NPC: Simplified pricing boosts same-store sales

NPC International Inc., Pizza Hut’s largest franchisee, credited simplified menu pricing with helping it increase same-store sales by 10.9 percent in the third quarter.

NPC, which is based in Overland Park, Kan., and operates 1,143 Pizza Hut units in 28 states, reported Monday a near tripling of its profit in the quarter ended Sept. 28, boosting it to $3.49 million compared with $1.33 million in the 2009 quarter.

Sales increased 10.8 percent, to $237.2 million from nearly $214 million in the year-ago quarter.

Jim Schwartz, NPC’s president and chief executive, said in a conference call Tuesday with securities analysts that the company was pleased with the same-store sales growth, “especially as we begin the transition away from our $10 Any Pizza promotion in late July.”

In the third quarter last year, same-store sales were down 12.9 percent.

Schwartz said the consumer response to that “everyday-low-price” deal “was really terrific, however we knew that we needed to right-size the economics of this offer to provide a better balance of value for the consumer with long-term, sustainable margins for our business model without overly impeding our sales momentum.”

He said consumers were attracted to the $10 price point and equally pleased with the simple pricing format. On July 25, Pizza Hut began its simplified pricing strategy: In most markets, medium pizzas with up to three toppings are priced at $8 and large pizzas with up to three toppings sell for $10, with additional toppings $2 for either size.

“This offers greater yield on our most heavily topped pizzas while providing the consumer winning category value,” Schwartz said.

Other points covered in the analyst call:

Carry-out vs. delivery: “We are seeing a greater growth rate in our carry-out segment as consumers are looking for the ultimate value,” Schwartz said, “and they find that in the carry-out segment, where there are not any ancillary charges, whether it be tips or charges of any sort. … That is the channel that is growing the fastest for us.”

New products: The three-topping $12 Big Italy was introduced Aug. 22. “The Big Italy is almost two feet of pizza and provides the consumer more food than two medium pizzas,” Schwartz said. “We believe that the strong consumer reaction to this pizza demonstrated the consumers’ desire for innovation, as it achieved a product mix well in excess of our target mix and proved to be an incremental traffic driver for our business.”

Special offers: The Tuscani Tuesday $10 two-pan offer and the WingStreet Wing Wednesday with a 50-cent-per-piece promotion helped drive traffic in the quarter. “These early week specials also positively contributed to our strong sales growth,” Schwartz said.

Commodities: In the third quarter, NPC saw a 70-basis-point increase in cost of sales, but some of those increases were offset by lower labor costs. “We are expecting some commodity inflation in 2011,” Schwartz said. “That’s still somewhat up in the air, as there are changing parts as we are seeing from the [Federal Reserve] and other places.” He suggested the company was expecting it to be in the 1 percent to 2 percent range. “I don’t think it would be in our interest to significantly raise prices, especially coming out of a year where the consumer is still under significant distress,” Schwartz said.

Inflation pressures: Inflation is not expected to be a “significant headwind” in the year ahead, said Troy Cook, NPC’s chief financial officer. “Our preliminary data show inflation to be relatively tame next year,” he said. “We certainly are not anticipating any type of hyperinflation at this point in time. This is not an environment where you can run around passing out a lot of price to our consumers.”

Schwartz said, “Historically, we have done very well in recessionary periods because of the value and convenience that pizza offers the consumer.

“We certainly did not experience typical recessionary trends in 2009,” he continued, “but with greater focus on value in 2010, Pizza Hut is back in the game and growing again during these difficult economic times.”

Pizza Hut is owned by Yum! Brands Inc. of Louisville, Ky., and has more than 7,500 units in the United States and more than 5,600 restaurants internationally.

Contact Ron Ruggless at [email protected] [3].