Pizza Hut juggernaut rolls through 2004

Oct. 19, 2004

It's good to be the king.

At least it is when things are going well.

And that they are this year for Pizza Hut — for the most part.

On Oct. 6, Yum! Brands Chairman and CEO David Novak told stock analysts and media listening to a quarterly conference call that year-to-date comparable-store sales at Pizza Hut's U.S. corporate units are up 5 percent; franchise unit sales are up nearly a percent more.

Not only was this quarter's same-store sales growth the best the company has enjoyed since 1999, the five-week September period's plus-6 percent performance marks the 17th of 18 periods Pizza Hut has posted positive comps.

Looks like the streak will last a while, too. With admirable ease, Pizza Hut introduces a new product to the market, pulls an old favorite off the shelves or merely advertises an existing

Steve Coomes, Senior Editor

product ... and sales spike. In September it let loose an ad barrage for this year's favorite, the 4forALL, and sales responded strongly.

That's not the last the pizza industry will see of new products or reintroductions, Novak said. "Our pipeline is full for 2005."

In the cheesy vernacular of radio DJs, "The hits just keep on coming."

Additionally, expect more cobranding and new concepts to support Pizza Hut, especially Wingstreet, the flavored, bone-in/boneless chicken wing concept created by Yum about two years ago. Wingstreets are now cobranded with Pizza Hut in 274 corporate locations, and according to Novak, "Initial results are promising enough to expand testing to additional markets."

Wow! Most operators only dream of having that many units, and Pizza Hut calls that number "a test."

Perhaps most intriguing was this mention on the call: Pizza Hut will continue developing a two-fold "enhanced dining concept" for its traditional Red Roof restaurants. Part of the test includes Pizza Hut-Pasta Bravo cobranded units, the other is "a lower-cost option called Pizza Hut Italian Bistro," Novak said. That concept is a blend of Pizza Hut and Pasta Bravo — sort of a "lite" version of each, but under one roof — that serves specialty pizzas, pastas, sandwiches and appetizers.

To date there are 38 such units, 36 of which are in the hands of "excited franchisees," Novak said.

If the activity here impresses you, take a glance overseas. There now are 150 Pizza Huts in China, where the company is now testing home delivery service. That side of the business, Novak said, will be separate from its casual dining business.

Currently there are 600 Pizza Huts in the UK, and get this, Novak boasts there's room to "double the business in that market."

The king takes the heat

Being the king can be tough, though, and the negative hits against Pizza Hut also keep on coming.

Currently the chain is facing two potentially costly lawsuits: one developing class action centered on job misclassifications and resulting unpaid overtime; the other deals with an under-reimbursed delivery driver. Both suits were filed in — big surprise — California courts, where judges have a record of favoring laborers.

In the first case, former employee Ann Coldiron, who worked as a Pizza Hut "restaurant general manager," claims she is due a bucket of back overtime pay because the majority of the duties she performed during her tenure were non-managerial. Based on California law, that would make her non-managerial and able to receive overtime pay. (See Judge finds for plaintiff in labor lawsuit against Pizza Hut.)

According to Coldiron's lawyers — who have not returned requests for interviews with PizzaMarketplace, but eagerly send press releases cheering their case — as many as 3,100 approved litigants may join the class and could be entitled to as much as $300 million (approximately $100,000 per class member) in back pay and damages.

Pizza Hut's attempts thus far to have the case dismissed have failed, but its chief counsel contends the company is operating well within the law.

The second suit is born of driver Franklin Castillo's claim that Pizza Hut is reimbursing him inadequately for job-related auto expenses (plus related minor counts). (See Delivery driver sues Pizza Hut.)

Basing their claim on the American Automobile Association's automobile wear-and-tear estimates, Castillo's lawyers say delivery drivers should receive at least $1.56 per run. Pizza Hut pays 50 cents per run and contends that when combined with base pay and tips, its driver payment policy is perfectly legal and fair.

Castillo's lawyers not only are working to build the case into a class action in California, they're encouraging drivers nationwide to contact them to consider similar suits elsewhere.

(Side note: When I spoke with three of them in August, they were eager for press attention for the lawsuit ... until I started asking questions about the case's merits. After several "Well, we're not sure" and "We can't speak on that" answers to some barely tough questions, one suddenly had to attend a meeting and the call ended. None have returned follow-up calls or e-mails since.)

Last, but surely not least, is news out of Sunbury, Ohio, that Pizza Hut delivery driver Matthew Howard filed for the creation of a local drivers' union in August. Howard is a member of the Association of Pizza Delivery Drivers, which has worked to start driver unions in other areas.

According to a story on APDD's web site, the National Labor Relations Board requires that at least 30 percent of affected employees within a store must express interest in starting a union. After that, a secret ballot election conducted by the NLRB is held in six to eight weeks.

It's anyone's guess where this will go, but APDD's members believe that nascent union in Ohio and others rumored to be in the works have a chance of gaining a foothold in the pizza industry.


Will any of these concerns sap momentum from the low-flying bullet train barreling through the pizza industry? Certainly not in the immediate future.

Even if the Coldiron case moves quickly to a trial, "quickly" will likely mean months down the road. And even if Pizza Hut lost, the appeals process would stretch on for months. At the very least, as Pizza Hut general counsel Robert Millen told me, "It's a distraction from the business at hand, and that's never pleasant."

Meantime, watch closely as Pizza Hut continues demonstrating the benefits of being the biggest.

Read related Pizza Hut articles by clicking here.

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