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How Pizza Hut got its mojo back

The pizza chain’s sales improved last quarter despite a weak market for delivery, thanks to Melts, third-party aggregators, and a major franchisee deal two years ago.
Pizza Hut sales
A 2021 deal helped speed Pizza Hut's comeback. / Photograph: Shutterstock.

Pizza Hut on Wednesday said that its U.S. same-store sales increased 8% last quarter. It was the strongest sales result in more than two years. But take out that one pandemic-fueled quarter in 2021, and it was the best result for the brand domestically in 13 years.

It came despite a difficult market for pizza delivery. Rival Domino’s Pizza reported a 3.6% same-store sales increase in the U.S. last quarter but it warned that those sales would slow the rest of the year.

Pizza Hut executives cited a few reasons for the results. Its new Melt sandwiches worked wonders, as did its Big New Yorker pizza. The brand also began using third-party aggregators to help with delivery.

But there was also the little matter of the sale of one-fifth of the chain’s restaurants to Flynn Restaurant Group in 2021.

Flynn, the country’s largest franchisee and operator of Taco Bells, Arby’s, Applebee’s and Panera Bread, acquired NPC International that year in the biggest single franchisee acquisition in history. NPC was the second largest franchisee in the U.S. and at the time operated more than 1,200 Pizza Hut locations.

But it was also in bankruptcy and struggling with a heavy debt load and a lot of dine-in locations in rural areas.

The bankruptcy filing and sale to Flynn did two things: It enabled the closure of 300 underperforming, mostly dine-in restaurants, which allowed Flynn to focus on a mostly delivery and takeout business. But it also shifted what became 900 restaurants from a struggling operator with a lot of debt to a well-capitalized franchisee known for operations abilities in Flynn.

“That’s had a significant impact as they improve operations in the restaurant,” Chris Turner, CFO for Pizza Hut parent company Yum Brands, said in an interview.

Pizza Hut has undergone a shift in its business, from dine-in to takeout. That, plus the chain’s marketing challenges and some issues with the franchisee base, has kept sales to a minimum over the past decade-plus as unit count declined.

System sales have grown just 5% over the past 15 years, according to data from Restaurant Business sister company Technomic. Unit count is down 13% over that time. Even last year, when same-store sales started to improve, its system sales declined 0.4%.

Yet the brand was able to speed its improvement with that one deal. “They’ve done a tremendous job systematically improving operations in the restaurants,” Turner said. He noted that shifting from one operator to the other is “not something we like to do or want to do,” but it is something the company will do if necessary.

Pizza Hut recently had a similar problem in Pakistan, where the company closed the 77-unit market last quarter. Yum plans to get that business into the “hands of a much more capable operator” that will take advantage of “future growth opportunities in the market.”

Back in the U.S., however, the improvement hasn’t all been about that 2021 deal.

Pizza Hut last year started working more aggressively with third-party delivery services after a severe driver shortage left it unable to make many deliveries, a problem faced by its rival Domino’s Pizza.

That move helped the company get access to DoorDash and Uber Eats customers. But it also made available the “white label” delivery product that enabled Pizza Hut to use those companies’ drivers in a time of need. “If the restaurant is running short of drivers we can use aggregators as a relief valve to get delivery capacity,” Turner said. That helped the delivery business improve in the quarters since then.

Then there are the Melts. The chain last year started selling Melts, cheesy, hand-held sandwiches priced at $6.99. The melts are designed for single customers. “Pizza is a cost-effective way to feed a family of four,” Turner said. “But you’re getting the same amount if you’re a family of one.”

The Melts, however, give the company access to those customers looking for a solo meal. “People are looking to eat Pizza Hut at lunch,” Turner said.

In addition, the chain brought back its Big New Yorker, a New York-style pizza that catered to those families. To Turner, innovation has been key in lifting sales. “That’s long been a hallmark of the brand,” he said. These days, he added, “the machine is running at full speed.”

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