Pizza Hut and Hotelling

This past spring, Pizza Hut opened a new dine-in location on W Main St. A few weeks ago some friends and I decided to stop in for their Thursday night karaoke (I highly recommend). As we left I wondered why anyone would go to Pizza Hut beside karaoke night when there are other pizza places that are much closer to, even if you’re coming from the opposite direction we came from. To the east of Pizza Hut along University Avenue is Mellow Mushroom and Christian’s Pizza, and only 100 yards away to the west along W. Main St. is Benny Deluca’s.

Hotelling’s law says that a business should get as close as possible to the largest number of customers in comparison to other firms that sell homogeneous products. If we view the route from which customers approach Pizza Hut as linear, meaning all customers must come from along one end of W. Main St. or another, and we assume all the pizza places on the street sell homogeneous products (very debatable, but helpful to assume), then Pizza Hut chose a location where few people will dine because almost everyone coming from either side will come upon another pizza place before Pizza Hut. If Pizza Hut had chosen a location to maximize customers based on Hotelling’s law they would have built their location either just to the east of Benny’s on West Main in order to capture all pizza lovers coming from the direction of downtown, or built along University Ave to the west of pizza places on the corner to capture people seeking pizza coming from Rugby Rd and UVA. The city is obviously not two dimensional and there are a lot of other factors involved in choosing a store location, but Pizza Hut put itself in a tough place to draw in diners traveling along W. Main.