Pizza Hut

Jan 7, 2021 | Report Announcements

Pizza Hut enjoys substantial scale and strong brand equity as the 2nd largest national player in the $1B+ chain pizza segment by domestic system sales. The brand has historically been distinguished by its Pan Pizzas, Stuffed Crust products and fun innovation. Its ongoing repositioning towards a modern delivery concept includes a conversion of dine-in assets to smaller stores optimized for delivery to go with brand upgrades that include: product quality enhancements; stronger value offerings (including national price points); increased national ad spend to support value and its sports sponsorships; delivery speed improvements; and progress with Hut Rewards. Product quality initiatives over the last several years included: extra cheese on pizzas; menu rationalization (fewer topping options) to help execution; and clean ingredient initiatives. Also, its Pan Pizza was reformulated with a: new pan; different cheese blend; crispier, buttery crust; and more sauce. The chain appears to be restoring its core menu equity around innovation as highlighted by the recent intro of 2 new pizzas made with Beyond Meat sausage crumbles. We like that Kevin Hochman (president of KFC US) was installed as the interim president of Pizza Hut at the end of 2019 based upon a plan that Hochman will replicate his success with KFC’s marketing turnaround (transitioning a stodgy brand into a relevant, contemporary rendition of its former self) by re-establishing Pizza Hut as “America’s Favorite Pizza”. However, while 90% of its business is either takeout or delivery, elevated closure rates reflect that 46% of traditional system stores include dining rooms, are located in outdated markets and are not ideally set-up for delivery. Comp under-performance is also attributed to: a lack of everyday value in a very competitive price environment; delayed digital ordering initiatives; need for faster delivery speeds; increased competition from non-pizza delivery facilitated by the rise of DSPs; and increased competition in the pan pizza category which represents one of the brand’s core competencies. In conclusion, while Pizza Hut is making good progress playing catch-up in a segment with a quickly rising bar, the brand must rediscover a defensible niche and simultaneously complete its asset conversion in order to finish its evolution into a modern delivery concept.

No Bull Economics
Restaurant Research

Email Sign-up

Traffic as a Gauge of Consumer Strength

Investors should be struggling to decide whether the economy is entering a recession, consistent with the base case for McDonald’s 2023 business plan. However, judging by the market’s recent performance, it appears that investors are already celebrating a soft landing. But before drawing that conclusion, we need better insight into retail traffic trends which, at first blush, have been depressingly negative.

Why are Builders Focused on Developing Multi-Family Apartments?

While traditional homeownership has long been a staple of the US economy, shrinking household size & long-term economic pressures are changing housing preferences. This trend has important implications for the future spending patterns of consumers who are less likely to be house poor. 

Flat to Modest Rent Growth is Expected for 2023

It appears that more Americans are moving back in with family or roommates (or delaying striking out on their own) after a prolonged period of skyrocketing rent growth aggravated by broad-based inflation, according to ApartmentList.com. Now rents are falling fast.

Have Delivery Fees Taken a Bite Out of Restaurant Industry Sales?

Delivery fees are not cheap & can represent multiples of the menu item price. Although there is an argument to be made that delivery marketplaces can expand a restaurant’s marketing reach, there is a price to be paid in terms of industry sales cannibalization

Lockdowns Tipped the Balance of Power to Employees in Low-Cost Cities

Why has consumer spending held up so well during a period of huge and punishing inflation? As it turns out, the long-term impact of the covid lockdowns was most notable for the lowest income demo who saw their hourly wages increase the most relative to all other earners. While this momentum is slowing, this development continues to have important implications for inflation prospects and the start of the 4Q22 corporate earnings season.

What’s up with Egg Prices?

How does a -3% decline in table-egg production translate into December’s 2x+ egg price increase? That’s a good question for someone…

Could Retail Traffic Declines be Attributed to Excess Mortality Rates?

Traffic declines across the board in both restaurants and grocery stores suggest fewer people eating. The shocking statistic is that 2021 life insurance payouts were much higher for group plans typically associated with young, healthy corporate employees relative to individual policyholders. 

Farmers Need More of the Profit Pie to Fund Needed Capacity Increases

The farmer’s share of a $1 food purchase has been steadily decreasing to just 14.5% of the total, according to USDA data. This provides a compelling clue about why food production has been strained, and correspondingly, why food cost inflation is out of control.

Did Investors Forget about December’s Bomb Cyclone?

December’s preliminary retail sales release spooked investors who smell a recession. Normally, this would be a boost to stocks because of expectations that the Fed might start to adopt a more dovish stance. However, this represents the first time that investors have finally come to believe that Powell & company intend to keep interest rates inflated, even if hell freezes over. 

The Middle Class is Losing Share Post-Covid

A strong middle class is critical to a healthy economy as this cohort spends a larger portion of their income (relative to the rich) on goods & services that drive growth. 

Digital Marketing Opportunities
Restaurant Research

A Restaurant Research LLC Company