Pizza Hut’s broad repositioning, set to debut Wednesday, will improve the long-term value of the brand, executives from the chain’s largest franchisee said Monday.
The brand revamp is a needed move away from price-point promotions, according to executives at Overland Park, Kan.-based NPC International Inc., which operates 1,266 Pizza Hut units in 28 states, as well as 144 Wendy's locations.
“We know that promotional strategies centered solely on price points will not ultimately drive the brand’s value to the consumer long term,” said Jim Schwartz, NPC’s chief executive, president and chairman, in a third-quarter earnings call with analysts.
NPC executives have been critical of Pizza Hut’s leadership as recently as May, blaming lagging innovation in online ordering and digital efforts for sluggish sales.
On Nov. 10, Pizza Hut parent Yum! Brands Inc. said it would revamp the chain’s menu, adding pies with premium ingredients, reduced-calorie pizzas and customizable options.
“We are excited to launch this massive initiative, which is expected to totally change the way consumers view Pizza Hut,” Schwartz said. “Most every touch point of our brand will be overhauled, from our food offerings to our ingredients, our crew uniforms, our packaging, our menus, our website [and] our Parmesan packets.”
Executing on the brand repositioning is critical, he added, and is the base of the “import work of connecting with Millennials and category-switchers.”
Yum said the 15,000-unit chain would make its customers’ digital experience “more interactive and visual,” allowing for easy online ordering in English and Spanish on computers and mobile devices.
The pizza segment increasingly relies on digital ordering. Schwartz said NPC’s digital business during the quarter increased 40 percent over the prior-year period, and resulted in 37 percent of its delivery and carryout business being transacted digitally. Of that, more than 50 percent of the digital business was on mobile devices, he said.
Pizza Hut’s brand repositioning also includes new products and customizable options. The “Flavors of Now” menu features five new toppings: sliced banana peppers, Peruvian cherry peppers, spinach, salami and meatballs. Besides its classic marinara sauce, customers can choose from premium crushed tomato sauce, garlic Parmesan, Buffalo, barbecue and honey-sriracha.
“It’s awesome food,” Schwartz said. “We think the food is the ultimate differentiator in the category. We’ve always said that food not only drives the brand but is the brand, the soul of the brand.”
To accommodate the brand repositioning, Schwartz said his franchise organization has worked with corporate teams over the past several months “to take complexity out” of its systems. To accommodate processes for the new line of pizzas, he said, the company retrained crew members and provided for storing and tracking new products, such as crusts, toppings and drizzles in the back of the house.
Troy Cook, NPC chief financial officer, said the change in processes was a “fulsome” effort, and the franchise company expects the full costs in training, labor and food products to be about $2.5 million, most of which will be taken as an expense in the fourth quarter. He said that was a “significant investment, without a doubt, but one obviously we think is well worth it.”
Cost of food products will see “a slight increase,” Schwartz said, but pricing will improve without promotional discounts.
To offset higher food costs, he said, the company is seeing some growth in check averages, although he would not share figures. The new pizza offerings will be introduced at a slightly higher price than traditional offerings, Schwartz added.
“What consumers tell us is a couple of things: They do want to explore with new flavor options. Our palates are becoming much more flavorful than 10 or 20 years ago. They want it to be highly customizable; they want to enjoy the flavor experience, but they want to do it their way,” Schwartz said.
For the Sept. 30-ended third quarter, NPC said its Pizza Hut units had a 0.7-percent decline in same-store sales, compared with a 3.6-percent decrease the same period a year ago. For the quarter, the company reported net income of $200,000, compared with $2.6 million in the same period last year.
The company also acquired 56 additional Wendy’s units in North Carolina and Virginia for $57.1 million.
NPC International is a privately held division of Stamford, Conn.-based private-equity firm Olympus Partners, which bought the company in 2011, and reports quarterly earnings because of publicly held debt.
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