Porter's 5 Forces Analysis:

Since Porter’s 5 Forces model covers virtually all aspects of strategy, it is one of the most powerful tools to understand company’s competitive position in the market.

1.      Intensity of existing rivalry (Very High)

a.       Competitors engage in price competition:  Pizza Hut competes with some global pizza chains such as Domino’s and Papa John. They all engage in fierce price discounting and coupons to increase their sales.

b.      Advertising expenditures are high and expected to grow: With such huge opportunity in the industry and high competitiveness, big global chains are spending hugely on advertising.

c.       Menu differentiation: Each of these pizza chain/outlets is trying to come up with innovative menus every now and then to attract new target markets.

d.      Competition from local pizza restaurants: Local pizza restaurants offer low prices and faster delivery to take competitive advantage.

2.      Threat of New Entrants (Low)

a.       Major players in the industry (Dominos & Pizza Hut) have created a very strong brand loyalty. Though capital costs required to enter the industry are not very high, it’s really difficult for new entrants to compete with major players since existing firms are deterring entry by creating brand value and loyal customer base.

3.      Threat of Substitutes (Moderate)

a.       There are many possible fast-food alternatives to pizza. The current trend of “healthier alternatives” to fast food also kicks in as a threat. But there will always be a certain segment of society who will only go for pizza.

4.      Bargaining Power of Customers(Moderate)

a.       Customers rarely buy in volume: Every single customer is unlikely to purchase in large volume and thus contribute to a small proportion of sales.

b.       Pizza customers are more sensitive to price fluctuations and hence providers have less price controlling powers.

5.      Bargaining Power of Suppliers (Low)

a.       Many competitive suppliers: Raw materials for this industry are commodity products such as flour and cheese and power of suppliers is weak.

b.      Vertical integration with suppliers: In order to maintain low costs and high-quality products.