Case Study:
The US fast food industry is undergoing some significant structural changes, particularly in the franchised pizza chain category. While the overall fast food industry grew more than 6% per year from 2002 to 2007, sales growth in the pizza category was less than half that. Major chains such as Domino's, Papa John's and Pizza Hut are all experiencing flat to negative growth in same store sales. Beyond the depressed US economic climate, some industry analysts attribute the decline in pizza demand to a shift in consumer tastes toward more healthy dining options. However, other analysts note that McDonald's same store sales are increasing, as are gourmet pizza sales among smaller chains and independent pizzerias. Moreover, pizza chains are renowned for selling based on price (85% of sales are tied to promotions); however, with ingredient costs increasing (e.g., cheese, which constitutes 40% of the cost of a pizza), it is becoming increasingly difficult for pizza chains to stimulate demand through aggressive price discounts. Based on your knowledge of marketing strategy and consumer behavior, what approach would you recommend for pizza chains to identify marketing mix changes (if any) which might stimulate faster growth? What issues should be investigated in a market research effort? What hypotheses in terms of potential re-positioning options do you think would be worth evaluating?