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Pizza Hut is aggressively expanding its new East Side Mario's chain, staking a claim in the sizzling casual-dining segment of the restaurant industry.

Parent PepsiCo is counting on East Side Mario's, an Italian-American eatery with the flavor of Manhattan's Lower East Side, to compete with Olive Garden, Applebee's and Chili's in a segment beyond Pizza Hut's reach.

As Domino's Pizza and Little Caesars have forced Pizza Hut to compete on price, delivery and takeout have become more important than the chain's traditional sit-down dining business. Pizza Hut's 3% drop in same-store sales in the first quarter, primarily caused by a decline of dine-in business, suggests the chain's future increasingly lies in the delivery market.

"Eat-in is not the right way to go for Pizza Hut," said Douglas Christopher, an analyst with Crowell, Weedon & Co., San Francisco.

Instead, Pizza Hut is moving fast with East Side Mario's, acquired in December from Prime Restaurant Group, Toronto.

The chain plans to open 38 new restaurants by yearend, in addition to the 14 existing operations in New England, Ohio and Florida. New units under construction include sites in Atlanta, Chicago, Miami, Phoenix and Seattle, said Mark Bromberg, president of Dallas-based East Side Mario's.

Mr. Bromberg, who left as president of Prime Restaurant Group to run Pizza Hut's new venture, said East Side Mario's is a cross between General Mills' Olive Garden and TGI Friday's. Both the food and the decor mix Italian and American ingredients.

The chain also offers rotisserie chicken, ribs and hamburgers. Roughly half of sales come from non-Italian food.

Specialty pizzas, cooked in wood-burning ovens visible from the dining room, comprise only 8% of sales. With its elaborate bar and upscale interior, East Side Mario's is a "full step up" from Pizza Hut, Mr. Bromberg said.

Colorful storefronts decorate the restaurants' exterior. Inside, hand-painted murals and models of the Statue of Liberty and the Brooklyn Bridge keep the customer's eye busy. At one Cleveland restaurant, servers add to the ambiance by shouting their kitchen orders in Italian.

East Side Mario's hopes to engage customers at the bar with trivia and sports games from NTN, an interactive entertainment network.

The chain is currently searching for a marketing director. Advertising that describes East Side Mario's as an "American-Italian eatery" so far has been confined to local print and radio, but TV is slated for next year. MHW Advertising & Public Relations handles advertising for the Cleveland market. Toronto agency United Advertising designed the outdoor boards, print and collateral used to launch the chain in the U.S. One board said: "Give me liberty or give me linguine."

The average check price at East Side Mario's is $8.25, placing the chain smack in the middle of the roughly $23.4 billion casual dining segment. Consultancy Technomic, Chicago, said that consists of $13.9 billion in general casual dining, $5.5 billion in Italian and $4 billion in Mexican. East Side Mario's, with its amorphous theme, hopes to siphon customers from all areas of casual dining.

Led by Olive Garden, casual dining superstars experienced impressive gains in 1993. Sales rose 12.5% to $1 billion at the 411-restaurant Olive Garden. Systemwide sales at the 361-unit Applebee's Neighborhood Bar & Grill were up 50.5% to $608.5 million. And sales at Brinker International's 343-unit Chili's grew 19% to $741 million.

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