Why Pizza Hut Fell Behind In The Pizza Wars

americans love pizza whether it's at your favorite local restaurant or at your kitchen table each week about 100 million americans take a bite out of their favorite pie from maine to southern california there are about 95 000 pizzerias scattered across the us for more than 50 years one of the major u.s chains that consumers turn to for their pepperoni fix is pizza hut the red roof restaurant known for its stuffed crust and its pizza buffets has more than 16 000 restaurants in over 100 countries pizza hut even put a pie into outer space but the 60 year old brand has struggled according to analysts in 2017 domino's overtook pizza hut as the largest pizza chain by global sales and in july 2020 pizza hut's largest u.s franchisee filed for chapter 11 bankruptcy yeah the brand has been in decline i mean i think they've had a lot of you know closures of stores and they've had some you know same store sales that have been you know fairly negative and relative to them especially relative to their peers so yeah i think they've they've been in decline about 10 of our businesses in diamond there's obviously a big headwind against that and so now one of our challenges that we've always had for the past how many every years is how do we migrate to more of a delivery and carryout business given that's where the customer's going and covet certainly accelerated that so we're partnering right now with our franchisees to figure out and how do we continue to evolve the estate but certainly the footprint that we have and the access that our customers have to us is a big advantage for pizza hut sales of pizza have surged during the pandemic in may 2020 pizza hut's delivery and carryout sales reach an eight-year high and there are signs that the coronavirus pandemic has helped revive the pizza maker's u.s business too pizza hut and its rivals domino's little caesars and papa john's are locked in a fierce battle offering new products discounts and a range of delivery options to try and win over customers so what went wrong at pizza hut and will the chains takeout and delivery service be enough to offset the decline of the dining restaurant experience pizza hut got its start in wichita kansas in 1958. dan and frank carney brothers who were studying together at wichita state university borrowed 600 from their mother and decided to try their hand at a popular new food item pizza with almost no experience and a meager budget the pair wrote out their first pizza recipe on a napkin got a used stove from a nearby restaurant and named the new pizza hut because the sign out front only had room for eight letters pizza was considered a novelty in meat and potatoes kansas and from opening day the dish was a hit and the brothers quickly replicated that success by franchising the concept out to their friends initially this is a very informal type of network of individuals these are friends who know each other and it's very much a matter of handshake the old statement was did you shake hands with dan on it and that served as a contract in some of those early negotiations in the 1960s the restaurant expanded quickly across kansas becoming a regional chain and then according to analysts one of the first national pizza chains in the u.s pizza hut is a sit-down restaurant it's not just showing up getting a burger and leaving the idea of sitting down for a meal becomes part of the pizza hut persona by the early 1970s pizza hut was the number one pizza chain in the world in both sales and the number of venues in 1972 the company opened its 1 000th restaurant listed on the new york stock exchange and in 1977 pizza merged with pepsico becoming a division of the soft drink giant in the 1980s rivals little caesars dominoes and papa john's were expanding too to keep ahead of the competition pizza hut launched new products like its famous original pan pizza in 1980 the personal pan pizza a few years later and the han toss traditional pizza in 1988 pizza also continued with its massive expansion at home and abroad opening its 5000 restaurant in 1986. by the 1980s and the early 90s the company was experimenting with delivery all-you-can-eat pizza buffets and online ordering it was trying out new menu options too in 1995 the pizza maker launched the stuffed crust pizza so when pizza hut was at its best and we were growing you know exponentially it was all about creating pizzas that you couldn't get anywhere else it was all about special pizzas that you can only get from pizza whether it's our special stuffed crust which is the 25th anniversary or our pan pizza which a lot of people don't know was invented so that the pizza could actually deliver and be carried out better than eating in the restaurant because of the thicker dough it retains heat better right and so we have a history of innovation that is really important um to customers despite all the innovation pizza share of the market has been falling since the 90s according to technomic pizza share of the limited service pizza category declined from 25 in 1995 to just 14 in 2016. in 1997 pepsico decided to spin off its then struggling fast food business launching pizza hut taco bell and kfc into a new publicly traded company that would later be renamed yum brands a company now worth 30 billion dollars as of november 2020. what happened i think over the course of the last maybe 20 years maybe even longer is that we just started to have this greater greater push not just in pizza but across the industry for more off-premise people just dining more at home and having more delivered and having it more picked up and eating it more at home the pizza hut's dominance which if you go back to the 70s or 80s was unsurpassed in the industry is no longer there and you know not only do they have several large national competitors but you also have a number of players that are relatively new you look at a blaze pizza or you look at a mod pizza in 1999 pizza hut rolled out the big new yorker pizza with a tv ad featuring donald trump and in 2001 became the first company to deliver a pizza into outer space but as consumers shifted to mobile ordering and delivery pizza hut known historically for its dining restaurants saw its sales slide in a move to counter falling revenue in 2017 the company invested 130 million dollars to improve technology boost advertising and up its fleet of delivery drivers by 14 000. the following year the chain unveiled plans to renovate more than 500 out of its 7500 us restaurants each year and that same year the restaurant became the official pizza sponsor of the nfl after papa john's severed its ties with the league and pizza hut is a massive footprint too larger than rivals dominoes and papa john's at the end of 2019 pizza had had close to 19 000 locations in the u.s and abroad including traditional restaurants and express stores total system sales were 12.9 billion dollars in 2019 more than five percent higher than in 2018. that same year more than 60 percent of venues were located outside of the us and 99 were operated by franchisees the pizza industry in the us is a roughly 45 billion dollar business dominated by a handful of big players independent mom and pop operators make up about half the pizzerias in the u.s while regional chains and national brands make up the remainder in the u.s the four biggest pizza makers are dominoes pizza hut little caesars and papa john's since the start of the coronavirus pandemic pizza makers who have their digital ground game in place and digital assets in order have seen big gains domino's the world's largest pizza chain and an early investor in tech and delivery said u.s same-store sales climbed more than 17 percent in its third quarter of 2020. the pizza chain also said it plans to hire 10 000 workers to meet demand domino's was probably the early mover in terms of the tech advantage in the pizza space and you know they're generating over three quarters of their sales now coming from from digital which is just a phenomenal domino's uses a strategy called fortressing adding stores and existing markets to be closer to customers in order to make deliveries even faster globally the company added an average of more than three stores every day in 2019. i think when you look at what dominoes did a couple years ago by blowing up their entire uh sort of product category and reinventing their entire pizza portfolio i think you know what had been a challenge for dominos in terms of quality suddenly became a strength of theirs uh and so you know certainly that plus their digital footprint helped domino's tremendously in their growth and and how they blew past pizza huts as of november 12 2020 domino's had a market cap of 15 billion dollars and the company's stock price hit an all-time high closing price of 433 on october 2nd 2020 81 percent higher than a year earlier social distancing has been good for rival pizza makers too yum brand shares have seen a huge rebound in 2020 and papa john's shares hit new records sales numbers are also looking good papa john said in november its third quarter 2020 north american same store sales grew 24 as the coronal virus crisis forced more people to turn to delivery and takeout the company also said it would hire an additional 30 000 workers and in october 2020 pizza hut reported u.s same store sales grew six percent in the third quarter of 2020 from a year earlier so certainly in the us what the market is asking for from pizza now is fast delivery to go type options which pizza hut has been slow to adapt and slow to respond to or just it's had trouble doing so those red roof pizza huts which back in the 70s and 80s where their competitive point of difference have sort of become an albatross for them in a way that is weighing them down the pandemic has also had a big impact on the state of the brand's franchises too in july 2020 pizza hut's largest u.s franchisee npc international filed for chapter 11 bankruptcy after years of slumping sales and roughly a billion dollars in debt npc international operates more than 1200 pizza huts we look at this as a positive it's something that we've known for a while even pre-covered there was discussions about this right and the reality is mpc either the new owner or owners are going to come out much more well capitalized great operators ability to invest in the business and the thing that we're excited about is there's a lot of folks that we're hearing about that are interested both existing franchisees in our business and new franchisees and that's because the trajectory of the business right now is quite good in august 2020 pizza hut said it would close up to 300 mostly dine-in restaurants as part of the agreement between the pizza maker and npc little caesars is a privately held company and hasn't reported their 2020 earnings cnbc reached out to ask for these numbers and we didn't hear back from the company even before the pandemic began to shut down countries around the world pizza hut was posting disappointing earning results in february 2020 yum brands announced kevin hochman will be named interim president of pizza hut's u.s division hoffman was credited with turning around kfc in the us through a series of celebrity commercials and a five dollar value menu some analysts have cautioned it's a difficult road ahead if pizza hut wants to retake its spot as the number one pizza shop in the u.s experts say pizza would have to solve three very big problems reconciling its large footprint and rapidly upgrading its online ordering and delivery technology which has fallen behind its peers and it needs to address a menu with offerings that aren't resonating with consumers like they used to according to analysts about 40 to 50 percent of pizza hut stores in the us are large casual sit-down style restaurants an income stream that was mostly cut off while restaurants remain closed in 2020 with more people eating at home over the past two decades rivals papa john's and domino's have transitioned to stores with a smaller footprint which are able to handle pickup and delivery more efficiently when you think about delivering pickup i think you think papa john's and you think dominoes right and they've managed to build more stores that are smaller footprint you know a fraction of the size of a pizza hut that are more efficient at delivering and are closer to the consumer papa john's and domino's were also early investors in tech and have continued to make big investments papa john's claimed that in 2001 it was the first national pizza company with online ordering in all of its us delivery restaurants in 2019 domino's launched a gps delivery tracking platform that allows customers to track the progress of their pizza that same year the pizza maker teamed up with the robotic company neuro to test an autonomous delivery vehicle in the us domino's generated over 65 percent of its sales from its digital channels in 2019 you'd be surprised that i think dominoes and papa john's both have a very similar digital mix uh somewhere around 70 of their both their sales are coming from digital so both around the same but i think pizza hut's been below them i think somewhere around 45 50 of sales have been digital and pizza hut is beefing up its digital game too revamping its website and its app and making it easier for customers to track the progress of their pizza delivery the roadmap's pretty simple actually it almost seems a little too simple we gotta start serving the best tasting pizzas again served in a frictionless experience which is more the modern pizza experience what that means is both online and offline how do we make it easier to transact with pizza so online it's all about making sure that the website the mobile web and the app have a completely new user experience to allow for fewer clicks and easier to transact with pizza and then even in the offline world there's still about 30 35 of our business transacts over the phone how do we make sure it's easy and our and our team members answer that phone every time so the customer gets the experience what they want when they call and want to order pizza hut according to analysts pizza has struggled in the past with his menu of pizza wings sandwiches and pasta the selection has been difficult for franchises and operators to make and has caused disruptions in the overall workflow i think that's been the biggest issue is that you know there's been too much menu complexity um you know a pizza hut and you know and honestly some of the changes they made just the recipes haven't clipped as much as some of the the changes that its competitors have made as well but that might be about to change in november 2020 pizza hut announced it was teaming up with beyond me to add meatless sausage to its menu we're super excited about the pizza innovation that's coming to market we're bringing all new recipes that i'm pretty sure that nobody's seen nationally from a pizza chain um you know in the next three months you're going to see something that you know i think you've seen in other industries but we really haven't seen it national pizza that's going to be really exciting and bring some incremental customers into pizza huts both for carryout and delivery and then in q1 of next year we're really excited about a blockbuster pizza launch that is really democratizing a trend that we're seeing all across the country that quite frankly no national players have played it the 60 year old pizza giant is also in the middle of an identity crisis but the coronavirus pandemic an unlikely accomplice might just be the solution to that problem we have a long way to go on our turnaround we have a lot of momentum so you know i'm pretty excited about where we're going next

Channel: CNBC

Views: 1,003,673

Rating: 4.8552685 out of 5

Keywords: CNBC, business, news, finance stock, stock market, news channel, news station, breaking news, us news, world news, cable, cable news, finance news, money, money tips, financial news, Stock market news, stocks, pizza hut, pizza hut near me, pizza hut online, pizza hut menu

Id: rWB-0DFuHvI

Length: 15min 40sec (940 seconds)

Published: Sun Nov 22 2020

Reddit Comments

[u/PieOfTheLand]

Triple treat box

[u/bdavis333]

Detroit-style pizza. Deep dish square pizza with premium dough and sauce. Will come in 4 recipes to chose from. Currently set to start at the end of January.

[u/waynegholder]

I've heard something about a taco pizza, but don't hold me to it.

[u/PizzahDeHut]

god approved.

[u/[deleted]]

Put some more cheese n toppings. I barely get any whenni order