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Case Study Pizza War

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Category: English

Autor: anton 06 December 2010

Words: 2763 | Pages: 12

BSB, INC., THE PIZZA WARS COME TO CAMPUS

Company Background

BSB, Inc. is a large nationally operated food-services company. The company serves client organizations on a contract basis. Its business is divided into three (3) market-oriented divisions of corporate, airline and university or college.

Case Summary

Renee Kershaw is BSB’s manager of food services at a medium-sized private university in the Southeast. BSB has been operating at the university for the past 10 years and Kershaw has been the manager at BSB for the past 18 months. At the university, BSB caters for 6000 students and 3000 faculty staff and support personnel via its 3 different eateries in the university campus. The three eateries are:

a) The Cafeteria – Open for breakfast, lunch and dinner daily

b) The Dogwood Room – Serves an upscale luncheon buffet on weekdays only

c) The Grill – Open between 11a.m to 10p.m daily and until midnight on Friday and Saturday nights

Initially, after 4 months being in-charge of BSB’s operations at the university, Kershaw conducted a survey on customer needs and market trends. The survey revealed that students were not satisfied with the food services at the university. A large amount of the food being consumed by students was not from BSB’s facilities mainly due to a lack of variety and unsuitable facilities’ serving time for the students.

Below are the data from the survey:

Food prepared in dorm room 20%

Food delivered from off campus 36%

Food consumed off campus 44%

Students with cars on campus 84%

Students with fridges or microwaves in their rooms 62%

Food that students consumed outside BSB, Inc. facilities 43%

As a result of the survey conducted by Kershaw, she decided to include pizzas in the menu. In addition to the new menu, Kershaw also introduced delivery service (by bicycle) for its pizzas. Currently, apart from placing the pizza making facilities at the grill, space is also being allocated at the grill to store pizza ingredients, as well as to prepare and stage pre-made pizza. In order to keep the cost down and provide fast delivery, only a limited number of ‘standard pizzas’ are offered in the menu.

Challenges and Problems

Despite the rise in sales and profit from the pizza operations, increase in demand for the pizza has led to capacity problems and increase in delivery times. As a result, the pizza’s sales began to level off. Furthermore, Kershaw is concerned of the competition from a new food court to be opened in campus which will house Pizza Hut, Dunkin’ Donuts and Taco Bell. Specifically, Pizza Hut will be putting up a facility offering a limited menu and pizzas on a “walk-up-and-order” basis.

Question 1

Does BSB, Inc. enjoy any competitive advantages or core competencies?

Answer

Competitive Advantage is the ability of a company to win consistently over the long term in competitive situation.

Core Competencies are the unique resources and strengths that an organization’s management takes into account when formulating strategies.

BSB enjoys competitive advantages or core competencies in a number of ways.

a) Specialization - BSB is a specialized food-services operator for universities and colleges.

b) Experiences – BSB has been serving the university for 10 years therefore they have first hand knowledge relating to customer preferences and needs derived from their experiences in the market. For e.g.: survey data.

c) Existing facilities and services provided – new entrants have to start from scratch. For e.g.: location and delivery services in the university are very important due to the lack of parking spaces.

d) Brand Recognition - Familiarity among the campus community of the BSB ‘brand’ as it has been in existence for some time.

e) Close proximity - Close proximity to the customers is critical for pizza delivery as it allows quicker and lower cost delivery.

Question 2

Initially, how did Renee Kershaw choose to use her pizza operations to compete with off campus eateries? What were her competitive priorities?

Answer

Kershaw decided to use her pizza operations to compete with off campus eateries based on the following reasons:

a) Available resources – Based on time, location and staff available for Kershaw at that time, pizza operation is the most logical choice to be adopted in competing with off campus eateries. Pizza operations do not require much time to be set-up. Furthermore she can run the operation from one of the available eateries (she decided at the Grill) and a minimal amount of staff training is required to run the pizza operations.

b) Food variety – By introducing pizzas in the menu, Kershaw has somewhat addressed the problem of the lack of food variety by only implementing minimal changes in her normal operations.

c) Catering for students’ tight schedules – Through delivery services, Kershaw is able to cater for students with tight and erratic schedules. This decision is based on the high percentage of food not purchased from BSB facilities whereby 36% of the food is delivered from off campus. Since pizza can be kept and reheated easily, going into the pizza business seemed like the best option for Kershaw because 62% of students in the university have fridges and microwaves in their rooms.

Competitive Priorities are the critical dimensions that a process must possess to satisfy its internal or external customers both now and in the future. Kershaw’s competitive priorities when choosing the pizza operations to compete with off campus eateries were:

a) Cost – Low cost of operating since pizza operations require minimal staff training and delivery is done by bicycle. Limited combinations of toppings and ‘standard pizzas’ available enable Kershaw to keep cost down.

b) Flexibility – Through minimal changes, Kershaw is able to add a selection of pizzas to her menu as part o her efforts to increase the variety of food offerings.

c) Time – The limited number of pizzas that can be prepared and cooked would be able to speed up preparation and delivery time since ‘standard pizzas’ can be pre-assembled and ready-to-cook once orders are received.

QUESTION 3

a) What impact will the new food court have on Kershaw’s pizza operation?

The immediate impact would be direct competition from other food operators. As announced by the University, the new food court would accommodate, among others, food franchises such as Dunkin’ Donuts, Taco Bell and Pizza Hut. BSB, Inc was the sole contractor and provider of food services in the University campus prior to the announcement, thus it has, until recently, enjoyed somewhat monopoly status. Of even more concern to BSB is the fact that the new food operators are coming in as established brand names, hence making competing with them an even more difficult task.

Competition to BSB, Inc would come in the form of alternative food types. Dunkin Donuts, for example, would offer snack-type food for the students, where as the likes of Taco Bell offers easy-to-go fast food. Students would find these types of food suitable for life on campus. Students are normally subject to hectic schedules and are always on the move, therefore having the convenience of easy and ready-to-go food services (as offered be the new operators) would suit them very well.

Of more significance (to BSB) is the emergence of Pizza Hut on campus. Kershaw’s BSB has recently introduced grilled pizza as an item on its grill menu, and has so far enjoyed considerable success too. Of course, this was before Pizza Hut came into the picture. There is little argument that Pizza Hut would provide the keenest and most direct competition to Kershaw’s pizza business. In fact, Pizza Hut, being a reputable and an established franchise coupled with its financial muscle, would be a serious and immediate threat to BSB’s market share in pizza sales. However, Kershaw should take note of the fact that the Pizza Hut franchise on campus has its limitations. For one, the Pizza operator does not offer delivery service (for now), as it operates on a ‘walk-up-and-order basis. Secondly, it is only offering limited selection of toppings for its pizzas, preferring to focus on a ‘standard menu’.

QUESTION 3

b) What competitive priorities might she choose to focus on now?

BSB’s competitive priorities can be divided into three main categories; Cost, Flexibility and Time. With the establishment of the new food court and the emergence of the new food franchises at the food court, Kershaw’s BSB would now have to decide which competitive priorities would give it a competitive advantage and thus allow it to better compete with its more established competitors.

BSB may choose to focus on its wide array of food selection it provides on campus via its three main food facilities; the Cafeteria, the Dogwood Room and the Grill. Compared to its competitors which serve mainly homogeneous products i.e. donuts, tacos and pizzas, BSB offers a better selection of food items including those offered by its competitors i.e. pizza, which may work to BSB’s advantage in serving customers who desire for an ‘expanded’ menu to satisfy their culinary instincts.

As part of its efforts to offer a variety of food selection, BSB can also look at increasing the topping combinations for its pizza to compete head-on with Pizza Hut’s limited selection of toppings. BSB’s efforts at expanding its menu should not be at the expense of quality, while at the same time attempt to maintain the pricing for its food items.

Another competitive priority that Kershaw and BSB would do well to leverage on is its ability to provide delivery service. Since BSB’s competitors do not offer delivery service, BSB has an edge in this area, as students, which make up the majority of it customers, would usually prefer not to dine out given their hectic schedules. Also, BSB’s customers would be able to enjoy food in the comfort of their own dwellings. In addition, Kershaw may want to set a minimum amount limit for delivery orders to ensure the service remains cost viable, and also to ‘encourage’ customers to order more food or higher priced food items.

QUESTION 4

a) If she were to change the competitive priorities for the pizza operation, what are

the gaps between the priorities and the capabilities of her processes.

In its efforts to add variety to its food selection and in response to a customer survey conducted, BSB has started offering pizza to its customers. BSB’s pizzas were well received by the students, and soon after, sales increased, resulting in higher profit margins for the company. However, the new found success comes with new challenges.

Kershaw soon found that her existing capacity is not sufficient to cater for the increasing demand for her pizzas. She lacks storage space for pizza-making equipment and facilities i.e. ovens and space for her pizza ingredients. Her pizza operations are putting a strain on her other grill activities, which is forcing her to re-look at some of the selection on the grill menu. Given her existing facilities, she faces the dilemma of increasing her pizza supply at the expense of other food items. This may defeat her initial purpose of attempting to offer a variety of food selection.

b) How might that affect her operating processes and capacity decisions?

Kershaw was also faced with the problem of longer delivery time for her call-to-order pizzas. She deduced that the gap arising between her existing capacity and the growing demand for her pizzas has, to some extent, caused delivery time for pizza orders to slowly increase, possibly leading to ensuing complaints from its customers. The poor service (delay in delivery orders) may influence customers to seek alternative food services in and off campus.

As a consequence of the gap, customers’ satisfaction may decline, potentially leading to loss of regular and existing customers as they opt for alternatives. As a result, sales will suffer, and inevitably affecting BSB’s bottom-line, if not immediate, in the long run. Lower margins and ultimately declining profitability will in turn impact the company’s overall performance and viability as a going concern.

QUESTION 5

What would be a good service strategy for Kershaw’s operations on campus to meet the food court competition?

With the emergence of new food services in campus namely Dunkin’ Donuts, Taco Bell and Pizza Hut, Kershaw should first invest time and resources in understanding the impact of the emergence of these competitors on customer preferences. Knowing very well the fact that Pizza Hut are of world class standard with regards to quality and taste, Kershaw needs to come up with a better business strategy. Our group has deliberated on the following recommendations as part of Kershaw’s strategy:

1. Offer Variety of Pizzas at Cheaper Price

Off Campus food outlets, especially those offering Pizzas have emerged as a serious source of competition to BSB. These food operators are likely to offer many pizza combinations. Thus, Kershaw could maintain its competitive advantage by offering a variety of pizza with a wide range of toppings at reasonable prices. The key to this strategy is to maintain quality and to innovate on product offerings. For instance, Kershaw could offer pizza selections which are different from what Pizza Hut currently offers (such as Spicy Tandoori Pizza, Vegetarian Pizza and Chicken Hot Pizza). This might allow the customers to have more choices that are superior in quality yet affordable. By offering Vegetarian Pizza which is not being offered by Pizza Hut, the international students who are vegetarians (i.e. students from India and China) could also indulge in the pizza. This could create a niche market for BSB among vegetarians.

Due to the fact that the majority of the university’s residents are students who do not earn a fixed and stable income, Kershaw should offer pizzas that are affordable to them. To beat her competitors, Kershaw should sell the pizza at lower prices than Pizza Hut. By offering a variety of pizzas at lower prices, Kershaw could increase the demand for its pizza, ultimately increasing its profits.

2. Maintain Good and Consistent Quality

Understanding customer needs and maintaining good quality are paramount in ensuring success, especially in the food industry because customers are extra value conscious when it comes what they ‘consume’ i.e. food and beverage. For some customers, price may be of less importance compared to quality. Kershaw should continuously reinforce its pizza quality and standards to remain ‘relevant’ with in-campus and off-campus customers.

3. Phone Order and On-time Delivery

Kershaw’s direct competitor, Pizza Hut could probably match BSB’s pizza prices, but may lose out in terms of selection and delivery. Since Pizza Hut does not accept phone orders and do not offer delivery services, Kershaw should take advantage by offering these services to the customers. Kershaw should allow phone orders because most of the students face erratic schedules that discourage them from eating out In addition, the delivery should be made timely to ensure customers’ satisfaction.

4. Longer Operation Time

Due to the fact that the schedule of students are tight and normally did not fit with cafeteria serving hours, Kershaw should extend its business operations until midnight. Some students tend to study until midnight and like to have supper. In fact, they will find the nearest food court for convenient. Many students tend to study and have a group discussion outside the library while having supper at the same time. Thus, it is important for Kershaw to extend its operation hours and serve food such as pizza or burger at the cafeteria. As a result, Kershaw could maintain its competitive advantage and compete against the likes of Pizza Hut and Taco Bell.

5. Expanding the Distribution Network

Presently, Kershaw is renting three food-service facilities namely the cafeteria, Dogwood Room, and Small Grill. However, she is nearing full capacity on her pizza operations and is looking to expand. Thus, she may have to consider a new location, as there seems to be limited space at the grill location. Clearly, she can choose to set up new convenient and attractive food-facilities such as the Kiosk and Bistro-type facilities, provided that the return on investment is worthwhile.

CONCLUSION AND RECOMMENDATION

In conclusion, by adding variety to the menu while maintaining the quality and delivery speed, it is possible for BSB to maintain its competitive advantage despite the emergence of new rivals such as Pizza Hut and Dunkin Donut. The increase in requests for additional topping combinations and levelling of sales suggest that BSB should expand its product variety. This suggests customers’ desire for a variety of selection, and the expanded hours will enable BSB to offer its services when the Pizza Hut is closed, or when students are in their dorm rooms.

However, an increase in product variety will affect both service and cost. Kershaw probably cannot have as many pre-made pizzas ready to be thrown into the oven. She will also need to stock additional toppings. If she wants to maintain good service, she will need to hire additional workers. Hence, there will inevitably be some trade-offs between quality service and cost if she decides to focus on product flexibility.

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