Papa John's Competitive Strategy Analysis
With headquarters in Louisville, Kentucky, USA, Papa John’s International Inc. is an American pizza company with presence in 50 states and 45 countries that operate pizza delivery and dine-in restaurants. After selling his Camaro Z28, age 22, John H. Schnatter invested $1,600 in a used pizza oven and opened his first pizza place in the broom closet of his father’s tavern in 1984. Schnatter, who is currently the Chairman and Chief Executive Officer, has grown the business from a small pizza place to the US’s fourth largest pizza chain (after Domino’s, Pizza Hut, and Little Caesar’s). Its IPO was first offered on June 8th, 1993 at a price of $13.00 per share (NASDAQ ticker is PZZA); as of December 2016, …show more content…
Given that opening a pizza store is not difficult, out of 76,723 pizza restaurants, 75% belong to by mom-and-pop stores and 25% accounts for the top four largest pizza chains: Pizza Hut, Domino’s Pizza, Little Caesar’s, and Papa John’s (Statista, n.d.).
A monopolistic competition distinguishes by combining characteristics from both a monopoly and a perfect competition. According to economists, firms that operate in this type of industry offer products that can be easily be substituted by those of the competition so they have to be differentiated on the basis of physical attributes. Michael E. Porter introduced in 1979 a model to analyze the five competitive forces that he considered to be most relevant when determinining an industry’s profitability and attractiveness.
This model considers the most important players in a value chain: Suppliers, buyers, potential new entrants, substitute products, and the rivalry within an industry. This tool allows to identify the weaknesses and strengths to define a competitive strategy. Figure 1 shows the application of Porter’s five forces for the pizza industry in the U. S. as a …show more content…
When it comes to the threat of substitutes, it is high for Papa John’s given the fact that they are many other options for consumers and their switching costs are low. For example, a customer can purchase a pizza from the local place around the corner or simply buy it frozen from the grocery store. Also, considering that pizza is a normal good and that its demand relates to how much disposable income there is within a region’s economy, the price is a key determinant when buyers decide among the different substitutes that are available. The bargaining power of buyers within the pizza business goes from medium to high, as they are always looking for the highest value at the lowest price. In addition, it is common for pizza makers to offer specials and coupons. Customers need to develop brand loyalty and perceive a high value to be willing to pay a higher