Case Study of California Pizza Kitchen

Case Study of California Pizza Kitchen Rick Rosenfield and Larry Flax started California Pizza Kitchen in 1985 it was in Beverly Hills, California. Today, California Pizza kitchen has over 250 outlets which are around the world; the group is still operated by the initial founders. Most of the CPK’s restaurants are located in California, and the rest are located some in America and the others in Asia, Middle East and North America. California Pizza kitchen has franchised about 50 outlets which bear CPK name. California Pizza kitchen generates revenues from the restaurant which in most cases has very low profit margins that is caused by the cost of goods being very high. CPK is also known to generate higher revenue through a recent franchise agreement with the Kraft foods company, for Kraft food to produce and distribute some of the premium frozen pizzas associated with CPK. The Kraft franchise revenue generates 1% of CPK total annual revenues, revenue from the other franchise revenue is about 0.72% of the total rev enue and the restaurant sales revenue is about 98.31%. California Pizza Kitchen is in the foodservice industry, Foodservice is the sale of food and drinks for them to be immediately consumed, this can be in the premises where they were bought, or in place which is designated for eating and can be shared with other foodservice suppliers. California Pizza Kitchen runs restaurants and thus the NAICS code for the industry is 722110. Background and Assumptions Pizza is a very popular food in America, it is also a very favorite food and it transcends all demographics and it appeals almost all ethnic tastes. California Pizza Kitchen is known to sell fresh and the high quality pizza products. California Pizza Kitchen also offers various varieties of pastas, entree-size salads and soups which are freshly made and they all satisfy all tastes (Flax and Rosenfield 1999). California Pizza kitchen is a popular restaurant that is based in California, there is much more room for expansion of Califo rnia Pizza Kitchen both in America and internationally. The America alone can without any strain be able to support over 3,000 units. This is because Pizza is a favorite dish for all Americans and California Pizza Kitchen has built a big name by selling them. 5 Forces in Porter’s Model for CPK The Threat of New Entrants – (MODERATE FACTOR) This is one area which puts California Pizza Kitchen under pressure. There are some barriers to entry in the restaurant industry, but there are also many things that make it easy for one to enter the restaurant industry. This puts California Pizza Kitchen under constant pressure for them to differentiate themselves over all the other competitors or other restaurants that surround them. Before people spend money on food, they have to consider other restaurants for them to make a decision. There is a higher number of substitutes in the restaurant industry, these is mostly caused by the low barriers to entry. There are many small barrie rs that would deter an organization from entering the restaurant industry. Three major barriers that are faced by new entrants into the restaurant industry are; the ever rising prices of food, the economies of scale, and the heavy competition due to there being very many restaurants in the market. These barriers are not difficult to deal with like the government-enforced barriers which are very difficult to the new entrants into the market, but the barriers can still deter one from entering the market. Though the industry has some barriers, there are also some aspects of this industry that make it very attractive to investors. Some of these attractive elements of the industry include; there are low asset requirement, there is a lot of suppliers, the levels of capital required by the business is low of capital and the inability of organizations to establish true competitive advantage over the competitors.