Regulation and Pizza Hut
CASE STUDY – PIZZA HUT
School cafeterias served nearly $500 million of pizza a year. Only frozen pizza was used, however, because freshly prepared pizza was effectively excluded by a U.S. Department of Agriculture (USDA) regulation that required inspection of any pizza with meat toppings that was sold at wholesale for resale. The same was true for other institutions such as hospitals and prisons. The 39 broader issue was the closure of the institutional market to freshly-prepared foods such as pizza and other fast foods.
Pizza Hut’s overall business strategy was to become a “pizza distribution” company, and the institutional market was crucial to that strategy. According to Roger Rydell of Pizza Hut, schools were “‘a potentially enormous business for us. … We’d like to have every one of our [4,000] delivery-capable units nationwide serving at least one school.”’1 Since Pizza Hut was excluded from the institutional market by the USDA regulation, the task before Pizza Hut was to develop a nonmarket strategy to modify this regulation to allow school cafeterias and ultimately other institutions to order fresh pizza.
There were two basic institutional arenas in which Pizza Hut could address this nonmarket foreclosure of a market. One was the regulatory apparatus of the USDA. From the perspective of a bureaucracy such as the USDA, an exemption from its meat inspection responsibilities would be required. It seems unlikely that the USDA would want to weaken its own inspection program. Indeed, the opponents of an exemption for fresh pizza, as led by the National Frozen Pizza Institute, sought to have the contentious issue resolved by the USDA.
A resolution in that institutional arena would necessitate an extensive administrative process requiring public hearings, publication of proposed regulations in the Federal Register, a comment period, possible adoption of an exemption, and possible legal challenge in the federal courts by the losing side. This process
School cafeterias served nearly $500 million of pizza a year. Only frozen pizza was used, however, because freshly prepared pizza was effectively excluded by a U.S. Department of Agriculture (USDA) regulation that required inspection of any pizza with meat toppings that was sold at wholesale for resale. The same was true for other institutions such as hospitals and prisons. The 39 broader issue was the closure of the institutional market to freshly-prepared foods such as pizza and other fast foods.
Pizza Hut’s overall business strategy was to become a “pizza distribution” company, and the institutional market was crucial to that strategy. According to Roger Rydell of Pizza Hut, schools were “‘a potentially enormous business for us. … We’d like to have every one of our [4,000] delivery-capable units nationwide serving at least one school.”’1 Since Pizza Hut was excluded from the institutional market by the USDA regulation, the task before Pizza Hut was to develop a nonmarket strategy to modify this regulation to allow school cafeterias and ultimately other institutions to order fresh pizza.
There were two basic institutional arenas in which Pizza Hut could address this nonmarket foreclosure of a market. One was the regulatory apparatus of the USDA. From the perspective of a bureaucracy such as the USDA, an exemption from its meat inspection responsibilities would be required. It seems unlikely that the USDA would want to weaken its own inspection program. Indeed, the opponents of an exemption for fresh pizza, as led by the National Frozen Pizza Institute, sought to have the contentious issue resolved by the USDA.
A resolution in that institutional arena would necessitate an extensive administrative process requiring public hearings, publication of proposed regulations in the Federal Register, a comment period, possible adoption of an exemption, and possible legal challenge in the federal courts by the losing side. This process