It’s no surprise to anyone who follows Louisville-based Yum! Brands that sales at its Pizza Hut chain have been cold for years. But this statistic shared by Nation’s Restaurant News blogger, Jonathan Maze, was startling: According to Instinet analyst Mark Kalinowski, “Pizza Hut’s share of the U.S. limited-service pizza category has fallen from 25 percent in 1995 to 14.5 percent in 2015.”
Not only is this proof the mightiest has stumbled if not fallen, Kalinowski believes it could lose its No. 1 status this year to longtime No. 2 and bitter rival, Domino’s. With those thoughts in mind, Kalinowski is saying it’s time for Yum to seriously examine selling Pizza Hut, a brand it’s owned for 30 years.
The company that Yum chairman David Novak connected first to KFC, then Taco Bell—and let’s all just forget about that still curious acquisition, cobranding and later divestiture of A&W and Long John Silver’s—could lose what was, when purchased in 1987, its heaviest hitter. But fast forward a couple decades and Yum’s big three have changed their rankings dramatically: Taco Bell is its biggest player, and KFC, its legacy brand, is on a revenue rebound few inside or outside the chain ever expected. Meanwhile, Pizza Hut is idling.
Its sales have sagged for years, even after a near-total brand overhaul in 2014. The sales needle moved modestly for a time, but brutal competition from Domino’s, Little Caesars and Papa John’s beat it back with amazing alacrity.
In Louisville, I never hear anyone talk about going to Pizza Hut, and I never visit a Hut myself (though I do make a visit or two each year to its Wing Zone cobrand concept). At pizza-centered trade shows I attend, the brand’s name never comes up, while many conversations are laced with mentions of chains No. 2 (Domino’s), No. 3 (Little Caesars), and No. 4 (Papa John’s).
When I was editor-in-chief of Pizza Today magazine in 1999, Frank Carney, who cofounded Pizza Hut in 1958, spoke at the magazine’s annual Pizza Expo in Las Vegas. When taking questions from the crowd, one man attempted to dress him down for leaving the brand he founded to become a Papa John’s franchisee. “I can’t believe you’d get into a commercial and say you found a better pizza than the one you created,” the man said.
Yet without hesitation, Carney responded by saying, “I was telling the truth, because the pizza that Pizza Hut is making now is not the pizza my brother and I created. The pizza Papa John’s is making now is a better pizza than what Pizza Hut is making these days. It’s changed drastically since I left the company.”
So has the restaurant business as a whole. From at least 1950 to 1980, most pizzerias were full-service spots where pizzas were baked to order in stone deck ovens. The advent of the conveyor oven changed that (speedier, but not necessarily better), and delivery (thanks mostly to Domino’s) took huge bites out of dine-in service by irrevocably demoting pizza to food one would never again have to leave the house to eat.
Pizza Hut took years to respond to the demand for delivery, insisting for too long that its dining experience was better than a delivered pizza. Personally, I agree that pizza, eaten oven-hot at the site, is the best way to go. But customers couldn’t be convinced it was so, and Pizza Hut’s huts weren’t filling up as they had in the past. Add Papa John’s near-duplication of Domino’s model to the mix, and Little Caesars’ price slashing model and you’ve got competition constantly eating away at Pizza Hut’s once-massive market share.
Pizza Hut has yet to respond effectively, and I don’t know that it ever will. Unlike delivery-carryout concepts, which have smaller footprints, Pizza Hut has a lot of pricey full-service real estate to pay for. Plus, other than gimmick pizzas, such as its Stuffed Crust line, the product is all but indistinguishable from many competitors’.
The chain has even invested heavily into online ordering and customer acquisition technology, but it doesn’t appear to be yielding the results Domino’s has enjoyed with the same efforts. In short, the brand is losing relevance in the minds of American consumers.
But as Maze points out, many said the same of KFC’s years-long sales slumps, claiming the chicken king had long ago gone to roost, that too many great competitors were taking share it would never get back. Yet it’s rebounded solidly in the past two years. Maze writes, “There’s no reason Yum can’t do the same thing with Pizza Hut,” and he could be right.
Or not. Given Yum’s clear desire to be a franchise restaurant-only company, I don’t envision it falling in love deeply enough again to make the effort to save it. That would take real grit and determination you find only in restaurateur-driven companies.
I agree with Kalinowski: Sell Pizza Hut to an operator who cares enough to turn it around.