Internal Analysis using RBV of California Pizza Kitchen - Essay Example

The internal analysis yielded interesting findings which can help the chain develop strategies to overcome its financial worries. The chain has experienced success abroad and should focus on its innovative pizzas, toppings and salads to increase customer base. Service in the USA needs to be improved and an increase in sales is necessary to reach performance objectives. Opportunities in the form of recovering economic conditions and an increasing trend to eat out will help the chain but it needs to augment its brand image.

In order to increase the value of the firm, it is looking for sale and merger options which will help in salvaging shareholder wealth. California pizza kitchen may benefit from a merger or takeover but presently it needs to focus less on expansion and more on increasing sales at current outlets. Introduction California Pizza Kitchen was started in 1985 by lawyers Rick Rosenfield and Larry Flax. The Kitchen introduced pizza flavors from all over the world and focused on cooking in wood burning ovens, gourmet pizzas and creative salads.

The chain is famous for its unique and innovative creations and has over 230 locations in the USA and nine other countries. CPK has also licensed to distribute CPK frozen pizzas in groceries and supermarkets. In 1992 Pepsi Co purchased 67% of CPK’s stock and undertook rapid expansion which resulted in high losses for the company. In 1997, Pepsi’s share was bought by a private equity firm Bruckmann, Rosser, Sherril and Company but the company’s performance did not improve. In 2003, the original duo regained control of the company resulting in an improvement in the company’s performance. . .

The report focuses on an analysis of the organization’s resources and its strength and weaknesses. An internal analysis will lead the development of the SWOT matrix for the company. California Pizza Kitchen: Financial analysis: The economic value of California Pizza Kitchen using the formula for economic value added and the inputs provided by wikiwealth.com (California Pizza Kitchen, 2010): NOPAT – c.K $ 19M- 0.09*285M = - $6.65 M The economic value added for the company is negative in 2010, which shows that the value is not being created and that the cost of capital is too high.

A comparison with other competitors shows that although the industry WACC is also 9%, California Pizza Kitchen is not as leveraged as its competitors. The return on equity is -3% which is lower than the industry average on -6%. Revenue growth and profit margins stand around 9% lower than the industry averages of 11% but cash flow margin positive whereas the industry margin is negative. Revenue growth in the fourth quarter of 2009 fell by 5.8% and sales are expected to keep dropping till 2012.

The financial performance of the company improved after 2003 but has deteriorated in recent years and it needs to focus on further revenue growth. Competitors such as Red Robin Gourmet Burgers and Texas Roadhouse are performing better financially but CPK falls in the middle of the pack and is performing much better than others with investors forecasting a potential increase of 45% in the enterprise value. (California Pizza Kitchen, 2010) Resources: The tangible resources available to the organization include its diversified and high quality menu that caters to different tastes.

The pizza toppings and salads are a combination from