BANGKOK, Thailand – William Heinecke took on Pizza Hut in Thailand and won, grabbing more than half the market in a matter of months. Now he’s planning his next moves against the world’s biggest pizza purveyor, including a foray into the Middle East, where American-style pizza outlets are not exactly the flavor of the month.
Heinecke, an American-born Thai citizen, likes to portray his battle with Pizza Hut as a David versus Goliath affair, and he’s got a point. Popping out 1.7 million pizzas a day in 88 countries, the U.S.-based Pizza Hut should by all rights have gobbled up his business, The Pizza Company, in one easy bite.
And Heinecke, although a veteran businessman, thought it would as he lost 33 pounds and developed stomach ulcers as he prepared to launch his venture.
“We wondered whether anybody would show up. We were telling people to pay more for pizza that they’ve never had before from a company they’d never heard of before,” the 53-year-old businessman said.
But within six months of the March, 2001 start, The Pizza Company’s market share soared from zero to some 70 percent and now stands at about 60 percent to Pizza Hut’s 40 percent, according to financial analysts. There are no other players in the Thai market.
“It’s an ongoing battle. You’re only as good as the last pizza you served,” said Paul Kenny, who runs The Pizza Company and other fast-food enterprises within Heinecke’s Minor Group conglomerate, which also includes hotels and consumer products companies.
But despite the shrinking world economy and signs that Pizza Hut is preparing for a counter-offensive in Thailand, Heinecke plans to open two outlets in Kuwait in coming months and hopes for further expansion in the Middle East, China and other Asian countries.
“We’ve proven the concept in a very competitive market,” he said. Abroad, “the Thai origins are viewed as a positive attribute especially with the popularity of Thai food and especially when you look at the Middle East, where the sales of American companies such as Pizza Hut have dropped off dramatically.”
“Who knows – perhaps Iraq will get the taste of The Pizza Company before they experience any of our American competitors,” he said.
Although Pizza Hut, a subsidiary of fast-food giant Yum! Restaurants International, and other American companies doing business in the Middle East refuse to disclose their losses, there are indications they’re being hurt by a boycott of American goods urged by Muslim preachers, students and intellectuals.
Some U.S. fast food restaurants have closed in Egypt and Jordan while others are cutting prices and placing ads pointing out they are Arab owned and managed to win back customers.
The Pizza Company could profit from such a trend. A fully Thai-owned company, it has steered clear of an American-style pizza image, using Italianate decor for its outlets and including on its menu spicy, Thai-style toppings and even a “tom yam kung pizza,” based on the popular fiery shrimp soup.
Heinecke also plans to move into China, where Pizza Hut is sure to prove a vigorous competitor – its annual sales there total about $1 billion, exceeding those of all fast food operations in Thailand combined. But Heinecke won’t be a newcomer, having opened Pizza Hut’s first outlet in China.
In Thailand, Heinecke acquired the Pizza Hut franchise in 1981 and cornered about 95 percent of the Thai market by 1999 when a contract battle erupted with Tricon Global Restaurants, as Yum! was then known. An out-of-court settlement was reached in 2000: Heinecke could continue to operate Pizza Hut outlets until January, 2001, after which Tricon would have the field to itself for 45 days while Heinecke had to close down.
Heinecke wasn’t defeated. He kept the prime locations he had found for Pizza Hut and a vast customer database. He did market research, and found customers were willing to pay more if they could get more, and tangier, varieties of toppings and, quite amazingly for Thais who a generation ago shunned dairy products, a sharper tasting cheese.
Best of all, Heinecke said, an experienced staff of 4,000, including 700 motorcycle delivery men, stayed loyal as the company rebranded.
“When you get two companies going at it tooth and nail, the secret weapon is the people,” he said. “We also had a sympathy vote. We were a small Thai company threatened by this huge American corporation.”
Sattatip Peersub, an analyst for Kim Eng Securities, said The Pizza Company won the war because it capitalized on its in-depth knowledge of the local market, including the Thai palette.
“Since people are now more discerning about pizza, they consider taste more than the brand. Minor Group has developed a better taste for Thais than Pizza Hut,” she said.
Panithan Sethabutra, who heads Yum!’s Thailand operations and is himself a veteran of the fast food industry, said he had the backing of big, global resources but had to set up in new, expensive premises and recruit inexperienced people to staff them. His hands were also tied by corporate-mandated quality standards, forcing him to import cheese and other items which carried high tariffs.
The Pizza Company plans to open another 30 outlets this year for a total of 148, whereas Pizza Hut may add two to three to its existing 83. Heinecke said his sales last year totaled $37 million, estimating Pizza Hut did about half that.
Panithan said the focus is on consolidating his position and thoroughly training staff before launching any expansion. “Once things are stabilized, building new stores is peanuts. But if the team is not ready we won’t go,” he said.
Like a good commander, Panithan won’t give away any more of his strategy. But it seems like Thailand’s Pizza War II is not far off.
AP-ES-05-28-03 1423EDT
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