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Bankrupt operator NPC to close up to 300 Pizza Hut locations

The franchisee is also selling its Pizza Hut units following an agreement with the franchisor.

NPC International plans to close up to 300 Pizza Hut locations, after an agreement with the franchisor that will pave the way for a sale of the company's remaining pizza operations.

According to a bankruptcy court filing on Monday, NPC has agreed to make various payments to Pizza Hut in exchange for the ability to close the locations, which represent about one out of every four Pizza Hut unit the giant franchisee operates.

In a statement, the franchisor said that the agreement will result in a “healthier business.”

“We have continued to work with NPC and its lenders to optimize NPC’s Pizza Hut restaurant footprint and strengthen the portfolio for the future,” the company said. “Today’s joint agreement to close up to 300 NPC Pizza Hut restaurants is an important step toward a healthier business.”

The locations, Pizza Hut said, “significantly underperform the rest of NPC’s Pizza Hut system.”

The company said that “a substantial majority” of the locations to be closed are dine-in, or “red roof” locations that Pizza Hut has been working to shift away from for years as the company has transitioned to a delivery and carryout model.

According to a bankruptcy court filing, the locations are struggling due to the condition of the property, the geography of the location, “changing demographics,” or proximity to other NPC restaurants that can serve the same area.

The filing also mentioned that the closed locations could allow for new development opportunities. It also noted that the closures will make it easier to sell what's left of NPC’s Pizza Hut business. The franchisee is made up of two divisions, one of which operated more than 1,200 Pizza Hut locations, the other of which runs nearly 400 Wendy’s units. The agreement does not involve the Wendy’s operation.

NPC is the largest franchisee of both brands, but its struggling Pizza Hut business combined with a substantial amount of debt, about $900 million worth, contributed to its bankruptcy filing in July.

NPC and Pizza Hut have been negotiating for several months on the company’s future. NPC operates 16% of all Pizza Hut locations, making it uniquely dominant within the brand. Pizza Hut, owned by Louisville, Ky.-based Yum Brands, has been taking a hard line with the franchisee, not providing it with breaks on remodel requirements or delays in royalty payments that it has provided other operators during the pandemic.

In their agreement, NPC has agreed to pay various ad fees, digital fees and outstanding royalties from before the bankruptcy.

Pizza Hut noted that any buyer of the brands should have “a strong capital structure, healthy balance sheet, commitment to operational excellence, and a growth mindset.”

“As NPC works through its restructuring, it will continue to make the advertising and royalty payments that benefit Pizza Hut franchisees in the U.S., many of whom are seeing encouraging results as we advance our broader transformation strategy,” Pizza Hut said, noting that same-store sales rose 21% in the second quarter, excluding the impact of closed Express units.

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