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Pizza Hut and Taco Bell look to improve their sales growth

Two of Yum Brands’ three concepts report disappointing sales amid intense price competition
Photograph courtesy of Taco Bell

Pizza Hut and Taco Bell are looking for ways to bolster their sales in the second half of the year after intense competition this spring eroded their results in the second quarter, parent company Yum Brands said on Aug. 2.

Same-store sales were flat at Pizza Hut in the U.S., and down 2% internationally. At Taco Bell, which has locations mostly in the U.S., same-store sales rose 2%. Same-store sales rose 2% at KFC, including 1% in the U.S.

The results contributed to Yum's overall worldwide same-store sales growth of 1%, which disappointed investors.

Greg Creed, Yum’s CEO, called the company’s same-store sales results “unfinished business” on the company’s second-quarter earnings call. The company said it expects same-store sales for the full year to be on the “low end” of its predicted 2% to 3% range. Yum stock rose 1.5% Thursday after initially falling.

“The numbers are not bad,” Creed said. “Obviously, we’re not content. We can and will do better. We have to deliver, not just talk about it. It’s my focus, it’s our focus, in the second half of the year.”

Pizza Hut in particular has what Creed considers to be important sales drivers in the second half, beginning this fall when the company starts sponsoring NFL games along with its NCAA sponsorship.

The chain became the sponsor this spring after rival Papa John’s and the NFL mutually decided to end their agreement.

“I think we’re delivering all the right things,” Creed said. “We’ve got to deliver the results. We feel good about what we have in the back half of the year for Pizza Hut in the U.S.”

Still, the numbers for Pizza Hut were disappointing considering the chain’s numerous efforts to improve sales, such as hiring drivers and working to shrink delivery times while adding technology to make the ordering process easier.

Creed said delivery times have improved by three minutes and customer satisfaction scores have improved. 

In addition, competition in the pizza business grew easier with the problems at Papa John’s.

Creed said on the earnings call that the company shifted away from value messaging, which hurt traffic in a business where value remains paramount. “We have to remind customers we’re a brand offering everyday compelling value,” he said.

One thing he doesn’t believe is hurting the concept: Third-party delivery services.

Executives on the earnings call said Pizza Hut’s delivery and carryout businesses have improved in the U.S. and internationally despite the presence of more delivery providers.

“Are we seeing other people” take some of Pizza Hut’s business? CFO David Gibbs said. “It’s hard for us to say that. We feel pretty good about the Pizza Hut delivery and carryout business today.”

Yum Brands in February announced a partnership with Grubhub to delve head-first into the delivery business, buying $200 million worth of the delivery provider’s stock and agreeing to integrate the service into the point-of-sale systems at KFC and Taco Bell.

Company executives said they are “pleased” with the early results of the partnership but noted that they have been focused on integrating the platform early on to ensure the process runs smoothly.

Yum has yet to market its delivery at the two brands.

“We haven’t unleashed our marketing yet,” Creed said. “We want to get the integration right. We want to test the integration. And then we can unleash marketing dollars.”

He said that the number of transactions per location are still small and noted that the company is using the knowledge it has from Pizza Hut’s delivery to ensure that the system is meeting customer expectations.

“There are several milestones to get through as we go on this journey,” Gibbs said, noting that the company is finalizing terms for franchisees to sign with Grubhub.

One thing that did hurt Yum Brands’ same-store sales this year was a problem with a chicken supplier in the U.K., which led to massive shortages there and the closure of numerous locations.

Executives on the call said that KFC’s same-store sales growth globally would have been 3% had it not had that problem.

As of May, they said, all of the locations in the U.K. were open and serving full menus, and the company was advertising again.

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