Yum! Analyst Day: Pizza Hut U.S. readies for core product innovation in '14

 
Dec. 4, 2013 | by Alicia Kelso

Yum! Brands concluded its annual Analyst Day this afternoon, taking a look back at its 2013 results while outlining its strategies for the coming year.

During the call, much of the emphasis was placed on the company's largest system, KFC China, and its challenging year hurdling chicken supply chain issues and avian flu outbreaks. Despite the slump for the flagship brand, however, Pizza Hut is "stronger than ever," according to executives, while the Pizza Hut Delivery business is poised to take off.

Some highlights from today's event, regarding the Pizza Hut brand, include:

India business

Niren Chaudary, CEO of Yum! Brands India division, said the market is projected to have the largest consumer population in the world by 2020, and that the eating out category is highly underpenetrated.

"Our vision is to be the No. 1 restaurant company in every category in which we operate," he said. Yum! India has tripled in size in the last five years, and the goal is to triple again by 2020. Pizza Hut will scale to that growth, while Pizza Hut Delivery is a "brand for the future."

"At Pizza Hut, we've been raising the game with menu thinking and design strategy," Chaudary said. The non-pizza menu mix, for example, is now at about 50 percent.

The company is testing a new "store in store" concept called "Hut. Café." It features coffee, beverage and desserts and adds a daypart opportunity for the brand.

Also, Chaudary said, Pizza Hut India is the clear No. 2 in the market for home delivery service, behind Domino's, and is gaining ground driven by "bold moves on value."

Pizza Hut's growth models

Last month, the company announced it will reorganize its business in 2013 to combine its Yum! Restaurants International business and the U.S. individual divisions for KFC, Pizza Hut and Taco Bell. Rick Carucci, Yum! Brands president, said this move will allow more brand focus and competitive advantages.

"We are a 'know-how' sharing company and this will facilitate that 'know how' even better," he said. "For example, if the U.S. Pizza Hut system develops a new training method, we think we'll be able to transfer that faster under our new system."

Scott Bergren, Pizza Hut's CEO, added that the new structure will especially benefit the pizza brand.

"We've got scale working in our favor," he said. The company's plan focuses on three business models for growth:

  1. Delivery/Carryout, which is Pizza Hut's fastest growing model. "There is a race to expand this footprint around the world. Others want to win the Delco race, so we have to move faster and turbocharge our growth," Bergren said. The Delco model, he said is a "high return asset that fuels fast growth." It is the reason Pizza Hut U.S. began growing its footprint again after many years of losing assets.
  2. Express units, found in locations where customers visit for reasons other than eating, such as travel centers and malls. Bergren said the company hasn't pursued this opportunity around the world as much as it can, and that the strategy is to build out this channel with focus.
  3. Dine in, which is a large component of the Pizza Hut brand outside of the U.S. The focus for this model will be on emerging markets, and the "pizza and more" initiative will be carried into those new openings. For example, beverages are 27 percent of the Pizza Hut casual dining business in Indonesia.

"Our plan of having one brand across those three channels will come to life with the team we've built," Bergren said.

WingStreet

Also in the U.S., Pizza Hut's WingStreet concept will be a bigger priority heading into 2014. Marketing and delivery of the concept's wings and sides will accelerate behind Yum's $150 million investment.

"This product line expands easily into a broader range of boneless fried chicken products and allows us to deliver chicken, sides and complete chicken dinners," Bergren said.

He also noted that Pizza Hut's 2013 sales were soft, mostly as the result of "very aggressive pricing strategies" from its competition, as well as pan pizza launches from Domino's and Little Caesars.

In 2014, Pizza Hut will respond with core product upgrades and, for the first time ever, advertise the aforementioned chicken platform.

"There will also be several more innovations and all of this will be paired with consistent and competitive value. A search for value in this category is important in America," Bergren said.

Digital sales

A final highlight from the event was the overview of digital sales at Pizza Hut, which is a major competitive asset in the pizza space. The U.S. system has surpassed $1 billion in digital sales. Bergren said the chain's digital platform is very similar to Domino's, but Domino's has publicized its capabilities more.

"Whether that's a good strategy, I don't know. I happen to think they've done a good job at it and we can learn from it," he said. "But we don't feel like we're second. We still have a large percentage coming through digital and mobile and it's fast increasing."

Read more about operations management.


Topics: Food & Beverage , Franchising & Growth , Marketing / Branding / Promotion , Operations Management , Pizza Hut


Alicia Kelso / Alicia Kelso has been a professional journalist for 15 years. Her work with QSRweb.com and PizzaMarketplace.com has been featured in publications around the world, including Good Morning America, Voice of Russia radio, Consumerist.com and Franchise Asia magazine.
View Alicia Kelso's profile on LinkedIn

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