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or delivery, elevated closure rates reflect that 46% of traditional system stores include dining rooms, are located in outdated markets and are not ideally set-up for delivery.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.

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