Financial News

Pizza Hut franchisee urges Yum to strengthen brand, add value

By ALAN J. LIDDLE

OVERLAND PARK, Kan. (Nov. 30, 2009 ) —NPC International Inc., Pizza Hut’s largest franchisee, has tasked its franchisor, Yum! Brands Inc., with finding a new brand strategy for the struggling pizza chain, which has seen its sales trends fall behind competitors Domino’s and Papa John’s.

NPC, which operates 1,150 Pizza Hut locations, said Yum has “struggled to find the proper message to connect with the consumer in this new recessionary environment.”

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Both Domino’s and Papa John’s reported flat domestic same-store sales for their most recent quarters, while Yum has said Pizza Hut same-store sales fell 13 percent for the third quarter ended Sept. 5. At NPC, same-store sales fell 12.9 percent for its third quarter ended Sept. 29.

“We are clearly not performing on par with our two primary national competitors in the pizza segment,” said Jim Schwartz, NPC president and chief executive. “We believe that value and consumer reaction to our brand positioning are chief among the issues we face as we determine the best go-forward strategy for this great brand in this new consumer paradigm.”

Schwartz said NPC will remain engaged with the Pizza Hut leadership team to determine ways to combat the consumer environment, as well as develop internal tactics in the operator’s local markets, which spans 28 states. The Pizza Hut brand recently introduced a national advertising campaign focused on its co-branded WingStreet chicken wings concept, and found success in 2008 with its Tuscani pastas.

Pizza Hut recently rolled out a national advertising campaign focusing on its co-branded WingStreet concept.

Yum executives said last month that they planned to focus more on value pricing at Pizza Hut, as well as continued emphasis on its pasta and chicken wing offerings.

The company admitted that Pizza Hut’s pricing and lack of value offerings is a problem.

“Frankly, we haven’t been value-competitive at Pizza Hut, and I think that we are paying the price for it,” chairman and chief executive David Novak said during the company’s latest conference call with investors.

NPC said its two-year decline in same-store sales worsened during its latest quarter. It grew from a decline of around 5 percent for the first half of the year to more than 8 percent.

The franchisee’s third-quarter net income increased 17 percent to $1.3 million from the same quarter a year ago, which the company attributed to higher revenue from new store openings and acquisitions, lower product ingredient costs, lower interest expense, and lower income tax expense.

Latest-quarter revenues rose 31.6 percent to $214 million and reflected the acquisition of 288 restaurants in last year’s fourth quarter and another 105 locations in the first quarter of fiscal 2009. NPC purchased 294 of those restaurants from its franchisor and another 99 from a franchisee.

For the 39 weeks ended Sept. 29, NPC reported a 45.6-percent increase in net income to $10.7 million, on a 36.1-percent hike in revenue to $670.1 million. Same-store sales fell 10.1 percent, the company said.

The company said it expected to continue to benefit from lower commodity prices for the rest of the year, as well as garner newly created leverage from its acquisitions, which should help it combat what it assumes will be a challenging sales environment for the short term.—aliddle@nrn.com