Pizza Hut in 'major turnaround mode'
by Monica Watrous
LOUISVILLE, KY. – Just two years ago, Pizza Hut was on top, at least according to parent company Yum! Brands Inc.
“Things have softened the last couple of years,” said Pat Grismer, CFO of Yum!, during a July 17 call with financial analysts to discuss second-quarter earnings. “We’ve taken our learnings and we’re redoubling our efforts to bring the business back next year.
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Burned by another disappointing quarter for its pizza chain, Yum! said a “major turnaround” is under way.
“In fact, we intend to launch a number of major initiatives in the United States to reignite sales beginning in the fourth quarter,” said David Novak, chairman and CEO. “Our plan is to launch a major new advertising positioning along with innovations designed to better connect with millennials and separate us from the competition.”
Enter the pizza cookie, a new dessert option launched in July. The 8-inch cookie includes Hershey’s chocolate chips and is served warm. Designed with millennial eating behaviors in mind, the item is shareable, with eight servings per cookie.
Yum! said it also plans to sharpen its focus on value and leverage more competitive offers to drive digital sales, a platform dominated by competitor Domino’s Pizza.
“Our goal is to not only catch the competition on the digital front, but to surpass it in 2015,” Novak said.
Profits for Pizza Hut declined 22 percent in the quarter and 18 percent in the first half of the year, dragged down by US performance that was partly offset by growth in emerging markets. While Yum! executives would not provide specific guidance on full-year performance for the division, Grismer said results were projected to fall well below expectations.
The bright side? Comparable performance against a weak year stands to benefit the brand’s 2015 results.
“Pizza Hut is in major turnaround mode, but we expect to go into 2015 very strong and benefit from the fact that we will be overlapping a not-so-hot year this year,” Novak said.
Another facet of Yum!’s Pizza Hut plans is new unit development. In the first six months of the year, the company opened 178 new Pizza Hut restaurants, which included 106 international units and 72 US units.
“Even with our recent challenges in the United States, Pizza Hut has the highest average unit volumes in our category and over 2,800 more restaurants than our nearest US competitor,” Novak said. “Over the past two years, we’ve also been outgrowing the competition in terms of new unit development. In fact, we expect our fourth consecutive year of positive net new unit growth. Importantly, the majority of new units will be opened by franchisees, which speaks to the strength of the Pizza Hut business model. All of this gives us confidence going forward, and we expect to show significant progress balance of the year and 2015.”
Asked about a sale or spin-off of the chain outside of China, where the brand performs strongly, Novak said the company remains bullish on the power of Pizza Hut on a global scale.
“There are all kinds of things that you can do financially to think about reengineering the business, and all kinds of scenarios have been brought up over the last 15 years,” Novak said. “We look at everything, but we are absolutely committed to our current structure, believe it’s right, and we think our shareholders are going to benefit from it over the long term.”