Pizza Hut was founded in Wichita, Kansas by brothers Frank and Dan Carney, who borrowed $600 from their mother to open a pizzeria. It started franchising in 1959, became the largest pizza chain in the world by 1971, and was bought by PepsiCo in 1977.
PepsiCo would spin off its restaurants in 1997 as Tricon Global Restaurants, which five years later became Yum Brands. Nevertheless, the Plano, Texas-based pizza chain has been part of that organization, in one form or another, for 50 years.
That appears likely to come to an end soon. On Tuesday, Yum Brands announced that it was exploring strategic options for its pizza concept, including a possible sale. That typically means a sale is likely.
It is a hell of a way for Chris Turner to start his career as CEO of Yum. Turner was only elevated to the position last month and Tuesday was his first earnings call in the position, and he did so with one of the most decisive moves in the company’s history. If that is a sign of things to come it’s going to be an interesting few years in Louisville, Kentucky.
It is also an acknowledgement of Yum’s current reality. The company has two quality brands that attract investors, in the high-flying Taco Bell and the insane international growth of KFC. Taco Bell just reported its latest eye-popping sales result, a 7% increase in same-store sales last quarter. KFC is on pace to open 3,000 international locations this year.
That kind of performance should be winning awards and a sky-high valuation, but Yum’s largely U.S.-based investor community has been distracted by the not-so-great performance of the company’s non-Taco Bell domestic business. KFC and Pizza Hut have both struggled in the U.S. The company bought Habit Burger in 2020, and it has struggled most of the time since, but it is not big enough to make a difference anyway.
It's difficult enough to fix two businesses, let alone three, at the same time. Yum can’t exactly offload KFC if it wants to keep that glorious international business. Habit isn’t a difference-maker right now. Both brands also saw sales improvement over the summer.
That leaves Pizza Hut the odd brand out, especially given that its international business isn’t nearly as successful as its chicken-hocking sister brand.
“Our two biggest brands, KFC and Taco Bell, drive nearly 90% of our global divisional operating profit,” Turner told analysts. “They are the ones that drive the bulk of our growth.
“From a portfolio standpoint, it’s our job to constantly think about our portfolio.”
Pizza Hut has been something of an enigma in the U.S., a victim of both long-term and more recent trends.
The chain was founded as a full-service brand and became gathering spots for families after school—particularly when a child had a Book It reward—or after weekend games. But that business suffered as more consumers ordered pizza for delivery or carryout.
Pizza Hut responded by dramatically converting its system to takeout and delivery. That shift was painful, especially given its roster of large, often-heavily-indebted franchisees. That was illustrated by the massive, 2020 bankruptcy of mega-franchisee NPC International, whose Pizza Hut units were gobbled up by Flynn Group.
The chain’s sales suffered during that conversion and Domino’s leapfrogged Pizza Hut to take over as the country’s, and then the world’s, largest pizza concept.
The pandemic hit, Pizza Hut completed that conversion—largely by closing locations—and briefly enjoyed a delivery-fueled renaissance, particularly after Yum asked then-KFC president Kevin Hochman to fix the brand.
But that success would prove short-lived. Pizza Hut’s same-store sales have fallen for eight straight quarters, including a 6% decline last quarter, 11.2 percentage points worse than Domino’s. The pizza sector as a whole has largely struggled as consumers shift delivery orders to DoorDash and Uber Eats.
Pizza Hut already operates with lower unit volumes than any of its rivals and franchisees have already shown signs of stress. Some of them have given up on in-house delivery in favor of third parties, for instance. Another year of bad sales likely mean more of them will have financial problems.
None of that means the chain won’t find a buyer. It operates about 14,000 locations outside the U.S., for one thing. That is not nothing. It is a mostly franchised brand. Private-equity firms love franchising and take to such concepts like moths to a light. Several, notably Apollo, have been knocking down the doors of Papa Johns with offers. Some could shift their attention to the much-larger Pizza Hut, banking on a turnaround.
More interestingly, other companies have long been believed to be eyeing a pizza chain, including Burger King owner Restaurant Brands International and the Roark Capital-owned Inspire Brands. Or maybe Roark could buy Pizza Hut and merge that brand with Subway, Hardee’s and Carl’s Jr. in one giant operation called Hot Mess Hospitality.
Pizza Hut “is an iconic global brand that has incredible strengths,” Turner said. “It’s got the best tasting pizza in QSR. It’s got a global footprint well north of 100 countries. It has an amazing set of franchise partners around the globe. It has meaningful scale.
“That said, we’re always focused on what is best for the brand and what is best for our franchise partners, and in that spirit, we do think the brand can be positioned for even greater success in the future.”