Pizza Hut: Brands In Trouble

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The good news is that Pizza Hut had a better year in 2002 than it did in the mid-`90s, when same-store sales dipped as much as 4%. That the Yum Brand chain's flat comparable sales are seen as an improvement is a sign of just how tough times are for the flagship chain.

"Pizza Hut is definitely faced with fierce price competition and competition from their peers doing products beyond pizza, from chicken to desserts, which Pizza Hut is late to the game on," said Mitch Speiser, restaurant analyst for Lehman Bros. "It's been very price-point driven."

Even its leading status with a 15% share of the fragmented $25 billion pizza market leads to fretting from Mr. Speiser. Sibling Taco Bell has a 75% or 80% share of its market, he noted. "It's that much more competitive a category in pizza than in quick service Mexican. Pizza Hut definitely has the most pressures within their portfolio." To wit, No. 2 pizza chain Domino's Pizza gained a full share point in the past year by bundling meals with chicken tenders and flavored breadsticks.

During the company's fourth-quarter conference call with analysts Yum Brands led its discussion on the chain by saying it has a new team in place. In November, Michael Rawlings, president-chief concept officer, resigned and Peter R. Hearl took over the helm, moving up from Yum executive VP-chief people officer. A month before, Tom James, a senior executive-group account director at Interpublic Group of Cos.' Avrett Free & Ginsberg, New York, joined as chief marketing officer, replacing Randy Gier, who took an international post at Yum International.

new products

To lift sales, Pizza Hut this year will boost its ad budget 4% to $300 million and break a new ad campaign, the company said. Omnicom Group's BBDO Worldwide, New York, handles. Executives vowed to continue to work on new products-historically a strong suit for the chain-to increase guest checks. On March 9, the chain introduced a Baked Cinnamon Stick add-on offer with 10 of the cinnamon-sugar-topped sticks free with a large three-topping pie for $11.99. The sticks are a permanent menu addition. A Pizza Hut spokeswoman said its management wasn't available for interviews, but promised big news in the coming months.

Once a mostly sit-down pizza joint, Pizza Hut also is pushing to get a larger piece of the faster-growing delivery and carryout business. A company spokeswoman wouldn't confirm the ratio of dine-in vs. delivery units, but said "Dine-in is still very important to us as you'll see in the balance of the year."

The chain now is testing a combination unit with 15-unit quick casual Italian dining chain Pasta Bravo. Andy Barish, analyst with Banc of America Securities said same store sales are better for take-out units. "That multibrand [partner] for Pizza Hut right now is obviously more appropriate and designed more for the dine-in stores." Mr. Barish estimated that 15% to 20% of Pizza Hut's 1,700 company-owned restaurants are dine-in concepts. The company also has 4,800 franchise units.

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