Domino's has been expanding its delivery business aggressively. The number of its delivery units and sales has been increasing at a steady rate since 1984. The impact of competition can be observed through the decrease in Pizza Hut's PSA sales growth and net sales growth. Domino's has also strategically challenged Pizza Hut's initiation in delivery service by focusing its expansion in metropolitan areas with heavy advertising and promotion. To Pizza Hut, the threat by Domino's is very real.
Pizza Hut started to respond to the Domino's threat by quickly launching delivery-only units, mainly in the metropolitan areas. The company-ran delivery-only service has not been profitable, possibly due to the high cost in deploying the Customer Service Center (CSC) and acquiring vehicles for delivery. On the other hand, the delivery service launched by Pizza Hut's franchisees has been mostly successful and profitable. The markets selected by franchisees for delivery service had solid performance in traditional restaurant format. The cost of CSC and vehicles has also been saved through alternative solutions.
Should Pizza Hut enter the home delivery market?
Pizza Hut has to enter the home delivery market.
Even though pizza is a popular restaurant food, the demand for home delivery and carryout is rising among busy professional families. Prior to the Domino's threat, Pizza Hut did not have a strategy to serve the customer segment that has delivery needs. As a result, those customers might have compromised by doing carryout. The launch of Domino's made delivery service widely available. Customers who have needs for delivery would now switch to the only channel member (Domino's) that provided delivery service. To secure the existing customer base, Pizza Hut has to enter the home delivery market as an act of defense.
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