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

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.

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