Case Study of California Pizza Kitchen

Rick Rosenfield and Larry Flax started California Pizza Kitchen in 1985 it was in Beverly Hills, California. Today, California Pizza kitchen has over 250 outlets which are around the world; the group is still operated by the initial founders. Most of the CPK’s restaurants are located in California, and the rest are located some in America and the others in Asia, Middle East and North America. California Pizza kitchen has franchised about 50 outlets which bear CPK name. California Pizza kitchen generates revenues from the restaurant which in most cases has very low profit margins that is caused by the cost of goods being very high. CPK is also known to generate higher revenue through a recent franchise agreement with the Kraft foods company, for Kraft food to produce and distribute some of the premium frozen pizzas associated with CPK. The Kraft franchise revenue generates 1% of CPK total annual revenues, revenue from the other franchise revenue is about 0.72% of the total revenue and the restaurant sales revenue is about 98.31%.

California Pizza Kitchen is in the foodservice industry, Foodservice is the sale of food and drinks for them to be immediately consumed, this can be in the premises where they were bought, or in place which is designated for eating and can be shared with other foodservice suppliers. California Pizza Kitchen runs restaurants and thus the NAICS code for the industry is 722110.

Background and Assumptions

Pizza is a very popular food in America, it is also a very favorite food and it transcends all demographics and it appeals almost all ethnic tastes. California Pizza Kitchen is known to sell fresh and the high quality pizza products. California Pizza Kitchen also offers various varieties of pastas, entree-size salads and soups which are freshly made and they all satisfy all tastes (Flax and Rosenfield 1999). California Pizza kitchen is a popular restaurant that is based in California, there is much more room for expansion of California Pizza Kitchen both in America and internationally. The America alone can without any strain be able to support over 3,000 units. This is because Pizza is a favorite dish for all Americans and California Pizza Kitchen has built a big name by selling them.

5 Forces in Porter’s Model for CPK

The Threat of New Entrants – (MODERATE FACTOR) This is one area which puts California Pizza Kitchen under pressure. There are some barriers to entry in the restaurant industry, but there are also many things that make it easy for one to enter the restaurant industry. This puts California Pizza Kitchen under constant pressure for them to differentiate themselves over all the other competitors or other restaurants that surround them. Before people spend money on food, they have to consider other restaurants for them to make a decision. There is a higher number of substitutes in the restaurant industry, these is mostly caused by the low barriers to entry.

There are many small barriers that would deter an organization from entering the restaurant industry. Three major barriers that are faced by new entrants into the restaurant industry are; the ever rising prices of food, the economies of scale, and the heavy competition due to there being very many restaurants in the market. These barriers are not difficult to deal with like the government-enforced barriers which are very difficult to the new entrants into the market, but the barriers can still deter one from entering the market. Though the industry has some barriers, there are also some aspects of this industry that make it very attractive to investors. Some of these attractive elements of the industry include; there are low asset requirement, there is a lot of suppliers, the levels of capital required by the business is low of capital and the inability of organizations to establish true competitive advantage over the competitors.

Even though there are many elements that make it not easy to enter the industry, there are far more elements that make it easier to enter the industry. As everyone can basically compete and it is not as expensive as other industries are. This has forced California Pizza Kitchen to continuously be very innovative in the strategy of marketing that they employ. This helps them to be better than the rest and thus grow their market share.

Bargaining Power of Suppliers – (LOW FACTOR) the suppliers in the restaurant industry do not hold much power as there are many suppliers who supply the same products. In the restaurant industry there are quite a number of substitutes which are satisfactory available, this causes the buyer to holds power. In the industry there are a number of suppliers who are different who can offer comparable products, this helps to provide the buyer with more power than the suppliers. Another scenario is that in the restaurant industry suppliers goods are important to the buyer business success; in this case the supplier has power over the buyer. Without the right food products being supplied to California Pizza Kitchen the organization will achieve little success. Most of the products that are supplied to the restaurant industry are standardized, and therefore the suppliers hold power. Like others in the restaurant industry, the food products supplied to California Pizza Kitchen are standardized. It is good to note that both the suppliers and California Pizza Kitchen hold some sort of power to each other. Though California Pizza Kitchen does not hold much power but it can influence how suppliers operate.

Bargaining Power of Buyers – (HIGH FACTOR) For California Pizza Kitchen, who are in the food service industry, buyers have a certain amount of power that they wield. The buyers or the customer is a representation of California Pizza Kitchen’s customers and the business represents California Pizza Kitchen. The Sale of products that California Pizza Kitchen offers, accounts for a high portion of the seller’s revenue, and thus the buyers hold and wield power. The food service industry heavily relies on the huge numbers of buyers for them to purchase to purchase products. California Pizza Kitchen relies heavily on its customers to make purchase for the organization to grow. If customers decide not to buy products from California Pizza Kitchen, there is a high probability that the organization would face bankruptcy. In the industry customers are fragmented and thus have little influence on the particular product or its price in the industry as a result of this the industry or supplier holds the power. In the food service industry consumers are very much fragmented and it is very hard for an individual to hold significant portion of purchases in the industry. But the buyers do have a lot of influence on the product offered and price forwarded. No firm can afford to ignore the buyer for them to be successful.

Threat of Substitute Products – (HIGH FACTOR) the restaurant industry has high threat of substitute products and this is what California Pizza Kitchen has to face every day. Due to the high threat level, California Pizza Kitchen has to take charge in the food products but also in the prices they offer to their customers. If California Pizza Kitchen offers high price products to their customers it will result in the customer buying substitute products. The big problem is that California Pizza Kitchen may probably not have the specific substitute the customer wants and this will mean the establishment loosing the customer. Some of the substitutes include; Beef patties for burgers- chicken patties, veggie patties, etc California Pizza Kitchen keeps being competitive and reduce the risk of substitute products by the company creating a menus that offers a very wide variety of foods. Also the food in the menu is reasonably priced for all the meals. By California Pizza Kitchen offering variety of foods in their menu and also competitively pricing their food, California Pizza Kitchen reduces the threat from substitute products significantly.

Rivalry – (HIGH FACTOR) Rivalry in the rest industry is very big due to a lot factors which are mainly there being a large number of firms in the restaurant industry. Most of the firms compete for the same market and this creates a huge struggle for organizations to make a mark in the industry. Rivalry is also brought about by other factors such as the consumers cooking at home and not buying from restaurants. Some conditions in the modern society where people opt to eat in restaurants so as to save on time are making the industry to grow and with the low barriers to entering the industry, there has been a major increase in rivalry amongst members (Charlie 2005). Also there is very little differentiation in the products that are offered in various restaurants.

CPK Pest Analysis

Political – There are many aspects one has to consider in the restaurant political environment. One has to consider the many laws and regulations that affect the restaurant business. This can a cause for additional expenses, additional time and can be difficult for those who are not experts in the industry. The laws that affect the restaurant industry include; labor laws, taxation, food safety and other laws. The law on food safety is very specific to this industry and has rules for each type of food that is prepared (Applegate and Johnsen 2007). It can require training for employees and also a license to show one has abided with the law. Other laws such as taxation may require one to hire an accountant. Other issues which are political in nature are the issue of genetically modified food and also how the disabled people are treated in the society.

Economic – The restaurant industry was not very much affected in the recent market crisis and it was bearing with it very well. With consumer spending having reduced, the restaurant industry is not much affected as it is the last place most consumers are willing to cut. A survey conducted by the National Restaurant Association showed that, “Forty-five percent of those surveyed said restaurants are an essential part of their lifestyle. One in three said they would like to eat out, buy takeout, or have food delivered more often. In other words, customers are cutting back, but reluctantly. So there is a lot of pent-up demand that can be tapped into with the right formula” (Lesonsky, 2009). California Pizza Kitchen should capitalize on this continue being strategic in their market niche. There are other economic factors that are affecting California Pizza Kitchen and include; the employment issues where a lot of people have no jobs and thus have little to spend, increase in the construction and supply costs, and there is also the rise in cost of food which affects the restaurant margins and prices (Spain 2010).

The food service industry has employed around nine percent of the American workforce. The industry is also four percent of the Gross Domestic Product, and thus has a big contribution and impact in the American economy. Due to rising labor costs and also the establishment of new regulations and rules on workers and conditions of working, it will significantly impact the Restaurant industry in America.

Social – Restaurants are now faced with the concerns of ensuring they are conversant with the health and also environmental concerns. Restaurants must ensure that all the food that is prepared for the consumers must be free from contamination and healthy. Also safety precaution such as fire training and preparedness is always adhered to b all restaurants. Also restaurants are petitioning Congress to ensure that all food is safe, “The National Restaurant Association and its members are increasingly involved not only in ensuring safe food preparation inside the restaurant, but in driving changes all the way back through the supply chain, to take on a more influential role across the entire life cycle of food” (Donohue, 2009). There is also the factor that restaurants should ensure that they buy local produce. Also with the high rate of obesity in America restaurants are selling foods with low calorie and healthy.

Technological – has a large role in the restaurant industry. In order for organizations to be successful and be competitive they must be up to date with technology. The Point-of-Sale system (POS) is a new technology which is being employed by most restaurants so as to be competitive and helps in effective management of food. Also companies are investing in the online ordering of food by consumers.

California Pizza Kitchen has a competitive advantage over its competitors due to its size as a company. The group has over 250 outlets in America only and thus it will procure in bulk as is compared to its small competitors who have a few outlets. By purchasing in bulk the price of the products will be very low and also California Pizza Kitchen will enjoy the services of prices being sold at a flat rate over a certain period of time. This will help California Pizza Kitchen to plan well and will not be affected by the rising prices of food. Due to its size California Pizza Kitchen it enjoys huge revenue might and thus can employ more resources in enhancing its distribution channels as well as marketing this might be a challenge to most of its competitors (Jackson 2003).

Marketing Mix

TWO PRIMARY ATTRIBUTES – Some of the key components of a good business strategy are availability and quality. Concepts of efficiency in an organization and coupled with quality, will assist an organizations to achieve service effectiveness and also excellence. Organizations today need to manage their continuous improvements so as to achieve a breakthrough in quality which will meet the customer’s expectations and requirements. Quality products have been identified to promote culture change amongst consumers and also encourage organizational to be committed and involvement in the customer satisfaction (Ayers and Ann 2008). Restaurants must development a service excellence approach that will help to identify the customer requirements and ensure there is secured performance improvement in all restaurant operations.

California pizza Kitchen is a popular casual dining chain that has its outlets all over America and other outlets are in other international markets. California Pizza Kitchen is a brand that has cut a niche for quality and availability. This has driven their markets and sales and has contributed to the growth of revenue for the company. California pizza Kitchen restaurants are in the business of ensuring they serve food to their customers. Therefore they are providing a product which is food and a service which is waiting on the customer. Quality food and service is can be defined as meeting or surpassing the customer expectations as is known of the restaurant. Good quality food and quality services are the key to customer satisfaction. Quality services are a benefit to the business as it assures that the customer will return again to the business (Wentz 2008).

Availability in a business is how easily one can be able to get the products and services of California pizza Kitchen. California pizza Kitchen is a company which is easily available to all customers. They have tens of outlets all over America and they have entered into agreement with Kraft Food to ensure that their products are distributed by Kraft Food and all Americans can have buy their products. California pizza Kitchen has also franchised tens of outlets which sell the same products as other California pizza Kitchen outlets at the same price and quality.

THE PRIMARY TARGET MARKET – Pizza is a very popular food in America, it is also a very favorite food and it transcends all demographics and it appeals almost all ethnic tastes. California Pizza Kitchen is known to sell fresh and the high quality pizza products. California Pizza Kitchen also offers various varieties of pastas, entree-size salads and soups which are freshly made and they all satisfy all tastes. California Pizza kitchen is a popular restaurant that is based in California, there is much more room for expansion of California Pizza Kitchen both in America and internationally. The America alone can without any strain be able to support over 3,000 units. This is because Pizza is a favorite dish for all Americans and California Pizza Kitchen has built a big name by selling them.

PRODUCT CATEGORIES – California Pizza Kitchen is in the foodservice industry, Foodservice is the sale of food and drinks for them to be immediately consumed, this can be in the premises where they were bought, or in place which is designated for eating and can be shared with other foodservice suppliers. California Pizza Kitchen runs restaurants and thus the NAICS code for the industry is 722110. California Pizza Kitchen specializes with the selling of pizzas all over America. They also offer various varieties of pastas, entree-size salads and soups which are freshly made and they all satisfy all tastes.

PRODUCT-MARKET GRID – it is used in market penetration. California Pizza Kitchen is in the business of selling Pizza which has no particular target market as every American loves Pizza. Therefore for in market California Pizza Kitchen to penetrate the market it need to create brand loyalty and diversification of its product. California Pizza kitchen has adequately penetrated the American market but there is more room for improvement. This can be achieved through more efficient distribution, a better consumer purchasing power, and also overhead sharing by the company.

ADVANTAGE – California Pizza Kitchen has a competitive advantage over its competitors due to its size as a company. The group has over 250 outlets in America only and thus it will procure in bulk as is compared to its small competitors who have a few outlets. By purchasing in bulk the price of the products will be very low and also California Pizza Kitchen will enjoy the services of prices being sold at a flat rate over a certain period of time. This will help California Pizza Kitchen to plan well and will not be affected by the rising prices of food. Due to its size California Pizza Kitchen it enjoys huge revenue might and thus can employ more resources in enhancing its distribution channels as well as marketing this might be a challenge to most of its competitors.