Dive Brief:
- Yum Brands reported Q4 earnings Thursday, including an 8% increase in same-store sales at its Pizza Hut U.S. division. This marks the brand's best quarterly performance in 10 years, since U.S. same-store sales rose 10% in Q4 2010, analyst analyst Mark Kalinowski told Business Insider.
- Eighteen percent same-store sales growth in the off-premise channel, a $10 Tastemaker value offer, a Triple Treat Box launch and the introduction of Beyond pizzas in partnership with Beyond Meat all contributed to Pizza Hut's performance, Yum CEO David Gibbs said during a call with investors.
- Domino's and Papa John's have both experienced consecutive quarters of double-digit sales growth during the pandemic, while independent pizzerias on Slice have doubled their weekly sales volumes as of September. Pizza sales in 2020 came in at $46.24 billion, slightly below 2019's total of $46.34 billion, according to Statista data, reflecting a lack of major pandemic disruption for this off-premise-focused segment.
Dive Insight:
These results are notable as Pizza Hut has struggled in recent years, mostly due to a large, dated Red Roof dine-in footprint. The company started its shift toward delivery/carryout units a few years ago when Yum committed $130 million toward the brand's turnaround. However, the pace of that transition didn't keep up with consumers' preference for delivery/carryout pizza, and Pizza Hut fell behind rival Domino's in market share.
In late 2019, the company announced it was closing hundreds of units to expedite its transition. During 2020, Pizza Hut's unit count declined 6%, largely from underperforming units or those with lower average unit volumes, according to the Q4 call. Gibbs said that building a delivery/carryout unit is a low cost and this models "usually gets very high returns," which positions the company well for the future.
"COVID has hastened the transition and the closure of casual dining-based restaurants. We have more work to do and we expect this to weigh on unit growth into this year... we are entering 2021 from a position of strength," CFO Chris Turner said on the call, pointing to unit economic improvements and franchisees primed for growth.
One of those franchisees is Flynn Restaurant Group, which is in the process of acquiring 950 Pizza Hut locations from NPC International, which filed for bankruptcy in July. Flynn is familiar with Yum, with an extensive portfolio that includes Taco Bell. Gibbs said the group is "well capitalized and brings a strong track record of operational excellence."
Bringing a strong franchisee on board and shifting its real estate assets away from the dine-in model are just part of Pizza Hut's momentum swing. There are also the operational improvements, digital enhancements and product innovations to consider.
The company launched a new omnichannel menu management system during the quarter, providing one source for menu customization and pricing that can be synched across multiple digital channels, for example.
"This is particularly important as we grow our delivery capability across multiple aggregator partners," Turner said.
