Pizza Hut Inc.

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Pizza Hut Inc.

founded: 1958

Contact Information:

headquarters: 14841 dallas pky.

dallas, tx 75240 phone: (972)338-7700 url: http://www.pizzahut.com

OVERVIEW

Pizza Hut has been the leader of the national pizza chain industry in the United States since the 1970s. It has opened more than 7,730 restaurants in the United States, 4,697 of which Pizza Hut Inc. owned in 1997. The rest were owned by franchisees, or those who purchase the rights to Pizza Hut's name, services, and products. Pizza Hut stood at a crossroads in 1997 as PepsiCo decided to turn its fast food restaurant arm into a separate corporation, Tricon Global Restaurants, Inc., after owning Pizza Hut for 20 years. The company faced substantial competition in the 1990s from established chains such as Domino's Pizza and Little Caesar's as well as from the up-and-coming Papa John's International, which caused the chain's sales to sag. Nevertheless, Pizza Hut continued to maintain its lead in terms of the number of restaurants and sales, ranking fourth among all fast food chains. As part of its restructuring, Pizza Hut launched a campaign in 1997 to restore the company's image by improving the quality of its pizza. In addition, Pizza Hut also test-marketed a number of new products such as pastas and sandwiches in an attempt to enhance the company's revenues and profits.

COMPANY FINANCES

Turmoil in Asia outweighed profit growth at U.S. stores as the parent company, Tricon Global Restaurants, reported first quarter 1998 earnings of only $54 million. From 1996 to 1997 Tricon's net revenues dropped 5 percent from $10.23 billion to $9.68 billion. Net income rose at the same time, from $126 million in 1996 to $203 million in 1997, an increase of 61 percent. For the 52-week period from 1997 to 1998, Tricon's stock reached a high of $36.25 and a low of $27.88.

ANALYSTS' OPINIONS

Analysts responded positively to Pizza Hut's potential as part of the new fast food corporation Tricon Global Restaurants Inc. Observers felt that the enthusiasm and experience of Tricon's head executives David Novak and Andrall Pearson would help the company become profitable again. "Tricon looks to be a classic spin-off success story," said Anton Brenner, a director for equity research at UBS Securities, in 1997. David Trossman at BT Alex predicted Tricon would sell off 700 of its weakest-performing restaurants to franchisees, strengthening its balance sheet. Moreover, some analysts agree with Pizza Hut's decision to enhance the quality of its products, and the campaign launched in 1997, to become recognized as a leader of quality pizza. However, other industry analysts viewed Pizza Hut's experimentation with other kinds of fare as risky and difficult to market because the company had to establish itself as a sandwich and pasta restaurant while maintaining its reputation as a pizzeria. The company risked alienating its core customers or losing money trying to promote its new products.

HISTORY

In 1958 brothers Dan and Frank Carney founded Pizza Hut in Wichita, Kansas. The Carneys borrowed $600 and took on partner John Bender in order to launch the business. With their initial investment, they rented a storefront and purchased used equipment. The following year the entrepreneurs incorporated Pizza Hut, and they franchised the first unit to Dick Hassur, who opened it in Topeka, Kansas. Pizza Hut expanded rapidly in the 1960s because of the Carneys' strong marketing efforts. By 1966 Pizza Hut had grown to 145 units. The Carneys bought out Bender's share and established the company's headquarters in Wichita.

Pizza Hut continued its expansion in the 1970s, even moving into the international arena by opening units in Canada, Germany, and Australia. By 1971 Pizza Hut had become the world's largest pizza chain based on sales and number of units. At this point, the company was earning about $1 million a week in the United States, and operated 1,000 restaurants. The chain continued to grow rapidly, opening its 2,000th restaurant in 1973 in Independence, Missouri, and adding units in Japan and Britain. Pizza Hut also established its distinctive restaurant building model in 1973, the 35 x 65 meter single-story brick building with the red roof, which became the official building required of all new units.

By 1984 Pizza Hut had 5,000 restaurants in operation around the world, and the company introduced delivery and carry-out services, which quickly accounted for 25 percent of the chain's revenues. Pizza Hut's explosive growth and successful products turned the company into a multibillion-dollar operation by the early 1990s.

FAST FACTS: About Pizza Hut Inc.

Ownership: Pizza Hut is a wholly owned subsidiary of Tricon Global Restaurants, Inc., a publicly held company traded on the New York Stock Exchange.

Ticker symbol: YUM

Officers: Andrall Pearson, Chmn. & CEO (Tricon), 1997 pay $1,746,538; David Novak, VChmn. & Pres. (Tricon), 1997 pay $2,237,891; Aylwin Lewis, COO; Mike Rawlings, CCO

Employees: 140,000

Principal Subsidiary Companies: Pizza Hut is a subsidiary of Tricon Global Restaurants, Inc.

Chief Competitors: Pizza Hut competes with other major pizza chains. Some of the primary competitors include: Little Caesar's Enterprises, Inc.; Domino's Pizza Inc.; and Papa John's International.

STRATEGY

As part of the new Tricon fast food empire, Pizza Hut received greater attention from its executives, who stabilized the company's financial performance and accelerated its expansion. Led by interim CEO Andrall Pearson, Pizza Hut improved its image by focusing on quality and expanding its menu. Pizza Hut introduced customers to its new pizzas by circulating numerous coupons and giving away one million free pizzas. Although Pizza Hut held on to the lead in the industry, competitor Papa John's International experienced the greatest financial growth in 1996, according to Amy Zuber in Nation's Restaurant News. At the same time, the industry periodical Restaurants & Institutions rated Papa John's the highest in overall satisfaction of any national pizza chain. In response, Pizza Hut planned to renovate or replace the ovens in all company-owned units to improve the quality of its food and to install new telephone lines in order to handle a larger volume of phone sales.

INFLUENCES

The Carneys developed the International Pizza Hut Franchise Holders Association (IPHFHA) in 1968 in an effort to buy back 40 percent of the Pizza Hut franchises. The Carneys wanted to increase their holdings and control a greater number of the units by adding 120 previously franchised stores to the six wholly owned by Pizza Hut Inc. However, this move stifled the company because different franchises relied on different accounting systems, all of which had to be integrated into a single accounting system after the acquisitions, involving eight months of labor. Consequently, sales slumped and profits plummeted. Frank Carney realized that the company needed a more sophisticated business strategy. He decided to take the company public by selling 410,000 shares in 1972. At the same time, Pizza Hut increased its empire by acquiring Taco Kid, Next Door, and the Flaming Steer restaurants as well as Franchise Services Inc., a restaurant supply company, and J & G Food Company, Inc., a restaurant food distributor.

In 1977 the soft drink giant PepsiCo acquired Pizza Hut, making the chain its wholly owned subsidiary. The company's sales climbed to $1 billion and Pizza Hut built a new headquarters in Wichita, Kansas. However, the 1980s brought Pizza Hut new challenges, as the company faced heightened competition from emerging national chains such as Little Caesar's, Domino's Pizza Inc., and Pizza Express. In 1995 PepsiCo moved the Pizza Hut headquarters to Dallas, Texas, and referred to it as its "Restaurant Support Center." At the same time, former owner Frank Carney, who left the company in 1980, decided to open franchises of rival Papa John's International in Wichita, among other places, launching a fierce battle between the two chains.

Fighting back, Pizza Hut lodged a complaint with the Better Business Bureau (BBB) in March 1998, complaining that Papa John's broadcast advertising was misleading. The BBB's National Advertising Division sided with Pizza Hut, noting that Papa John's had not compared their pizzas to Pizza Hut's Pan Pizza. The Pan Pizza was the restaurant's top seller during this time and the one most closely associated with Pizza Hut. In fact, Maritz Marketing Research, Inc. held a double-blind taste test of Pizza Hut's Pan Pizza and Papa John's pizza. Consumers preferred Pizza Hut's. Papa John's agreed to modify their advertising so as not to mislead consumers.

Although Pizza Hut expanded exponentially as a PepsiCo subsidiary, performance started to slacken in the 1990s, and the company recorded limp profits. As a result, PepsiCo announced in 1997 it would spin off its food service companies, including Taco Bell, Kentucky Fried Chicken (KFC), and Pizza Hut, in order to sharpen its focus as a producer and distributor of packaged snack goods and beverages. A new company created by PepsiCo, Tricon Global Restaurants, Inc., took over control of the three fast food chains in 1997.

CHRONOLOGY: Key Dates for Pizza Hut Inc.

1958:: The Carney brothers open the first Pizza Hut in Kansas
1959:: Pizza Hut incorporates and opens the first franchise
1967:: The world's largest pizza, six feet in diameter, is baked and served at the grand opening of the Fort Worth, Texas, store
1971:: Pizza Hut becomes the number one pizza chain in both sales and number of restaurants
1972:: Goes public
1977:: Pizza Hut is acquired by PepsiCo
1986:: Delivery is first offered
1988:: President Reagan awards Pizza Hut the Private Initiative Citation for its national reading incentive program
1989:: For the first time, Pizza Hut pizza is delivered to the White House
1994:: Soccer legend Pele kicks a soccer ball through the door of the 10,000th Pizza Hut in Sao Palo, Brazil
1997:: PepsiCo spins its restaurants into Tricon Global Restaurants

CURRENT TRENDS

Facing a new corporate era and with same-store sales declining by about 4 percent or $620,000 per store, Pizza Hut tried to stay abreast of restaurant and fast food industry trends. As part of the company's life-long goal of providing quality products conveniently, Pizza Hut began accepting credit cards in 1997 to facilitate its dine-in, carry-out, and delivery services. Pizza Hut became the first chain to accept credit cards nationally. The decision also resulted in delivery drivers carrying less cash, lessening the risk of robbery. Pizza Hut has courted department stores to provide on-site food services, a major trend for stores such as Wal-Mart, Kmart, Meijer's, and Target in the 1990s. Pizza Hut successfully negotiated deals with Wal-Mart and Target to establish Pizza Hut eateries in some of their stores, as well as with Hilton Hotels to serve up pizzas at selected locations.

PRODUCTS

In 1997, amid robust competition flagging sales, Pizza Hut began to experiment with a diverse new line of products in 25 Louisville, Kentucky, restaurants. Pizza Hut tested submarine sandwiches, pastas, and cheese and steak heroes in an attempt to attract new customers and to secure repeat visits. These new offerings ran about $5.00 each during the test marketing period. Pizza Hut planned to introduce them nationally in 1998. Furthermore, Pizza Hut rolled out new versions of its core product, pizza, in 1997 fortified by an arsenal of television ads. Since a common complaint about Pizza Hut's pizza was its quality, the company started to revamp its menu in 1997, calling its promotion the largest since the introduction of the pan pizza in 1983. Pizza Hut upgraded the quality of its ingredients and offered higher-quality pies that used fresh mushrooms instead of canned, thicker slices of vegetables and meats, and a thicker sauce.

CORPORATE CITIZENSHIP

Pizza Hut has funded numerous charities and participated in many social and educational programs. Pizza Hut consistently donates to the United Way, the Salvation Army, and the YMCA. The company also backed the National Reading Incentive Program, called Book It!, by offering free pizza to students who demonstrated strong reading abilities. Pizza Hut also has used its pizza to encourage motorists to avoid drunk driving, launching campaigns around holidays to reward prudent drivers with pizza. In addition, Pizza Hut has teamed up with National Geographic magazine to commemorate and acknowledge the accomplishments of children in the annual Kids' Hall of Fame. In the PepsiCo spin off, Pizza Hut increased the number of its minority-owned franchises. In 1997 Carole H. Riley was the company's largest African-American franchisee with 47 units.

GLOBAL PRESENCE

Worldwide, Pizza Hut operated more than 10,000 restaurants in 89 countries in the late 1990s and has an especially strong presence in the United Kingdom. In addition, Russia, France, and Hong Kong house some of the chain's highest-volume restaurants. With a glut of pizza chains in the United States, the international market comprises the most fertile area for new growth, and under its new leadership, Pizza Hut plans to continue its expansion overseas. Moreover, Pizza Hut's most formidable rival, Papa John's, operated no restaurants outside of the United States as of mid-1997, giving Pizza Hut a considerable advantage to increase its hold on the international market, though the company trails Domino's as the leading international pizza chain.

SOURCES OF INFORMATION

Bibliography

belsky, gary. "this fast-food firm's discarded stock figures to fly a finger lickin' 21 percent." money, january 1998.

"brand-name schools; do kids pay a price when ads invade classes." time for kids, 8 may 1998.

hamstra, mark. "pizza hut revamps products in quality-oriented initiative." nation's restaurant news, 5 may 1997.

kilgren, lucy. "pizza hut hires marketing chief." marketing week, 14 may 1998.

mcmillin, molly. "pizza hut founder has come full circle." knight-ridder/tribune business news, 6 may 1997.

zuber, amy. "pizza parade led by 'quality' bandwagon as giants seek to hold market share, fend off papa john's." nation's restaurant news, 23 june 1997.