Asserting that consumers are seeking “discrete value,” executives at NPC International Inc., Pizza Hut’s largest franchisee, said Wednesday the company has re-launched value-oriented pricing for traditional pies.
NPC, which operates 1,141 Pizza Hut restaurants and delivery units, on Tuesday reported net income of $5.2 million in the second quarter ended June 28, essentially flat with last year.
Revenue in the quarter was $238.6 million, down from $246.8 million in the prior-year period.
Same-store sales fell 2.8 percent in the quarter, compared with a strong increase of 10.4 percent in the same period last year. The Overland Park, Kan.-based company attributed that increase to Pizza Hut’s popular three-topping $10 Any Pizza campaign in the same period of 2010.
A version of that promotion was resurrected in June and July as a carryout-only program, with one-topping pizzas priced at $8 for a medium and $10 for a large. Additional toppings cost $1 each.
“The re-launch is designed at this time to bring discrete value into the marketplace,” Jim Schwartz, NPC’s president and chief executive, said in a conference call with analysts.
Pizza Hut touts the program as its “simplified pricing” to distinguish itself from competitors.
“The carryout channel is very active right now, so it is very targeted against that growing channel,” Schwartz said. “We are seeing an increase in carryout being cannibalized mostly from the delivery channel and some to the dine-in channel, but not a material amount.”
Among other topics addressed in the conference call:
• Commodity inflation. Block cheese and flour have seen recent price increases. Troy D. Cook, NPC’s executive vice president and chief financial officer, said food costs will be in the 30-percent to 35-percent range for the balance of the year. He said block cheese prices recently have shown increases of 25 percent to 30 percent over last year.
“Through the strategies we’ve deployed on the hedging side, we’re able to offset some measure of that,” Cook said. He added that some relief is expected in September.
• Delivery/carryout units. Five new units are showing average weekly sales slightly higher than NPC’s overall system average, Cook said, and a total of 20 are planned by year’s end. “Obviously, we’re pleased,” he said. The units also cost less to build, Cook said, “so the cash-on-cash returns are very attractive.” The lower costs of these “plug ‘n’ play” formats, Schwartz added, make the return on investment attractive. “We are very bullish about this.”
• New box design. A newly engineered and sourced delivery box has been introduced for “significant” savings, Schwartz said.
• Caution in introducing new products. “We’ve seen a very robust product pipeline for awhile,” Schwartz said. “But let me caveat that with this: Right now the consumer seems to be more interested in just everyday, bringing core value against your core product. Innovation is sometimes a risk for the consumer. They don’t know exactly what it is. They find it to be unique, but at the same they want to make sure what they are spending their hard-earned dollars on is something that they know.”
NPC International has Pizza Hut units in 28 states.