International business

Pezzo sells pizza by slices or by the whole pizza in a grab-and-go kiosk setting. The menu development is an ongoing process with products customizable for new

Countries (World Franchise Associates, n.d.), providing something unique to the menu that consumers can only get in Pezzo. They have been providing great-tasting and value-for-money pizza, fresh daily at highly reachable locations. Pezzo is selling the products in variety and convenience to their customers to buy and eat it anytime by selling the pizza by slices. The food kiosk concept provides openness to give customers a view of how their pizzas are being made (The Borneo Post, 2016).

Their brand identifies to deliver “a carnival in every bite no matter the occasion” ("About Pezzo", n.d.). From its website to the whimsical logo and packaging of the pizza boxes as well as the kiosk decor, Pezzo is all about being bright, cheerful and fun ("Pezzo Pizza Singapore", 2013). They boast a mass market appeal with its affordable, family friendly menu and all-day dining convenience (World Franchise Associates, n.d.).

The Hong Kong GDP per capita has been rising in recent years, reaching USD 62,375 (PPP) in 2019 ("Hong Kong SAR, China", 2020) with a median monthly salary of employed persons being approximately USD 2,257 (HKD 17,500) as of the second quarter 2020 (Census and Statistics Department, 2020).

With the citizens empowered by rising disposable incomes, eating out is prevalent in Hong Kong. Working professionals work long hours and prefer to eat out due to the increased variety of dining options. They tend to grab a takeaways for breakfast, and have lunch at a fast food restaurant for the quick service. Based on the report from the Census and Statistics Department, it is found that the Food expenditure makes up the 2nd highest expense in a household. See Fig 1.

Figure 1. Household Consumption Expenditure in Hong Kong

Source: Hong Kong: Reaching the Consumer. Santander Trade. (2020). Retrieved 27 October 2020, from https://santandertrade.com/en/portal/analyse-markets/hong-kong/reaching-the-consumers.

Hong Kong has always been known as a city of choices and convenience with more than 800 supermarkets, 1,300 convenience stores and over 100 traditional markets making food shopping very convenient (Li, 2018) and accessibility being the utmost priority. This trend is now being witnessed in the thriving grab-and-go F&B sector (Wu, 2016). Therefore, the major players are all fast food franchised restaurants (Fiducia Management Consultants, 2015).

Hong Kong is one of the most densely populated areas in the world (Hong Kong Special Administrative Region Government, 2015) and has a population of 7.5 million ("Hong Kong SAR, China", 2020) with a strong tourism industry that brought in 23.8 million international tourist arrivals in 2019, ranking 17th in the world (The World Tourism Organization, 2020), even during a period of social unrest.

Due to land constraints, Hong Kong has an attractive import-dependent market with 95% of food & beverage products being imported. Hong Kong is a trading hub into mainland China, Macau and other neighbouring markets in Asia (Fiducia Management Consultants, 2015).

With the attraction of over 40 million Mainland Chinese tourists per year, the food & beverage services made up the 3rd leading sector that generated Hong Kong’s GDP in 2017. This allows Pezzo to have an advantage in the product offerings, following the huge demand in the food & beverage service. See Fig 2.

Fig 2. Mainland China visitors contribution to Hong Kong's GDP in 2017

Source: Huang, T. (2019). A Drop in Tourism Is Threatening Hong Kong's Economy. Peterson Institute for International Economics. Retrieved 27 October 2020, from https://www.piie.com/blogs/china-economic-watch/drop-tourism-threatening-hong-kongs-economy.

Consisting of 92% Han Chinese population while 8% being non-chinese ethnic minorities ("The Demographics: Ethnic Groups", 2018), Hong Kong is a chinese dominated city. Looking at the statistics from the Hong Kong food & beverage consumer outlook, the majority of the consumers are females, of 25-34 years of age and are of the lower income group ("Food & Beverages - Hong Kong", 2020). With the low and affordable prices from Pezzo, we will be able to accommodate to the needs of the busy working adults and the lower income groups. See Fig. 3, 4 & 5.

Fig 3. Consumers of the F&B sector by age

Source: Food & Beverages - Hong Kong. Statista. (2020). Retrieved 26 October 2020, from https://www.statista.com/outlook/253/118/food-beverages/hong-kong.

Fig 4. Consumers of the F&B sector by Income level

Source: Food & Beverages - Hong Kong. Statista. (2020). Retrieved 26 October 2020, from https://www.statista.com/outlook/253/118/food-beverages/hong-kong.

Fig 5. Consumers of the F&B sector by Gender

In many developed countries, the availability of Pizza restaurants is of abundance. Based on magazines and lifestyle websites, TimeOut & VogueHK lists Top Best pizza restaurants in Hong Kong are from American and Italian based restaurants, which is a given as Pizza originates from Italy, to name a few, Motorino, 208 Duecento Otto, Alvy’s and Amalfitana ("Best pizza restaurants in Hong Kong", 2020) (Yeung, 2020). Based on the listings on Tripadvisor, almost all Pizza restaurants listings are either of a full restaurant operation, or only deal with online orders and delivery ("The 10 Best Pizza Places in Hong Kong", 2020). The only one that operates most similarly is Paisano’s Pizza, selling pizza by slices with a takeaway window while operating as a restaurant ("Paisanos Pizzeria", 2020).

Unlike other pizza restaurants, Pezzo is a kiosk which only requires an area of 200 square feet to operate. This small set up offers a competitive strength that it can be easily set up in strategic locations that cannot accommodate a restaurant (The Borneo Post, 2016), giving Pezzo a competitive edge.

The threat of substitute in the pizza industry is quite high with the tremendous amount of fast food items available. Not only in the range of fast food, but the rival pizza restaurants itself contributes to the threat of substitution options to the consumers. In a country like Hong Kong, the market of fast food and pizzas includes both international franchise and locally developed fast food chains and can be found largely.

Hong Kong is renowned for being a uniquely global business city and is deemed as one of the best cities in the world to establish and operate a company. There is no legal restriction on foreign ownership, and foreign exchange controls while setting up a business entity. The biggest advantage would be to facilitate entry into mainland China ("Eight Key Benefits of Opening A Company In Hong Kong", 2018). Many business owners are choosing to set up their business in Hong Kong.

Setting up a Kiosk operation model business is fairly easy. It takes a short time to construct and business risks for these kiosks are low due to the low set-up and operating costs (The Borneo Post, 2016). Without a strong strategy to keep innovating, new entrants are drowned by newer and fresher entrants.

With the large number and variety of Pizza restaurants available supported by the advanced online ordering and delivery service, consumers are able to easily obtain information to compare prices and quality of the taste and ingredients in most restaurants.

Business Strategy

Pezzo's entrance to Hong Kong's market will be as a wholly-owned subsidiary, with Foreign-Direct Investment (FDI) as its mode of entry.

As one of the world's strongest westernized economies, Pezzo as a Pizza food chain would compete with major fast food restaurants such as local cafes, commonly termed “Cha Chaan Teng”. Pezzo as an established brand would allow for local franchisees to leverage on its resources - to be made possible with expanding as a wholly-owned subsidiary.

The boon as a subsidiary is in the assurance of food quality to the highest standard. Hong Kong comprises more than 95% of food import from abroad, and the rate of food safety has been maintained at 99.7% in the last six years. Even so, to allow for greater confidence in the food quality, Pezzo as the parent management of the subsidiary, should take control of the operations and strategies. Leveraging on its parent company's resources would mean lower production costs, further saving on time for resource research as Pezzo as an established brand would have its own network of suppliers for logistics and distributions.

Product / Service Positioning

Pezzo could employ two product differentiation modes - Unique flavors and healthy ingredients. Pezzo primarily carries six flavors - BBQ Bonanza, Cheesy Cheese, Hola Hawaiian, Pepperoni Party, Supremo and Very Veggie, its vegetarian option.

To penetrate Hong Kong's market, Pezzo could serve traditional Hong Kong flavors into its offerings, such as roasted and dim sum delights. In Singapore, Pezzo served seasonal durian flavors in its pizza and could also do the same in Hong Kong, where traditional desserts like almond pastes are well enjoyed.

Pizza is classified as fast-food and is an indulgence to most. However, to cater to the mass market, Pezzo could incorporate natural food flavors into its offerings for the health-conscious and elderly. Presently, Very Veggie is Pezzo's only vegetarian option, and Pezzo can expand on the idea by producing a variety of healthy options like crunchy salads.

Customizing uniqueness has been proven to bring positive sales to a brand, according to a survey done by Bain and Company. Customisation draws close relationships with consumers and would tie exclusivity that would result in consumer stickiness.

Pricing Strategy

The price of a product and service is determined by the trade margins, market conditions, input costs and ability to pay and is targeted against competitors and towards defined customers.

Pezzo can use two pricing strategies - Penetration Pricing and Economy Pricing. Penetration pricing is used for new products in a new market, this is relevant to Pezzo. Upon launching in Hong Kong in its initial stages, Pezzo could artificially set its prices low to bring about brand awareness without compromising its food quality and raising them to standard prices once market share objectives are achieved.

Upon achieving market share objectives, as Pezzo's prices are of the standard fast-food retail sort at SGD 6 to 7 per pizza, Pezzo could set economical prices for its flavors unique to Hong Kong. In economy pricing, margins are exceptionally low and should be used only when marketing and advertising, or when other overheads' costs are low - rendering it practical after the initial launch of Pezzo in Hong Kong, where the brand would have built a following with its penetration pricing offered for quality flavors at the beginning stage.

Promotion and Advertising

In this new age of technology, it is a given that new businesses employ social media in entering new markets. Pezzo could work with renowned marketing agencies in Hong Kong in advertising in new and mass media. By working with agencies, Pezzo would also save overhead costs in hiring full-time marketing staff.

When marketing to the masses, it is crucial to note the generations from Baby Boomers to Gen Z. Therefore, to target the younger crowd, Pezzo should make use of social media like Instagram to attract attention to its brand. With inbuilt analytical tools, Pezzo can accurately target its audience and design its creatives accordingly. To target the older generation like Baby Boomers, it is practical for Pezzo to work with television media companies to advertise on TV, newspapers, and magazines.

When adopting the above, Pezzo should consider the Push and Pull strategy, where proven to complement promotion and advertising. A push and pull strategy adoption would benefit Pezzo in testing the waters of the Hong Kong market, further building on product awareness in the large retail environment.

Image source: Wang, Ding Wei, 2007, “Hybrid Push Pull Production Control Strategy Simulation and its Applications”

Branding

Given the intense competition Pezzo is predicted to face in the Hong Kong food market, Pezzo could employ Corporate Social Responsibility (CSR) as a branding strategy to demonstrate its uniqueness to other fast food retailers. CSR as a branding strategy is non-traditional and contemporary and is proven to evoke positive consumer feedback that would translate to more significant sales. Further, societal-oriented marketing strategies like CSR place the brand's acknowledgment in social and environmental sustainability - This would be relevant to Pezzo as a food company would have consumers concerned about its supplies' origins. Traditionally, Word-of-Mouth (WoM) is argued to be the best form of marketing. By placing emphasis on CSR and branding itself as an eco brand, Pezzo could potentially land itself free walking advertisements by consumers' and employees' WoM.

Reference

Pezzo SG: Singapore: Pezzo Group. (2019). https://www.pezzogroup.com/.

He, W., Zha, S., & Li, L. (2013). Social media competitive analysis and text mining: A case study in the pizza industry. International Journal of Information Management, 33(3), 464–472. https://doi.org/10.1016/j.ijinfomgt.2013.01.001