Are $4.95 Pizzas A Viable Business Model?

The battle for affordable pizza between Pizza Hut and Domino's took an interesting turn last week, with 80 Pizza Hut franchisees lodging an injunction against the parent company's "$4.95 pizza" promotion. While the Federal Court rejected the injunction, it does present an interesting question: is there such a thing as a pizza that's too cheap?

Last month, Domino's Pizza extended its $4.95 "Cheaper Tuesday" promotion to every day of the week. Customers can now pick up $4.95 value pizzas any time they choose -- including Friday and Saturday nights.

Not to be outdone, Pizza Hut responded with a similar promotion of its own. In addition to its $4.95 pizza offering, Pizza Hut has also capped all pizzas at $8.50 pickup and abolished the topping surcharge for chicken.

This is obviously good news for customers' wallets, but could adversely effect the profitability of individual outlets, if the aforementioned injunction is anything to go by. According to the 80 complainants, Pizza Hut's new pricing strategy could potentially cost $10 million and force them to go out of business.

After reviewing the evidence, the presiding Federal Court judge rejected the injunction, stating there was no evidence the parent company Yum! Restaurants Australia was acting in its own interests at the expense of its franchisees.

“Growing our customer base is our focus and by offering a simplified menu with all pizzas under $10 with no compromise on quality, we believe we have a winning formula," Pizza Hut general manager Graeme Houston told franchising news hub franchise.net.au.

Presumably, Yum! Restaurants Australia isn't looking to put one of its most valuable commodities out of business, so we're going to side with them on this one (indeed, similar Pizza Hut promotions have proved successful overseas without anyone shutting up shop.)

With that said, $4.95 is definitely a paltry asking price for a meal that can feed up to three people. It also creates a false perception of poor quality ingredients -- I mean, how good can a sub-$5 pizza be?

Personally, I have no issue with Pizza Hut's or Domino's wares, especially at their current asking price. But how about you guys? Is there a price you won't go below when it comes to pizza, or do you prefer to go as dirt-cheap as possible? Share your thoughts in the comments section below.

Franchise.net.au


Comments

    They cover the cost by putting even less toppings on the pizzas than they already did.

      Exactly. All that will happen is that the pizzas will get worse than they already are...

      ordered a prawn pizza about a year ago with a coupon, 1 prawn per slice of pizza, as i said before, its been a year since i last went back.

        The corollary would be ordering the same pizza at full price and comparing the prawn count - with photos. Then also reference their menu photos for the number of prawns, I note the current image of the garlic prawn pizza at dominos shows 2 prawn on a slice so that should be the expectation.

      in my experience through working at dominos years ago, the pizza quality will suffer at a cheaper price point, but not because of this. generally when you're on a make-line you're working on autopilot, and you're applying the same handfulls to every pizza you make (with exceptions being an accident, rather than malicious intent), and you have no idea how much the customer has paid anyway.
      the problem with the cheaper price point is the volume of pizzas being sold and the difficulty meeting the demand. when you have a queue of over 50 pizzas you work fast, mistakes happen more often and worst case scenario, the conveyor-belt ovens get backed up when pizzas are made out of order and the cutter gets confused, resulting in burnt pizzas while they work out where the hell everything is supposed to go...

    such a shame that delivery is $20 for a $5 pizza lol

      Yeah, seen that with eagle boys too - ordered a $8 pizza, charged me $10 for delivery.

      Im pretty sure their premise is anything over $20 is free delivery so just order 4 pizzas minimum

    I think the increase in turnover will compensate for the loss in per pizza profit. In the end, you'd hope they sell more pizzas at that price point.
    If they sell a lot more, they may get raw materials even cheaper e.g. bases & veggies so cost per pizza could go down, which could justify the $4.95

      Bases are probably bought from the franchisor at a fixed cost. Veggies & such I doubt will give them much of a price break.

      A couple of things work against the "cheaper = more sales, higher volume = cheaper ingredients, $$profit" idea.

      Some costs are fixed (such as rent). Some costs go up with volume (such as staff wages and ingredients). There's a severe limit to the benefits of economies of scale. There's also issues with price elasticity of demand - will a 20% drop in price lead to a 20% increase in sales? It's possible but I suspect it's unlikely, especially with Dominos matching price.

      Net result is having to produce more physical product with more work in exchange for less dollars. I don't blame the franchisees for being ticked off. As for the consumer - my bet is that the already shoddy toppings will take a further nosedive. Pay for cr*p and that's what you'll get.

        Bases are made in store from bags of flour, water, oil and yeast - even in the big chains

    I got one from domino's the other day with a deep pan base and it was really good for $4.95 , however it was quite plan and I would be paying $10 for it

    Having checked Pizza Huts website recently adding Onion to a Meatlovers pushes it to $10.50 at pickup.

    Just ordered on the weekend. The stink is over nothing much at all the 4.95 pizzas are the very basest of base (cheese, pepperoni) etc all 1 ingredient pizzas so they don't cost much of anything to begin with. coupled with the fact that the employees give less than a shit and throw the pizzas together in about 4 seconds and get paid minimum wage id say Franchisees will be fine.

    Can't speak for pizza hut, but a few years ago Dominos surprised me with the quality of their pizzas, but the focus on price has dragged it back down - like their getting rid of nice ingredients like sundried tomatos etc. However you slice it $5 pizza is going to be shit pizza.

    It does smell a bit like they are reluctant to let a good thing go.

    When you can get away with selling a Pizza for $8 or more, why would you want to then have to sell it at $5?

    The whole point is to make them cheap enough that more people will buy them, as well as the extras.

    I remember the $1 cheeseburger promo, when that was on there were tons of people going to maccas, however hardly any of them walked away with just a burger. That would have been quite successful.

    Would be a problem if we still had a Pizza Hut, shut it's doors over something a few months ago and hasn't been open since.

    great for consumers but it sucks if you are the owner of a domino's or Pizza Hut franchise at the moment.
    Imagine you have an investment of several hundreds of thousands of dollars in a franchise. You have budgeted for the next 3 to 5 years (as businesses have to) taking into account property rent, staff costs, estimated sales ect....... and then the parent company says you have to sell your product for half the cost!!!!!

    considering the toppings are becoming sparse and the sizes of the pizzas are shrinking, i have no problem with $4.95 pizzas. Having said that I cant wait to see how small and how void of toppings they will be at this price. Its like the old saying goes....You get what you pay for,.....so dont expect much pizza for five bucks id say.

    it makes for lower standards for the pizzas on the days that they have this special. id rather a good topping on my pizza and thus will not be ordering pizza on the days that this price is effective.

    Last edited 08/07/14 5:11 pm

    Have bought pizzas twice from pizzahut at 4.95 and I'm pretty 'meh' towards it. They only have a tiny range of 4.95 pizzas with the barest of toppings, Hawaiian being the only one with more than 2 toppings (that includes cheese) it would seem.

    Asked for a Meatlovers and was told it would be 8.50. :\ While not terrible and still an ok price, when I got the Hawaiian pizza it definitely only had around half the normal toppings it would normally have, it was bare as hell, giant patches of the pizza were just dough and sauce, no cheese. So we returned it, hence our second one. When we got that, it barely had any more than the previous one. I guess that's the franchisee's way of stopping this or something?

    I still believe what you pay is the quality you get though, 5 dollars is not going to get an amazing pizza. I'd still prefer to pay 20 for an amazing one from a proper italian shop, Pizza Capers, Crust or Hells pizzas (Are they still open!?) and know I'm getting quality at least.

    I usually choose Pizza Capers over places like Pizza Hut and Dominos. More expensive, sure, but they just look and taste like better quality pizzas to me. I find it hard to shake that belief with $4.95 pizzas.

    I just see it like this. If you go in with the mindset that you're buying hot bread with sauce, and a few toppings on it - Domino's, Pizza Hut, and Eagle Boys don't end up seeming disappointing for the price point. Where if you go into it from get go thinking you're going to get a restaurant quality 'pizza', you're going to 100% be disappointed. Just change how you think. For $4.95 at the franchises, you get a filling, hot bread with toppings or you can pay $20+ from your local independent if you want a true good quality pizza experience.

    I for one have zero problem with going to the franchises for a cheap, filling meal.

    $5 pizzas, are pretty good, but not something you want to eat every night.

    People forget pizzas traditionally are very basic, a tomato base, some mozzarella cheese, then some basil or oregano is quite tasty. And you can find yourself, buying a more expensive pizza, at other places for those ingredients. Which are just as sparse as the $5, but made in a way which is much superior in tastes.

    Well my story is this. My local PH seems to consistently make pretty damn delicious pizzas (for what they are). Recently I purchased two $4.95 pizzas & they were disgusting (literally, & I ate half of each & threw the rest out as they simply were undesirable). Barely any toppings at all. So anyway that has eliminated my PH cravings now, so not necessarily a bad thing.

    I'm not one usually to eat domino's pizza but I had a 5 dollar pepperoni last week and it was delicious to the last slice, go figure! Heidelberg store.

    Too bad they don't have the all-you-can eat Pizza Huts anymore..... so many memories.

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