Regulation and Pizza Hut Essay.
School cafeterias served nearly $500 million of pizza a year. Only frozen pizza was used, however, because freshly prepared pizza was effectively excluded by a U. S. Department of Agriculture (USDA) regulation that required inspection of any pizza with meat toppings that was sold at wholesale for resale. The same was true for other institutions such as hospitals and prisons. The 39 broader issue was the closure of the institutional market to freshly-prepared foods such as pizza and other fast foods.
Pizza Hut’s overall business strategy was to become a “pizza distribution” company, and the institutional market was crucial to that strategy.
According to Roger Rydell of Pizza Hut, schools were “‘a potentially enormous business for us. … We’d like to have every one of our [4,000] delivery-capable units nationwide serving at least one school. ”’1 Since Pizza Hut was excluded from the institutional market by the USDA regulation, the task before Pizza Hut was to develop a nonmarket strategy to modify this regulation to allow school cafeterias and ultimately other institutions to order fresh pizza.
There were two basic institutional arenas in which Pizza Hut could address this nonmarket foreclosure of a market. One was the regulatory apparatus of the USDA. From the perspective of a bureaucracy such as the USDA, an exemption from its meat inspection responsibilities would be required. It seems unlikely that the USDA would want to weaken its own inspection program. Indeed, the opponents of an exemption for fresh pizza, as led by the National Frozen Pizza Institute, sought to have the contentious issue resolved by the USDA.
A resolution in that institutional arena would necessitate an extensive administrative process requiring public hearings, publication of proposed regulations in the Federal Register, a comment period, possible adoption of an exemption, and possible legal challenge in the federal courts by the losing side. This process would likely be quite lengthy. (See Chapter 10 for a discussion of this process. ) Pizza Hut first attempted to obtain a USDA exemption without an administrative process but failed in its attempt. The second institutional arena was Congress, which could enact legislation to overturn regulations.
Pizza Hut worked through Congress to include a provision in a 1991 agriculture bill that would allow fresh pizza to be purchased by school cafeterias without USDA inspection. The amendment directed the USDA to issue regulations by August 1992 allowing fresh pizza with meat toppings to be sold to private and public institutions. 2 Pizza Hut had headquarters in Wichita, Kansas, and Representative Dan Glickman, whose district includes Wichita, commented that the USDA regulation was “a Byzantine, outdated and, quite honestly, an anti-competitive regulatory structure. ”3.
One question was whether this issue was resolved by interest group politics or by some public policy process based on a careful study of the costs and benefits. The opposition, for example, argued that an exemption posed a health hazard, whereas Pizza Hut argued that precooked toppings such as pepperoni had already undergone two inspections—one at the processing plant and one earlier at the slaughterhouse. These arguments likely had little effect on the decision other than to convince members of Congress that there was no health hazard in fresh pizza sold to institutions.
This issue was ultimately resolved through interest group politics, with Pizza Hut and other fast-food chains backing the exemption and frozen pizza interests opposing it. 1 Wall Street Journal, November 29, 1991. 2 Wall Street Journal, November 29, 1991. 3 San Francisco Chronicle, November 28, 1991. Assignment Questions (30%): 1. What is/are the real issue based on the case study? (2 marks) 2. Describe the 4I’s based on the Pizza Hut Case Study. (8 marks) 3. Describe the roles of news media in this case study. (10 marks) 4. From the case study, where those issues are in their life cycles? Discuss. (10 marks).