Pizza Hut's priority: Solving the value gap

Aug. 5, 2013

NPC International Inc., Pizza Hut's largest franchisee, reported a Q2 comp store sales decline of 3.7 percent.

The drop rolls over an increase of 5.1 percent during the same period last year.

NPC's president and CEO Jim Schwartz said the company's top line was soft during the quarter because "the brand's promotional activities did not bring adequate value to activate the consumer relative to our competition."

Pizza Hut's No. 1 priority, he adds, is solving this value gap to "ensure we are meeting the needs and expectations of our consumers and growing market share."

Schwartz added that the economic recovery seems to have bypassed lower-income QSR consumers, who consequently remain dependent on compelling value offerings.

Also, NPC's lack of presence in the West added to its sales lull during the quarter.

"The western states appear to be disproportionately benefitting from the underpinning elements that are driving the (economic) recovery," he said.

Some good news

Despite the drop in comp store sales, NPC's EBITDA was in line with the prior year due mostly to labor controls.

The franchisee's net income was $8.1 million for the quarter, a $5.1 million jump from last year.

And, NPC continues to expand its Delco Lite footprint, opening 15 of these smaller prototypes during Q2 for a total of 21 constructed year-to-date.

The company's WingStreet conversion efforts also continued, with 52 completed conversions during the quarter, for a total of 67 year-to-date.

Finally, Schwartz touched upon NPC's recent entry into the Wendy's franchise system. In July, NPC closed on 37 Wendy's restaurants.

"This opportunity complements our core competencies while also providing an attractive growth avenue in one of America's great, time-tested brands," he said. "Going forward we will work to bolster value at Pizza Hut while continuing to operate with excellent controls and at the same time seamlessly integrate our new Wendy's acquisition."

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

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