Marketing Pizza Hut in Nigeria Essay

Executive Summary The fast-food industry has been one of the most successful industries even with the economic meltdown that occurred in 2008; its success is due to the relative low cost of its products and Pizza Hut is an example. Established in the United States in 1958 by two brothers, the company has since grown from being local company to an international company with over 11,000 units in the United States and across the World. The company has branded its image and name for being one the leading pizza making restaurants in the world. Despite its presence internationally the company is still yet to dominate Africa, although, Africa is developing region with a lot environmental risk in certain regions some countries are taking measures to remedy such risks; with outlets in the Northern and Southern Africa the company can expand in other areas. The suitable location will be Nigeria located on the Western side of Africa. Nigeria being the most populated country in Africa is country with abundant resources, oil and gas are the major source of income with agriculture following suit. The country has a wide range different cultural background each exhibiting one’s own way life, but the country is united as one nation with English being the official language. Although, the country is known to be environmentally risky region, the government is adopting a new reform that will benefit the nation and encourage Foreign Direct Investment. For Pizza Hut, franchising its restaurant to such  location will increase its strength and presence in the African region with other countries likely to follow the path. History Pizza Hut was started in the city of Wichita, Kansas in the United States in 1958. It was two brothers â€Å"Dan and Frank Carney† while studying in college in Wichita, Kansas were approached by a family friend with the impression of opening a pizza store. Being inspired with the idea, they borrowed an amount of six hundred dollars from their mother and procured some second hand equipment’s and hired a small building on a busy intersection in their hometown. Thus became the start of the of the greatest pizza name in the world. The company incorporated after a year and its initial franchise began in Topeka. (Entrepreneur Media, Inc., 2013) Background Overview Pizza Hut is an American chain of restaurants and international franchise that offers various types of Pizza’s along with a variety of side dishes and desserts. Pizza Hut began franchising around 1959. Pizza Hut otherwise known as Pizza Hut, Inc., in the corporate world became a subsidiary of Yum! Brands, Inc., as of 1997. Yum! Brands, Inc., is considered to be the largest restaurant company around the globe. Our study indicated that Pizza Hut has around 14,357 franchise units around the world today and also is ranked 10th among the top 10 franchises for 2013. (Entrepreneur Media, Inc., 2013) Purpose The purpose of this report would be to make use of the study and results to prepare a marketing report incorporating Pizza Hut, Inc., in Nigeria, Africa in order to disclose a marketing audit, plan and strategy and also use the appropriate material and subjects related to entering the Nigerian Market. There would however be a portion of concerns and reasons that would involve the company while shifting and familiarizing to the new location. However due to high cost of these fast food brands, many people still cannot afford it. Hence reasonable prices are to be varied in order to compete in these types of challenging markets. Country Overview: NIGERIA Nigeria also known as the ‘Giant of Africa’ is the most populous country in Africa. Nigeria was colonized by the British and got her independence on October 1st 1960. The country is a federal constitutional republic, with 36 states and a Federal Capital Territory, Abuja. There are over 250 ethnics groups in Nigeria, which the majority being Hausa, Yoruba and Igbo. After the country’s independence the country had a civil war that led to the formation of military regime during the 70s till 1999, which saw the beginning of a democratic regime. Culture and Religion With a population of over 160 million people living in Nigeria, projected figures shows that the religious demographic indicate that 50% of the population are Muslims, 40% Christians and 10% practice their indigenous belief (CIA World Fact book). In Nigerian society religion plays a major role in people’s way of life; Islam is of majority in the Northern region, which is dominated by the Hausas while Christianity is in the Southern region. The Yorubas have a more diverse religion and those in the middle-belt practice their own indigenous belief. Throughout the country religion is a means for social mobility, providing means of incorporation into business and political circles as well as educational system (Library of Congress). Politics and Government The Constitution of Nigeria shows that the country is a sovereign state, whose citizens are bounded together by a Federal arrangement. The branches of government is divided into three; the Executive, a Judiciary, and a Legislative. The Executive power is solely for the President who is also the chief of state and head of the government. The Legislative branch consists of the Senate members, and House of Representatives, and the Judiciary consists of the all the legal system both at Federal level and State level. The president appoints members of the Supreme Court subject to confirmation by the Senate. There multiple political parties in Nigeria of which three are very strong, People’s Democratic Party (PDP), All Nigeria Peoples Party (ANPP), and Alliance Congress (AC); the PDP has been ruling the country for over a decade. (Nigeria: GOVERNMENT AND POLITICS). Legal System The legal system in Nigeria is a combination of statutory law, English common law, customary law, and in the northern region Islamic law. The Federal and State courts apply the English common law, while the local courts apply customary and Islamic law (Nigeria: GOVERNMENT AND POLITICS). Economy Nigeria being an oil-rich nation has been faced with heavy political instability, corruption, inadequate infrastructure, and poor management, but in 2008 started economic reforms. GDP (Purchasing Power Parity) = $ 455.5 billion (2012 est.) Compared to the rest of the world = 31 GDP (PPP) 2011 = $ 428.4 billion GDP (Real Growth Rate) = 6.3% (2012) Compared to the world = 41 GDP (Real Growth Rate) 2011 = 7.4% GDP (Per Capita) 2012 = $2,800 Compared to the world 180 GDP (Per Capita) 2011 = $2,700 (CIA World Fact Book) The economy of Nigeria slowed down in 2012 as shown above; the oil sector continues to be the major contribution of the regions revenue with a growth rate of 8% compared to -0.35% in the non-oil sector. Economic activities are mostly denominated by Agriculture, gas and oil sectors in Nigeria. Though the economic reform looks strong there are still challenges the country needs to face. There is a high unemployment that rose from 21% in 2010 to 24% in 2011. Another downside to the economy is the security challenges arising from religious or ethnic conflicts, costs associated with environmental factors, and the slow global economic growth and the sovereign debt crisis in the Euro region. Demographics Population http://www.indexmundi.com/nigeria/age_structure.htmlworld fact book The above population pyramid shows a structure of a countries population, population Is distributed on the horizontal axis, which is divided by male on the left and females on the right. The X-axis indicates population and the Y-axis has distinguished age groups. Economic statistics The economy in Nigeria is a mixed economy with developing market sectors (legal, finance, communication, transport, entertainment). Nigeria is ranked 36th in terms of GDP as of 2013. Due to the resilience witnessed in 2012, the economy of Nigeria is expected to grow rapidly and gain stability. Nigeria GDP growth slowed down from by 7.4 % in 2011 to 6.6% in 2012. In diversity with sectors in Nigeria, agriculture stands the highest contributor, followed by crude oil, natural gas and wholesale products. Economy in Nigeria is the largest in West Africa and top three in Africa. Personal income per capita http://www.tradingeconomics.com/nigeria/gdp†per†capita Personal income per capita has improved over the years and has maintained a stable growth from 2004 – 2012 due to the improved income to the country from crude oil and agriculture. From $726.4 per person in 2004 and a drastic change in 2012 with $1052.3 per person. Gradually with the development and newfound opportunities in Nigeria the income per capita will steadily grow. Foreign investment Before the exporting of oil, agriculture was one of the largest fractions in the countries earnings. A key for direct foreign investments in Nigeria is the oil and gas sector. Other foreign investment opportunities such as telecommunications, electricity, real estate, food and beverage, consumer goods, health care and tourism. Working conditions Working conditions in Nigeria is far from ideal, apart from civil servants and employees of foreign countries, working conditions and wages are acceptable. This may not be the condition of the local people in Nigeria. Protests by the trade union leaders, strikes, income inequalities, late payment, poor wages affect the standard of living in Nigeria. Technological analysis Infrastructure in Nigeria is weak; it is one of the main problems that affect the growth of the country. Unreliable electricity, water resource, road, transport have pulled back the growth of Nigeria in the previous years. In recent developments the country has public– private partnership, investors and international companies moving into these regions for a better prospect and can revive the economy. Market Audit The Product When considering the market audit and competitive market analysis for any business, there are four factors to consider fundamentally. These four factors are product, price, promotion, and placement. Pizza Hut is a fast food restaurant chain that provides the dine-in and take-away services for fast food customers. The other external and internal environmental force such as the cultural, legal and political also has the greater impact on the product availability, its sales, marketing and reputation. The legal forces are unbiased to start a business venture in Africa, specifically the fast food chains such as Pizza Hut. Some social and cultural forces also play an influential role in creating and destroying the opportunities for any business. KFC, Donut King, Dominos, and Italian Pizza are most well renowned names in providing the high quality fast food products in these markets and are using the high standard advertising and promotional strategies thus the competition is challenging. T he understanding of recent advertising, trends, promotions and marketing ways are considered to be necessary when stepping into the Nigerian fast food products market. The Market Market is a place where major process of the business takes place. The economical, political, social, cultural, financial, legal and technological forces are basically some of the factors that play a significant role in creating and destroying the opportunities for any business. If the economy of the country where the product or service would be marketed is stable and unbiased, it is a great opportunity for the businesses. The political and legal stability plays a vital role for starting any business in a country. The social and cultural environmental forces are most significant to consider because they contain people, the real buyers of the products and services. (Glader, 2006, pp. 16). Nigeria’s culture and tradition are slightly different than the other regions of the world i.e. UK and USA. There are several languages are being spoken in Nigeria, but the official language is English. This is one of the best strength of Nigerian culture that welcomes the foreign firms to join the Nigerian market. The legal system of Nigeria is a combination of several laws and principles including Islamic, customary and English laws. There could be some threats for the fast foods businesses because of diverse religions and laws systems. Nigeria has a mixed economy and stands at the 36th position in terms of GDP as of 2013. The agricultural industry of Nigeria significantly supported its economy followed by the natural resources of crude oil, natural gas and wholesale products. The income per capita increased in the period of 2004-2012 (Trading Economic, 2013). The income status of people is acceptable, but not for general Nigerian public. However, the earning people are able to afford the fast food product purchase even in regular intervals. While the poor wages of most of the people, late payments and strikes can often make critical situations in the country. Figure : GDP Per Capita The technological advancement is growing rapidly in Nigeria and it is a most important advantage for MNC’s. The online markets are majorly playing important role in bringing buyers and sellers closer. People now prefer to use online platforms for placing orders and making purchases. Thus the  online promotional strategy and also television and physical ad banners would be helpful for Pizza Hut if implemented. Several other products are also getting rapid fame among people such as MacDonald’s and Italian Pizza. The introduction of several beneficial schemes and promotions such as coupons, gifts, weekend packages and midnight offers would be profitable and would also help Pizza Hut to get rapid repute and vast customer circle. Market size The market size of the host country describes the demand and supply scale of the products. To supply the products in any host country there must be sufficient potential demand. Larger the market size, better the economical growth would be (Wei & Liu, 2001, pp.38). Several international investors and marketers have opened their retail business in Nigerian market such as Shoprite, Artee Industries Ltd, and Internationale Spar Centrale BV in 2012. The rapidly increasing population of Nigeria will generate the strong and ever going demand for international products specifically the fast food products. The increasing rate of urbanization and positive economic outlook of Nigeria will support the MNC’s. (Euro Monitor, 2013). Competitors One of the main competitors and its product prices in Lagos is: Dominos Pizza Domino’s Pizza is a popular pizza joint in Lagos. They offer both dine in and home delivery services. Their motto is to spread happiness around Lagos. Products and Prices Domino’s main offering may be pizza but a wide variety of side orders is also offered by the fast food joint. The price list of their popular products is as follows: Chicken Feast Grilled chicken breast, mushrooms and sweet corn. Medium: â‚ ¦ 2,000 Large: â‚ ¦ 2,900 Hot Pepperoni Feast Extra beef pepperoni, red chillies & extra mozzarella cheese Medium: â‚ ¦ 2,000 Large: â‚ ¦ 2,900 Hot Veggie Onion, green pepper, banana, red chillies & tomatoes Medium: â‚ ¦ 2,000 Large: â‚ ¦ 2,900 BBQ Chicken Grilled chicken breast, Onions & BBQ sauce. Medium: â‚ ¦ 2,300 Large: â‚ ¦ 3,200 BBQ Philly Steak Philly steak, Beef topping, Onions & BBQ sauce Medium: â‚ ¦ 2,300 Large: â‚ ¦ 3,200 Meal Deals and side orders are also offered. The joint also serves Cold Stone Ice cream Promotion and Advertising Domino’s pizza uses different channels of advertisement and promotion. Billboards and hoardings are used to promote special deals and discounts. The fast food joint has a website that houses the menu and also facilitates online order booking. Domino’s prides itself on its ability to make prompt deliveries throughout Lagos. Distribution Domino’s Pizza has six main outlets in Lagos. The bulk of distribution is attributed to home delivery. Apart from these international fast food chains, many local fast food joints are open in Lagos. These include Mario’s Pizza and fast food Sweet Sensation Mama Cass Ghana High These fast food chains offer a wide range of discount deals and competitive prices. Pricing Strategy Pricing is one of the most important aspects of the marketing mix of the product. Product placement and promotion depends on how the product has been priced. In order to set a pricing strategy, pricing objectives must be set. These include: Current profit maximization Current revenue maximization Maximize quantity Maximize profit margin Quality leadership Partial cost recovery Survival Status quo Since Pizza Hut will be introducing its products in Lagos for the first time, its pricing object should be to ‘maximise quantity’ and ultimately become the market leader. In order to attain this status Pizza Hut may employ one of the two pricing strategies: Skim Pricing: whereby the company prices its products high. This offers profit maximisation. By adopting this strategy the company assumes the stance of serving a niche market. Penetration Pricing: whereby products are priced low to maximise quantity and ease into the market. Since, the target market for Pizza hut is price sensitive and highly elastic, the best pricing strategy would be ‘Penetration Pricing’. By pricing the products low at the beginning, Pizza Hut would be able to gain more market share and cater to a greater market. Pricing Methods Several pricing methods may be employed to satisfy the pricing objectives of the company. These methods vary from product to product. Some companies may use different and innovative pricing methods that better satisfy the needs of both the customer and the company. Traditionally used pricing methods include: Cost-plus pricing: based on production cost plus a certain profit margin Target-return pricing: based on a target return-on-investment Value-based pricing: based on value offered relative to competitors Psychological pricing: based on customer’s perception and demand Pizza Hut may employ any one or a combination of the above mentioned pricing methods to accomplish its pricing objectives. Price Discounts The list price is normally discounted for the distribution channel. This may be done in the following ways: Quantity discount Cumulative quantity discount Seasonal Discount Cash discount Trade discount Promotional discount Pizza hut could offer the following price discounts to its customers: Quantity discounts: whereby customers buying in greater quantities could be offered special deals and discounts Promotional discounts: special promotions could be used to boost sales Marketing Plan Marketing Objectives Marketing objectives helps define what a company wants to achieve through it’s marketing activities. Firms from different industries create their marketing objectives by doing a thorough analysis of their firms SWOT analysis in order to identify the key areas of concentration. For Pizza Hut, to define its marketing objectives it has to decide on the entry strategy that it will adopt for Nigeria. Entry Strategy One of the leading markets in Sub-Saharan Africa is Nigeria with a population of above 158 million. However Nigeria having a wide range of ethnic groups is an environment with high risk potential. It would be advisable for Pizza Hut to franchise the company to another company in Nigeria, in order to reduce unforeseen risk. A franchise is an agreement between two parties where the franchisor sells the right to franchise the company to a franchisee. However due to the changes in routines and consumer flavors, preferences are readily growing towards packed and convenient foods. All these matters are assisting the country’s retail food sector to develop. In growing markets like Nigeria, consumers would always prefer to have a cuisine that is more appropriate to the native palate rather than an  Ã¢â‚¬Å"international† cuisine Finding the right partner to sell the rights might be quite daunting but Devyani International Limited an Indian based company with operation in Nigeria might be good partner to sell the franchise to. Devyani International Limited an associate company of RJ-Corp – Largest bottler for Pepsico with currently having about 300 outlets of Pizza Hut, KFC, Costa, Swensen’s, and many more brands in India (Devyani International Limited). The company opened KFC in Nigeria as of 2009 and is currently investing on opening more outlets in the region (Business New Nigeria). Our study showed that an average Nigerian spends around 72.97% of his/her income on food. The table below shows the percentage of total food expenditure in Nigeria as of 2010. IMAP’s Food & Beverage Industry Global Report – 2010 Total Food Expenditure Percentage of Total Expenditure (%) Beverages/Tobacco 2.73 Meat 12.88 Fish 15.22 Diary 5.61 Breads/Cereals 34.08 Fats/Oils 5.15 Fruits/Vegetables 15.44 Other Foods 8.89 Percentage of Total Food Expenditure (%) 72.97 After selecting the entry strategy, establishing the SMART approach for the marketing objective would seem useful. This will however help to ensure the objective are: Specific – explains what needs to be gained. Measurable – objectives should be measurable in terms of performance indicators, percentages, outcomes, and much more. Action-oriented – State which action need to taken and who should take them. Realistic – the resources available should be able to meet the objectives. Time Specific – specify time frame and schedules for achievements or completion. To achieve the SMART approach, Pizza Hut will have to train the management of its franchisee on how to operate and manage the business similar to that of Pizza Hut’s method. Product Adaptation The key for international food chains such as Pizza Hut is to emphasize on adapting and accepting the local palate and then developing innovative foods to win over the native consumers. The term ‘Product Adaptation’ uses the strategy of the follower. That is the new product is based on improvements or modifications of the current product of the company (MBA Skool). To be successful in an international market it necessary for a firm to adapt its product to meet international customers’ or markets needs (Small Biz Connect). For Pizza Hut, it will have to rely on the franchisee to foresee the product adaptation in the region. The franchisee with its extensive knowledge in the market understands consumer preferences, even though Nigeria is country with wide range of cultures but each culture share common trait in its region. Promotion Mix: Promotion is the method used to create awareness about a product or service to customers a firm offers (Small Business Development). Once the business has started the following are means to raise awareness to the public about the company: 1. Advertising – one of the most important forms of passing information to  the general public. It is a form of communication used to convince or persuade potential consumers to choose a company’s product or service over its competitors (Small Business Development). Successful advertising should be planned properly so that the consumer perceives the intended messages. There many types of media options to choose for advertising; choosing which type of media depends on the market a firm is trying target and also on the budget. The types of media include: press advertising, radio, television, direct mail, ambient, and much more. Firms should be careful on selecting the type of media (or mixture) for advertising their product so as not waste resources, a famous quote from John Wanamaker (1838-1922) state â€Å"Half the money I spend on advertising is wasted – the trouble is I do not know which half† (Small Business Development). 2. Sales Promotion – relates to incentives or activities mostly short-term that produces the likelihood of purchase or sale of a product. Sales promotions can be used to target different types of customers, types of promotions include: consumer, business, trade, and Sales force promotions. 3. Public Relation – this is all about building relationship with stakeholders of a company by obtaining favorable publicity, incorporating a strong brand image and name, and providing accurate information to the public. Having a strong relationship with stakeholders can generate positive outcomes for a firm where customers can provide good recommendation to others due their satisfaction with the company (Small Business Development). The franchisee of Pizza Hut should be able to use any of the above-mentioned promotion or use all of them. For the advertising both parties should discuss on the cost for doing the advertisement whether both would share the cost or one party would be responsible. Channels of Distribution Agricultural and livestock products have a high import tariff in Nigeria; the government imposed such high tariffs as part of their economic reform to boost the economy and to support the agricultural sector. Pizza Hut would face high tariffs if it were going to supply the business with its own  produce. The company or the franchisee can partner with any of the intermediaries to provide the company with agricultural products; this in short would save the firm cost it would have to bear due to import tariffs and compensating with high prices of the products to the customers. SWOT Analysis Conclusion Once colonized by the British, Nigeria is known as the â€Å"Giant of Africa† which is one of the most populous countries in Africa. Having a population of over 160 million people and over 250 ethnic groups with each having their own dialects, it is a mixed economy with developing market sectors. 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