Business Level Strategy:
Papa John’s use of differentiation as a business level strategy is a major component of their continued success. Creating pizza with higher quality ingredients was rare in the industry when Papa John’s introduced this concept. Papa John’s not only differentiates through superior quality but also through a significant emphasis on legendary customer service. Papa John’s uses these elements of differentiation to create superior brand loyalty. Corporate Level Strategy:
Corporate level strategies of Papa John’s consist of diversification by investing in businesses outside the scope of the pizza industry, strategic alliances with other companies, as well as a global strategy. Diversification is evidenced through the formation of the variable interest entity BIBP commodities and vertically integrating into the printing business to lower marketing costs. Papa John’s has formed strategic alliances with Six Flags and Sony in order to increase brand awareness among consumers. Papa John’s global strategy is evidenced through international growth. Papa John’s had zero restaurants outside the US in 1997 that number has grown to over five hundred in 2007. Quantitative Analysis:
International sales during 2007 increased by 28% over 2006 this is shown in greater detail in Appendix A. The domestic increase in sales is less than 1%. This data signifies the potential of continued growth internationally. Company owned domestic store revenue decreased significantly from 2006 to 2007. This is evidenced visually in Appendix B. A large part of this decrease can be attributed to the sluggish American economy. Avoiding this volatility by divesting from company owned stores by selling them to franchisees will allow for a more consistent and diverse revenue stream. Internal Analysis:
Papa John’s economy of scale has given them a strength most competitors do not possess. In this fragmented industry this is valuable, rare, costly to imitate, and is exploited by the organization. Papa John’s brand name and reputation separate them from competitors. These components are valuable as they differentiate Papa John’s from other pizza places. This is rare as very few other if any pizza companies use the same quality ingredients and have the brand awareness of Papa John’s. This is costly to imitate as using higher quality ingredients is more expensive and making consumers aware is costly and requires a combination of factors to be seen in that perspective. Papa John’s organization and management have made this a competitive advantage. A significant weakness for Papa John’s is there limited global reach, expanding into more international markets will provide greater room for growth. Another weakness is the large amount of corporate owned stores, selling off some of these established stores to franchisees will allow for increased growth and revenue diversification. External Analysis:
Demographic trends domestically and internationally are highlighted by increased diversity. Increased diversity means consumer’s tastes are wider and constantly evolving. The economic climate in the United States is improving and more consumers are eating out. Internationally some countries are struggling ( Greece, Italy, Spain) while others are prospering (Germany, China, Brazil). Whatever countries a company may enter need to be carefully evaluated to gain a true understanding of the economic and cultural situation. Technological changes and advancements in the general environment have increased competition in this industry. Lowering the cost of needed equipment and the ease of using the internet to find whatever is needed is altering the industry. Threat of rivalry is high within the pizza industry as Pizza Hut controls the largest market share (8-12%)in this highly fragmented market.
The pizza industry is close to monopolistic competition as there are a large number of firms with slightly differentiated products offered and a low cost to entry. Leasing a building and pizza making equipment is not an overly significant cost. This means that local entrants have access to this industry and as well as further entry from national competitors. The threat of substitutes is high as the pizza market is saturated with many different restaurants that provide options for consumers. Buyers possess significant bargaining power with the ability to purchase pizza from a multitude of restaurants. The threat of buyers is high options for buyers range from upscale (California Pizza Kitchen) to bargains (Cici’s Pizza). Recommendation & Conclusions:
Papa John’s should continue with the current global strategy while finding the proper avenues to increase global expansion. The sales growth of international locations is strong and needs to continue to be exploited. Developing the proper restaurant layout and menu for each international local chosen is imperative to making this venture successful. The quality associated with the brand resonates with clients worldwide and provides room for increased growth. The domestic market should still be grown. Divesting from company owned stores through sales to franchisees will help to eliminate volatility due to economic downturns and other factors. Eliminating risk and costs associated with company owned stores will improve profitability by diversifying the revenue stream.