It’s Friday night after a long week and the marketing final just made you question all of your life decisions, and to celebrate, you feel like ordering a pizza. How about Domino’s? They have over 34 million pizza combinations, pasta, sandwiches, chicken wings and even several types of dessert. If you think that as the owner of a Domino’s this would be a disaster to try and ensure product quality and optimize your production, you would be right. On the other hand, another pizza chain, Little Caesars, expertly aligns their business and operating model to the benefit of both their customers and their stakeholders.
Little Caesars is a global pizza chain with the popular $5 HOT-N-READY and $8 DEEP!DEEP! Dish Pizza. They have a very limited menu comprised primary of simple pizzas, breadsticks and wings with customized options available at higher prices. This limited menu translates into much better prices on the limited menu items vs. competitors. In an incredibly competitive pizza market, this is a significant differentiator and has allowed Little Caesars to be voted best value pizza in the US for the last 8 years. Along with the limited menu, a number of other items demonstrate the alignment of their business and operating models including:
Ability to Build-Up Inventory to Meet Demand:
- Who wants to wait in a store for 10-15 minutes for a pizza to be made? The industry up to this point has gotten over the time required to cook a pizza by encouraging customers to call ahead. This, however, requires customers to plan their pizza purchase in advance and limits the attractiveness of pizza as a spur of the moment or on-the-go purchase. Little Caesars has overcome this issue by making pizzas ahead of time and storing them in an oven so they are fresh when you enter the store. This also allows them to build up a large number of ready to sell pizzas in advance of the lunch/dinner rush to meet demand and become the pizza of choice for customers in a rush. Customers also know that whenever they go into a Little Caesars, they will be able to walk in, grab a pizza and leave the store in only a few minutes.
Standardized Sizing & Limited Product Offerings:
- Little Caesars offers one size of deep dish pizza and one size of non-deep dish pizza. For their high volume / low price pizzas, only cheese and pepperoni is available. This allows them to hold very low levels of pizza ingredients and experience virtually no inventory spoilage as they can immediately use pizza inputs. The lack of variation also helps ensure product quality from store to store.
- Also, since volumes are much higher given the lower price, Little Caesars is able to procure pizza ingredients with additional scale and at lower prices giving another meaningful benefit over competitors.
- With only a few products sold, the pricing model is incredible easy to understand and convey to customers. Similar to dollar stores which advertise their value with everyday low prices, so does Little Caesars advertise their value with rounded dollar amounts ($5 for a normal pizza, $8 for a deep dish) and catchy product names.
- This simple pricing with limited product offerings also allows for minimal training required on the part of employees. This helps to keep wage costs down and combat high employee turnover (a big issue for fast-food and fast-casual restaurants) since new employees can be brought up to speed quickly.
- Lastly, the simple business model allows strong visibility into future demand to plan employee hiring, inventory ordering and optimize profitability.
- When people come in for convenience and you have a simple product offering, you do not need a flashy, large store with significant room for customers to linger and eat. Also, when you only make a handful of products, you do not need a large kitchen or storage facility. This saved space translates into cheaper rent and lower start-up costs over their competition.
- So what does this business / operating model translate into? Low prices for consumers, quality pizzas and profits for the Little Caesar store owners / operators. If I was Domino’s, Pizza Hut, CiCi’s or even Pinocchios, I’d sleep with one eye open as Little Caesars has an advantage that will be tough to replicate and even tougher to compete against.