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California Pizza Kitchen Essay

1450 words - 6 pages

William Upham
Fin. 461
California Pizza Kitchen Brief Case Analysis

“[R]estaurants don’t start out making money─ they build over time. So it’s really about having the capital and the staying power.” ─ Rick Rosenfield, Co-CEO of California Pizza Kitchen. Rosenfield, and longtime business partner Larry Flax, went from being defense attorneys to innovative pizza entrepreneurs. Their idea was to make “designer pizza at off-the-rack prices,” using unusual pizza toppings to create delicious combinations at low prices. California Pizza Kitchen began in 1985 in Beverly Hills, California and took off from there. The company went public in 2000, less than two decades after the opening of its ...view middle of the document...

The model shows the competitive nature of the industry and thus the attractiveness of a certain market due to the general profitability. The framework for the restaurant industry and how that affects California Pizza Kitchen is described below:

1. Supplier power

The amount of supplier power can be determined by the amount of suppliers in the industry. If a certain industry has very few suppliers, a company in this industry has few alternatives and may have to accept a higher price from a certain supplier if it wishes to compete in the industry. This gives each supplier more power to choose who they sell to and for what price. On the other hand, if an industry has a large amount of suppliers, a company in that industry would have several suppliers to choose from and would be less willing to accept unfavorable terms from any specific supplier, leaving each supplier with very little negotiating power. The restaurant industry as a whole has very little supplier power. There are an abundant amount of suppliers which would give the buyer the option to find the best suitable supplier.

2. Buyer Power

The concept of buyer power is similar to supplier power, but instead it is the power of the customers. The restaurant industry as a whole has fairly strong buyer power due to low switching costs for customers, the large size of the industry and the availability of substitute products; however, California Pizza Kitchen has done very well managing buyer power and this continues to be one of the company’s strengths. Looking at the selected menu offerings provided, California Pizza Kitchen offers a wide variety of different types of food. For example: Avocado Club Egg Rolls, Singapore Shrimp Rolls, Carne Asada Pizza, Thai Chicken Pizza, Shanghai Garlic Noodles, and Chicken Tequila Fettuccine. This is not even the full menu and we see a wide variety of unique cuisines on display. This minimizes the availability of substitute products and reduces buyer power. Additionally, California Pizza Kitchen has an average check of $13.30, well below many of its upscale casual dining peers, such as P.F. Chang’s and the Cheesecake Factory. This increases buyers’ switching costs and further reduces buyer power.

3. Threat of new entrants and entry barriers

There are very few entry barriers for the restaurant industry thus the threat of new entrants is high. Any ordinary person with an idea and the financial power can lease a building and start a restaurant. Initial start-up costs are very low for this industry, unlike a tech company.

4. Threat of substitutes

The restaurant industry has a very high threat of substitutes. In many locations, there are likely dozens of dining options within a very short distance, including a variety of pizza restaurants. However, most of these do not offer the same casual dining experience and menu options that California Pizza Kitchen does, which is a good thing, but there are casual dining restaurants like BJ’s...

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