who have beliefs and
restrictions to whatever they eat. For example, Muslim countries such as Egypt and Middle East;
the recipes of the Pizza do not include pork. In the case of India beef is not served in the Pizza.

ii. Taste/Preference of the Consumers

The changing trends in the taste of the consumers also play an important role in the
external analysis of the environment, if the current trend in food is Thai, Japanese or
Vietnamese, therefore Pizza Industry can add an additional food such as Vietnamese or Thai
soups. If the current trend in the society is being health conscious, thus consumers will demand
that the foods be healthy

iii. Nature of Social Contract between Government & Society

Before entering into a market Pizza Hut needs to understand the nature of social contract
between government and society. For example, it has been extremely difficult for US companies
to enter UK health market as UK health system is a nationalized system and everything goes
through contracts at national level.

D. TECHNOLOGICAL FACTORS

Technological factors are elements in PESTLE analysis that relate to the existence,
availability, and development of technology. From computational power to engine efficiency,
this could be a factor.

i. Mobile Phone & Internet Penetration

Pizza industry/companies should assess the country's internet and mobile phone
penetration in order to develop a business model that is appropriate for local needs and realities.
It is undeniable that global internet connectivity has increased in recent years. For many
businesses that use the internet to communicate with their customers, this opens up an even
bigger market.

ii. Automation

Human workers find repetitive and boring tasks to be the best candidates for automation.
Many low-skilled tasks can be automated, allowing companies to replace human-operated
production lines entirely with machine-operated ones. Manufacturers, distributors, supermarkets,
and a variety of other businesses can all benefit from this. Processes will be streamlined without
sacrificing accuracy or quality. Efficiency naturally increases when your team has access to the
accurate data they need to do their jobs.

iii. Cost Structure

 The impact of technology on the costs that most companies in the industry face has the
potential to significantly increase or decrease profits. If the profits are large enough, they can be
re-invested in the research and development department, where future technological innovations
will increase profits even more, and so on, ensuring long-term profitability.

E. LEGAL FACTORS
i. Intellectual Property Rights Protection

A much more well-known pizza chain should assess the level of protection that the
intellectual property right gets under the system of the country. Having a great pizza business
must establish naming rights in order to take over their chosen name. An example would be your
competitor getting your name rights which would not be favorable to the business because it
would decrease the profitability of the business.

ii. Health Safety Laws

Regulatory enforcers will frequently visit areas of the restaurants in order to check for their
health and safety protocols. This will affect the industry in the way wherein the chain may
undergo a suspension, or even closure once unable to meet the protocols set.

F. ENVIRONMENTAL FACTORS
i. Influence of Climate Change

The activities of the food production system, including transportation of food, storing of food
wastes produces greenhouse gases (GHG) emissions which contributes to climate change.
Climate change has an impact on agriculture wherein temperatures affect crop yields, it is said to
mostly impact the agriculture negatively because as the effect of climate change on agriculture
reduces food supplies which is used by the industry will mostly result to increase in food prices.
The reduction in in food supplies will affect the supply chain of the industry. For example, the
inflexibility of the supply chain can lead to higher production cost which may result to the
inability to meet the production quota even when maximum capacity has been introduced,
thereby delaying or stopping of the operation of the business.

ii. Waste Management

 Food waste has an impact on profitability, environment, and consumer sentiment. Companies
with large amounts of waste may attract fines and be required by the law to change their waste
and environmental habits. Food wastes also contributes to labor inefficiencies, wherein when
holding discarded dough, and preparing unused dough may misuse the time and money of the
employees and the business because improper disposal will create more problems that must be
resolved. Pizza chains such as Pizza Hut has a comprehensive policy to use commodities such as
oil, soy, beef, so the company does not contribute to destruction of the environment which is a
must for every pizza chain.

iii. Environmental Standards and Regulations both at National & Local Levels

Oftentimes, the environmental standards and regulations differ in national and local level.
These regulations can help the chain to make decisions on where to open up the business, this
can also help them in making a decision on product development and pricing strategy. For
example, one locality requires too much environmental compliance certificate, and another does
not require much, the chain would easily open up in the locality that requires less certificates.

CONCLUSION

A. CRITICAL SUCCESS FACTORS

i. Affordability and promotional activities to attract cutomers

Pizza is generally viewed by the majority of people as an affordable meal for the family.
It does not require large amounts of money to purchase a pizza unlike the full course meal
that a family would normally eat. Pizza can be considered as a meal by a family wherein
they do not need to spend large amounts of money for their food. Aside from this, most
pizza places offer coupons and promotional items that lessens the total amount on their
products which makes the consumer more likely to purchase them.

ii. Taste and quality of pizza

Of course, a successful pizza place wouldn’t be successful if it is not for the taste and
quality of their products. Most consumers, especially in the food industry, look for the best
tasting food in the industry, and since pizza is a very versatile food that can easily be paired
with any type of topping, most consumers would patronize a pizza parlor more. Popular
 food chains such as Pizza Hut, Yellow Cab, Shakeys, etc., are known for the quality and the
exquisite taste of their products. Pizza is eaten no matter what event, even when people feel
like it, because aside from it’s fast purchase, pizzas are delicious no matter what.

iii. On time delivery of pizza

Offering delivery is an attractive campaign on a business, especially when the business
handles their products efficiently. Especially in the Philippines, most pizza places value
their customer’s time. They often have a so-called “if it’s late, it’s free” branding on their
campaign. Pizzas are patronized because of their fast delivery time because they take
responsibility on the freshness of their products. This on-time delivery also creates a
positive feeling towards the customers because they would feel more looked after by the
pizza chain they chose to order in. It is believed that if a pizza place has superb ordering
expeience, customers will more likely look forward in receiving their order, thus, making
them order pizza more.
B. PROGNOSIS

The pizza industry faces a moderate threat of new entrants, this implies that new competitors can
enter the industry once the entry criteria are met, and this threat results in a stagnant profit
potential for existing and new competitors. In addition to that, raw materials needed to make
pizza are purchased from manufacturers with a lot of negotiating power. Local and smaller
restaurants have no control over the price of these raw materials, making supplier contracts
difficult to take advantage of. Following that, when it comes to bargaining power, the buyers in
the pizza industry have lots. Moreover, fast food chains are a huge substitute for the pizza
industry, especially in economically difficult times. Like pizza shops, other fast food chains run
at low profit margins and are always looking for a way to capture more market share. Finally, the
pizza industry is emerging around the world and there are pizza parlors and companies that are
big and well-known, this makes the competition tight. But to sum it all up, despite the threats or
dangers stated in the Porter’s five forces, still, the pizza industry in Latin America was projected
to grow by 20 percent between 2020 and 2021, reflecting the largest growth rate worldwide
whilst Eastern Europe was forecast to grow by 16 percent while the pizza industry in North
America was expected to grow by 10 percent during this period (Lock, 2021).
In the $46 billion U.S. pizza industry, CHD Expert estimates, independently owned pizzerias
account for about $18.78 billion in sales, while chains and franchises generate about $26.95
billion (Mountain Mike’s Pizza, 2021). Pizza franchises are also considered to be low-risk
investment seeing that it has a high success rate. Even amidst the COVID-19 pandemic, pizza
industry took a blast and boosted its sales. According to Kelso (2020), Major pizza chains have
also seen significant sales gains during the pandemic. Domino's same-store sales were up 16%
during Q2, for example, while Papa John's same-store sales were up 28% for Q2 and Pizza Hut
recently experienced its best sales week for delivery and carryout in eight years during May. This
clearly shows how successful and huge the pizza industry is, showing no signs of slowing down,
we can actually prognose that the pizza industry will continuously take part in the world’s
economy for years.
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