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Pizza Hut Inc.

Pizza Hut Inc.

9111 East Douglas
Wichita, Kansas 67027
U.S.A.
(316) 681-9000
Fax: (316) 681-9869

Wholly Owned Subsidiary of PepsiCo, Inc.
Incorporated:
1959
Employees: 140,000
Sales: $5.1 billion (1996)
SICs: 5812 Eating Places; 6794 Patent Owners & Lessors

Pizza Hut Inc. is the largest pizza restaurant company in the world in terms of both the number of outlets and the percentage of market share that it holds. A subsidiary of PepsiCo, Inc., the company oversees more than 11,000 pizza restaurants and delivery outlets in 90 countries worldwide. In October 1997, the company expected to become a subsidiary of Tricon Global Restaurants, Inc., formed from the spin-off of PepsiCos restaurant holdings.

Early History

Pizza Hut was founded in 1958 by brothers Dan and Frank Carney in their hometown of Wichita, Kansas. When a friend suggested opening a pizza parlorthen a raritythey agreed that the idea could prove successful, and they borrowed $600 from their mother to start a business with partner John Bender. Renting a small building at 503 South Bluff in downtown Wichita and purchasing secondhand equipment to make pizzas, the Carneys and Bender opened the first Pizza Hut restaurant; on opening night, they gave pizza away to encourage community interest. A year later, in 1959, Pizza Hut was incorporated in Kansas, and Dick Hassur opened the first franchise unit in Topeka, Kansas.

In the early 1960s Pizza Hut grew on the strength of aggressive marketing of the pizza restaurant idea. In 1962, the Carney brothers bought out the interest held by Bender, and Robert Chisholm joined the company as treasurer. In 1966, when the number of Pizza Hut franchise units had grown to 145, a home office was established to coordinate the businesses from Wichita.

Two years later, the first Pizza Hut franchise was opened in Canada. This was followed by the establishment of the International Pizza Hut Franchise Holders Association (IPHFHA). It aimed at acquiring 40 percent of the companys franchise operations, or 120 stores, and adding them to the six outlets wholly owned by Pizza Hut.

The acquisitions, however, brought turmoil to the chain. Varied accounting systems used by the previous franchise owners had to be merged into one operating system, a process that took eight months to complete. In the meantime, sales flattened and profits tumbled.

Turmoil Brings New Structure in Early 1970s

In early 1970 Frank Carney decided that the company practice of relying on statistics from its annual report to inform its business strategy was inadequate, and that a more developed, long-term business plan was necessary. The turning point occurred when Pizza Hut went public and began growing at an unprecedented pace. Carney said in 1972, We about lost control of the operations. Then we figured out that we had to learn how to plan.

Pizza Huts corporate strategy, arrived at after much consultation and boardroom debate, emerged in 1972. Carney would later remark that the process of introducing a management structure did much to convince PepsiCo, Inc., that the pizza chain was worthy of purchase.

The corporate strategys first priority was increasing sales and profits for the chain. Continuing to build a strong financial base for the company to provide adequate financing for growth was the second priority. The strategy also called for adding new restaurants to the chain in emerging and growing markets.

In 1970 Pizza Hut opened units in Munich, Germany, and Sydney, Australia. That same year, the chains 500th restaurant opened, in Nashville, Tennessee. Further acquisitions that year included an 80 percent stake in Ready Italy, a frozen crust maker, and a joint venture, Sunflower Food Processors, formed with Sunflower Beef, Inc. The same year, the menus for all restaurants added sandwiches to the staple Thin n Crispy pizza offering.

In 1971 Pizza Hut became the worlds largest pizza chain, according to sales and number of restaurantsthen just more than 1,000 in all. A year later the chain gained a listing on the New York Stock Exchange. Pizza Hut also achieved, for the first time, a one million dollar sales week in the U.S. market.

At the end of 1972 Pizza Hut made its long-anticipated offer of 410,000 shares of common stock to the public. The company expanded by purchasing three restaurant divisions: Taco Kid, Next Door, and the Flaming Steer. In addition, Pizza Hut acquired Franchise Services, Inc., a restaurant supply company, and J & G Food Company, Inc., a food and supplies distributor. The company also added a second distribution center in Peoría, Illinois.

In 1973 Pizza Hut expanded further by opening outlets in Japan and Great Britain. Three years later the chain had more than 100 restaurants outside the United States and two thousand units in its franchise network. The companys 2,000th restaurant was opened in Independence, Missouri. It also established the 35 by 65 meter red-roof Pizza Hut restaurant building as the regulation size for all its new establishments. The new construction standard called for free-standing buildings built in a distinctive one-story brick design. The sites seated from 60 to 120 people.

Advertising played an increasingly influential role at Pizza Hut at this time, broadening the chains public profile. Campaigns were run on both a national and local level in the U.S. market. Spending on local advertising increased from $942,000 in 1972 to $3.17 million in 1974.

PepsiCo Buys Out Company in 1977

In 1977 Pizza Hut merged with PepsiCo, becoming a division of the global soft drink and food conglomerate. Sales that year reached $436 million, and a new $10 million dollar headquarters office opened in Wichita. PepsiCo had clearly seen potential in Pizza Hut. People continued to eat outside their homes, especially as convenience and price-competitiveness in the fast food industry gained importance.

The 1980s brought new competitors to Pizza Hut, all challenging its number one position in the pizza restaurant trade, then worth $15 billion in sales annually in the United States alone. While in the 1970s the companys main competitors had been regional chains like Dallas-based Pizza Inn, Denver-based Shakeys, and Phoenix-based Village Inn and Straw Hat, fierce competition in the 1980s brought new entrants into the quick-service pizza category, including Little Caesars, Dominos Pizza International, and Pizza Express.

To raise its profile, Pizza Hut introduced Pan Pizza in 1980 throughout its network. The product, with a thicker crust made in deep pans, soon became popular. The success of new additions to Pizza Huts menu was facilitated by the marketing resources provided by PepsiCo.

For example, in 1983 Pizza Hut introduced Personal Pan Pizza, offering customers a five-minute guarantee that their single-serving pizzas would arrive quickly and steaming hot. The aim was to make a quick, affordable pizza the ideal lunchtime meal. Another addition to the chains menu was Hand-Tossed Traditional Pizza, which would be introduced in 1988.

Strong Growth in Late 1980s and Early 1990s

In 1984 Steven Reinemund was appointed president and chief executive officer of Pizza Hut. He oversaw a period of unprecedented growth for the pizza chain. In 1986 Pizza Hut opened its 5,000th franchise unit, in Dallas, Texas, and began its successful home delivery service. By the 1990s the delivery and carryout business had grown to account for approximately 25 percent of the companys total sales.

In 1990 Pizza Hut opened its first restaurant in Moscow. Russians pizza of choice, Moskva, a pie topped with sardines, tuna, mackerel, salmon, and onion, became a favorite at the Moscow Pizza Hut. The Moscow location quickly established itself as Pizza Huts highest volume unit in the world. Restaurants just behind in total volume served were found in France, Hong Kong, Finland, and Britain. Other favorite toppings for pizzas in countries other than the United States included sauerkraut and onion, and spinach, ham, and onion. In Hong Kong corned beef and Canadian bacon were favorites, while Asians and Australians seemed to enjoy various curry pizzas.

Competition in the United States was heightened in 1991 when McDonalds, the worlds largest hamburger fast food chain, put McPizza on its menu in several test markets and even offered home delivery to customers. Despite this effort and the economic recession of the early 1990s, Pizza Hut continued to profit. Company sales at the pizza chain were up ten percent worldwide to $5.3 billion in 1991 as growing health awareness and the popularity of vegetarian lifestyles had prompted many people to reconsider pizza as a nutritious alternative to greasy fast food fare. Pizza Hut Delivery, the home delivery operation, provided $1.2 billion in sales alone, and overall Pizza Hut sales, added to those of PepsiCo subsidiaries Taco Bell and KFC (formerly Kentucky Fried Chicken), gave the parent company more than $21 billion in sales that year on its restaurant and fast food side.

In the early 1990s Pizza Hut was concerned with making itself more accessible. Drive-through units were added for customers convenience, and Pizza Hut Express units were being developed. The Express unit originated in shopping malls, where it provided customers with fast food at affordable prices made possible by lower operating overheads. Since that time, Pizza Hut positioned Express units in school cafeterias, sports arenas, office buildings, and major airports. The company saw nontraditional locations as the fastest-growing sector of its operations in the first half of the 1990s.

PepsiCos corporate sponsorship of Pizza Hut included funding the Book It! National Reading Incentive Program, which encouraged higher literacy rates among young people. The reward for better reading ability was free pizza at any Pizza Hut. In 1992, the Book It! program involved more than 17 million students in North America alone, and Pizza Hut received letters of endorsement that year from President George Bush and Secretary of Education Lamar Alexander.

PepsiCo took advantage of global change following the end of the Cold War, expanding Pizza Hut into new and emerging markets. In 1991 PepsiCo had restaurant outlets in 80 countries worldwide. Wayne Calloway, chairman of PepsiCo, indicated he wished to see continued growth with the approach of the 21st century. He commented, The major question for international restaurant growth is, How fast can we get there? A steadily growing interest in eating away from home and the continued gravitation to convenience foods are creating an atmosphere of excitement for our restaurants. Pizza Hut restaurants had spread to 90 countries by 1997.

Declining Profits in Mid-1990s

In 1994 several changes resulted in the companys first decline in operating profits in 15 years. The pizza market was no longer growing; fast food rivals cut prices; and investment in new outlets was draining corporate resources. PepsiCos restaurant division saw sales in restaurants open at least one year fall six percent in 1994, contributing to a drop in profits of 21 percent (to $295 million).

In an effort to change this disturbing direction, Roger A. Enrico moved from PepsiCos beverage and snack food divisions to head the restaurant division in 1994. His first move was to heavily promote a new product: stuffed crust pizza, a pizza with a ring of mozzarella folded into the outer edge of the crust. The company used a massive advertising campaign to promote the new product, including television commercials that paired celebrities eating their pizzas crust first.

Some indicators were promising: market share rose from 25.6 to 27 percent; 1995 sales increased 16 percent to $5.2 billion; and operating income rose to $414 million, up 40 percent from the year before. In 1996 Pizza Hut planned to introduce a major new product each year and two or three line extensions. The following year it followed through on this course, introducing Totally New Pizzas with 67 percent more toppings than previous pizzas and thicker sauce. The company allocated $50 million for the project, part of which was to be used to install new or improved ovens. In 1996 Pizza Hut accounted for 17 percent of PepsiCos total sales and 13 percent of its operating profit.

However, these gains could not offset the drain that capital investment placed on PepsiCos other divisions. The parent companys return on assets was significantly greater in its beverage and snack food divisions than in its restaurant division. In the late 1990s, PepsiCo drew together its restaurant businesses, including Pizza Hut, Taco Bell, and KFC. All operations were now overseen by a single senior manager, and most back office operations, including payroll, data processing, and accounts payable, were combined. In January 1997 the company announced plans to spin off this restaurant division, creating an independent publicly traded company called Tricon Global Restaurants, Inc. The formal plan, approved by the PepsiCo board of directors in August 1997, stipulated that each PepsiCo shareholder would receive one share of Tricon stock for every ten shares of PepsiCo stock owned. The plan also required Tricon to pay a one-time distribution of $4.5 billion at the time of the spinoff. If approved by the Securities and Exchange Commission, the spinoff would take place on October 6, 1997.

Enrico, who had risen to the position of PepsiCo CEO, explained the move: Our goal in taking these steps is to dramatically sharpen PepsiCos focus. Our restaurant business has tremendous financial strength and a very bright future. However, given the distinctly different dynamics of restaurants and packaged goods, we believe all our businesses can better flourish with two separate and distinct managements and corporate structures.

Further Reading

Forest, Stephanie Anderson, How Enrico Put the Spice Back in Pizza Hut, Business Week, March 11, 1996, p. 72.

Gumpert, David, How to Create a Successful Business Plan, Inc. Publishing, 1990.

Gumpert, David, The Pizza Hut Story, Wichita, Kansas: Pizza Hut, 1989.

Rudnitsky, Howard, Leaner Cuisine, Forbes, March 27, 1995, pp. 43-44.

Sellers, Patricia, Why Pepsi Needs to Become More Like Coke, Fortune, March 3, 1997, pp. 26-27.

Etan Vlessing

updated by Susan Windisch Brown

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Pizza Hut Inc.

Pizza Hut Inc.

9111 East Douglas
Wichita, Kansas 67027
U.S.A.
(316) 681-9000
Fax: (316) 681-9869

Wholly Owned Subsidiary of PepsiCo Inc..
Incorporated: 1958
Employees: 260,000
Sales: $5.25 billion
SICs: 5812 Eating Places; 6794 Patent Owners & Lessors

Pizza Hut Inc., a subsidiary of PepsiCo Inc., oversees 7,200 pizza restaurants and delivery outlets in 68 countries worldwide.

Pizza Hut was founded in 1958 by brothers Dan and Frank Carney in their hometown of Wichita, Kansas. When a friend suggested opening a pizza parlorthen a raritythey agreed that the idea could prove successful, and they borrowed $600 from their mother to start a business with partner John Bender. Renting a small building at 503 South Bluff in downtown Wichita and purchasing secondhand equipment to make pizzas, the Carneys and Bender opened the first Pizza Hut restaurant; on opening night, they gave pizza away to encourage community interest. A year later, in 1959, Pizza Hut was incorporated in Kansas, and Dick Hassur opened the first franchise unit in Topeka, Kansas.

In the early 1960s Pizza Hut grew on the strength of aggressive marketing of the pizza restaurant idea. In 1962, the Carney brothers bought out the interest held by Bender, and Robert Chisholm joined the company as treasurer. In 1966, when the number of Pizza Hut franchise units had grown to 145, a home office was established to coordinate the businesses from Wichita.

Two years later, the first Pizza Hut franchise was opened in Canada. This was followed by the establishment of the International Pizza Hut Franchise Holders Association (IPHFHA). It aimed at acquiring 40 percent of the companys franchise operations, or 120 stores, and adding them to the six outlets wholly owned by Pizza Hut.

The acquisitions, however, brought turmoil to the chain. Varied accounting systems used by the previous franchise owners had to be merged into one operating system, a process that took eight months to complete. In the meantime, sales flattened and profits tumbled.

In early 1970 Frank Carney decided that the company practice of relying on statistics from its annual report to inform its business strategy was inadequate, and that a more developed, long-term business plan was necessary. The turning point occurred when Pizza Hut went public and began growing at an unprecedented pace. Carney said in 1972: We about lost control of the operations. Then we figured out that we had to learn how to plan.

Pizza Huts corporate strategy, arrived at after much consultation and boardroom debate, emerged in 1972. Carney would later remark that the process of introducing a management structure did much to convince PepsiCo Inc. that the pizza chain was worthy of purchase.

The corporate strategys first priority was increasing sales and profits for the chain. Continuing to build a strong financial base for the company to provide adequate financing for growth was the second priority. The strategy also called for adding new restaurants to the chain in emerging and growing markets.

In 1970 Pizza Hut opened units in Munich, Germany, and Sydney, Australia. That same year, the chains 500th restaurant opened in Nashville, Tennessee. Further acquisitions that year included an 80 percent stake in Ready Italy, a frozen crust maker, and a joint venture, Sunflower Food Processors, formed with Sunflower Beef, Inc. The menus for all restaurants added sandwiches to the staple Thin n Crispy pizza offering.

In 1971 Pizza Hut became the worlds largest pizza chain, according to sales and number of restaurantsthen just more than 1,000 in all. This was followed a year later by the chain gaining a listing on the New York Stock Exchange. Pizza Hut also achieved, for the first time, a one million dollar sales week in the U.S. market.

At the end of 1972 Pizza Hut made its long-anticipated offer of 410,000 shares of common stock to the public. The company expanded by purchasing three restaurant divisions: Taco Kid, Next Door, and the Flaming Steer. In addition, Pizza Hut acquired Franchise Services, Inc., a restaurant supply company, and J&G Food Company, Inc., a food and supplies distributor. The company also added a second distribution center in Peoría, Illinois.

In 1973 Pizza Hut expanded further by opening outlets in Japan and Great Britain. Three years later the chain had more than 100 restaurants outside the United States and two thousand units in its franchise network. The companys 2,000th restaurant was opened in Independence, Missouri. It also established the 35 x 65 meter red-roof Pizza Hut restaurant building as the regulation size for all its new establishments. The new construction standard called for free-standing buildings built in a distinctive one-story brick design. The sites seated from 60 to 120 people.

Advertising played an increasingly influential role at Pizza Hut at this time, broadening the chains public profile. Campaigns were run on both a national and local level in the U.S. market. Spending on local advertising increased from $942,000 in 1972 to $3.17 million in 1974.

In 1977 Pizza Hut merged with PepsiCo, becoming a subsidiary of the global soft drink and food conglomerate. Sales that year reached $436 million, and a new $10 million dollar headquarters office opened in Wichita. PepsiCo had clearly seen potential in Pizza Hut. People continued to eat outside their homes, especially as convenience and price-competitiveness in the fast food industry gained importance.

The 1980s brought new competitors to Pizza Hut, all challenging its number one position in the pizza restaurant trade, then worth $15 billion in sales annually in the United States alone. While in the 1970s the companys main competitors had been regional chains like Dallas-based Pizza Inn, Denver-based Shakeys, and Phoenix-based Village Inn and Straw Hat, fierce competition in the 1980s brought new entrants into the quick-service pizza category, including Little Caesars, Dominos Pizza International, and Pizza Express.

To raise its profile, Pizza Hut introduced Pan Pizza in 1980 throughout its network. The product, with a thicker crust made in deep pans, soon became popular. The success of new additions to Pizza Huts menu was facilitated by the marketing resources provided by PepsiCo.

For example, in 1983 Pizza Hut introduced Personal Pan Pizza, offering customers a five-minute guarantee their food would arrive quickly and steaming hot. The aim was to make a quick, affordable pizza the ideal lunchtime meal. Another addition to the chains menu was Hand-Tossed Traditional Pizza, which would be introduced in 1988.

In 1984 Steven Reinemund was appointed president and chief executive officer of Pizza Hut. He oversaw a period of unprecedented growth for the pizza chain. In 1986 Pizza Hut opened its 5,000th franchise unit in Dallas, Texas and began its successful home delivery service. By the 1990s the delivery/carry out business had grown to account for approximately 25 percent of the companys total sales.

In 1990 Pizza Hut opened its first restaurant in Moscow. Russians pizza of choice, Mockba, a pie topped with sardines, tuna, mackerel, salmon, and onion, became a favorite at the Moscow Pizza Hut. The Moscow location quickly established itself as Pizza Huts highest volume unit in the world. Restaurants just behind in total volume served are found in France, Hong Kong, Finland, and Britain. Other favorite toppings for pizzas in countries other than the United States include sauerkraut and onion, and spinach, ham, and onion. In Hong Kong corned beef and Canadian bacon are favorites, while Asians and Australians seem to enjoy various curry pizzas.

Competition in the United States was heightened in 1991 when McDonalds, the worlds largest hamburger fast food chain, put McPizza on its menu in several test markets and even offered home delivery to customers. Despite this challenge and the economic recession of the early 1990s, Pizza Hut continued to profit. Company sales at the pizza chain were up ten percent worldwide to $5.3 billion in 1991 as growing health awareness and the popularity of vegetarian lifestyles had prompted many people to reconsider pizza as a nutritious alternative. Pizza Hut Delivery, the home delivery side, provided $1.2 billion in sales alone, and overall Pizza Hut sales, added to those of subsidiaries Taco Bell and Kentucky Fried Chicken (KFC), gave parent company PepsiCo more than $21 billion in sales that year on its restaurant and fast food side.

Pizza Hut remains concerned with making itself more accessible. Drive-through units are available for customers convenience, Pizza Hut Express units are being developed. The Express unit originated in shopping malls, where it provided customers with fast food at affordable prices made possible by lower operating overheads. Since that time, Pizza Hut has positioned Express units in school cafeterias, sports arenas, office buildings, and major airports. The company sees nontraditional locations as the fastest-growing sector of its operations in the 1990s.

PepsiCos corporate sponsorship of Pizza Hut includes funding the BOOK IT! National Reading Incentive Program, which encourages higher literacy rates among young people. The reward for better reading ability is free pizza at any Pizza Hut. In 1992, the Book It! program involved more than 17 million students in North America alone, and Pizza Hut received letters of endorsement that year from President George Bush and Secretary of Education Lámar Alexander.

PepsiCo has taken advantage of changes in the world following the end of the Cold War, expanding Pizza Hut into new and emerging markets. In 1991 PepsiCo had restaurant outlets in 80 countries worldwide. Wayne Calloway, chairman of PepsiCo, indicated he wished to see continued growth with the approach of the 21st century. He commented, The major question for international restaurant growth is, How fast can we get there? A steadily growing interest in eating away from home and the continued gravitation to convenience foods are creating an atmosphere of excitement for our restaurants.

Further Reading

Gumpert, David How to Create a Successful Business Plan, Inc. Publishing, 1990; The Pizza Hut Story, Wichita, Kansas: Pizza Hut, 1989.

Etan Vlessing

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Pizza Hut Inc.

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.


For additional industry research:

investigate companies by their standard industrial classification codes, also known as sics. pizza hut's primary sics are:

5812 eating places

6794 patent owners and lessors

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