NPC International Inc., the largest Pizza Hut franchisee in the brand’s system, plans to accelerate its transition to the delivery/carryout model from dine-in restaurants, executives said Thursday.
The so-called Delco model is “more efficient and more profitable,” said Troy Cook, the Overland Park, Kan.-based company’s chief financial officer, in an earnings call.
Cook said NPC will spend $16 million to reposition 41 dine-in restaurants to the Delco model, develop five new “Delco Lite” models and relocate four Delco units. The company also plans to invest $5 million to remodel 17 dine-in restaurants and 45 existing Delco units.
NPC has about 650 current “Red Roof” dine-in models, with some of those offering restaurant-based delivery.
The company has been doing the Delco conversions for several years, but this will pick up the pace, executives said, with the Delcos offering smaller footprints — 1,200 square feet to 1,400 square feet — and utility savings.
“The big savings is in rent,” Cook said.
For the fourth quarter ended Dec. 29, 2015, NPC swung to a profit of $3.8 million, from a loss of $72,000 in the same period last year. Revenue in the quarter rose 3 percent, to $307.2 million, from $298.1 million in the prior-year period.
Same-store sales for Pizza Hut rose 3.2 percent in the fourth quarter, the company said, and same-store sales for its Wendy’s units grew 5.8 percent in the period.
Jim Schwartz, NPC president and CEO, said sales at the Pizza Hut division stabilized in the second quarter and built through the rest of the year.
The 4 for $4 meal at Wendy’s in the fourth quarter “drove tremendous consumer reception,” and helped same-store sales crest at year’s end.
“Such value offerings are becoming more important to the QSR customer,” Schwartz said. “While many of our consumers are enjoying greater disposable income due to the lower gasoline prices, they seem to have learned the lesson of the Great Recession and are being more conscientious of their spending habits.”
Schwartz said customers like the ease of combinations at “a low bundle price,” which also includes Pizza Hut’s $5 Flavor Menu, which was introduced in January. The advantage for the operator, he added, is that margins are sheltered from an “overly diluted promotional check.”
The bundle and meal deals trump individual-item discounts, Schwartz said.
“The Wendy’s team was first to market with that deal,” he said. “And being first to market is a rewarding place to be.”
The company said it expected “a moderate-to-favorable commodity environment” this year, which should help margins and offset other inflationary pressures.
NPC is a subsidiary of NPC Restaurant Holdings LLC, and because of guaranteed senior notes reports its earnings quarterly.
NPC International operates 1,243 Pizza Hut units in 27 states and 147 Wendy’s units in five states.