Yum! Brands to invest $130 million in Pizza Hut turnaround

by Monica Watrous
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Pizza Hut's performance in the United States continues to drag on Yum! Brands' results.
 
 

LOUISVILLE, KY. — Yum! Brands, Inc. executives announced plans to invest approximately $130 million over the next two years to resuscitate the Pizza Hut business in the United States, where same-store sales declined 7% in the recent quarter, while same-store sales at sister brands Taco Bell and KFC rose 8% and 2%, respectively.

Greg Creed, Yum! Brands
Greg Creed, c.e.o. of Yum! Brands.

“I’m very pleased to announce that, in the past few days, we secured an agreement with our franchisees to accelerate a bold transformation of the Pizza Hut U.S. business,” said Greg Creed, chief executive officer of Yum! Brands, during a May 3 earnings call with investment analysts. “This agreement will improve brand marketing alignment, accelerate enhancement to operations and technology and include a permanent commitment to incremental advertising. This is a win-win agreement that importantly includes explicit alignment on aggressive investment in a digital-delivery centric strategy, and in short, we’ll make it easier for our customers to get a better pizza.”

Previously, Yum! Brands executed a successful turnaround of its KFC business in the United States, where the brand has now achieved 11 consecutive quarters of same-store sales growth. Efforts included a new marketing campaign, refurbished packaging and dining room decor and an expanded menu. Most recently, the chain introduced a spicy crispy chicken sandwich, featuring chicken that is hand breaded in the restaurants, Mr. Creed said. 

KFC recently launched the Zinger spicy chicken sandwich.
 

“The first step in the KFC U.S. turnaround was reaching a clear alignment with franchisees in early 2015 about the strategy and entering into an acceleration agreement, which we’ve discussed with you before,” he said. “Second was implementing the ‘Re-Colonelization’ effort. Operational excellence is at the core of success for any brand and it was for KFC’s turnaround as well, with ingredients and procedures held by very high standards and with upgrades to equipment.

“Third, creative marketing around clear value constructs and innovation helped make KFC a distinctive and relevant brand again. Now franchisees are investing in assets, adding new sales layers, and demand from new franchisees has spiked.

“This turnaround has been years in the making and required a lot of hard work, but restaurants are a momentum business, and I’m confident that we can carry the momentum forward.”

During the quarter, Taco Bell drove an increase in transactions with the introduction of three key products, Mr. Creed said.

Taco Bell benefited from several key launches, including the Naked Chicken Chalupa.
 

“First, we launched the $1 double stacked tacos, which provided us with early momentum in the quarter,” he said. “We then sold over 25 million Naked Chicken Chalupas, which illustrates the enthusiasm for our crispy chicken offerings. And finally, we brought back the Triple Double Crunchwrap, which was even more successful than its initial launch in 2016. Our high-low value strategy is working, achieving both price value and abundant value.”

Consolidated net income in the first quarter ended March 31 was $280 million, equal to 78c per share from continuing operations, down 23% from $364 million, or 55c per share from continuing operations, in the prior-year period. Total revenues eased to $1,417 million, down 2% from $1,443 million.

“With regards to our transformation, I’m pleased to report that we remain on track with our refranchising and cost-saving initiatives,” Mr. Creed said. “These efforts are elevating our organization into one that is more focused, more franchised, more efficient and ultimately delivers more growth. This is why all of us at Yum! are realigning our efforts toward our four growth drivers: distinct relevant brand, unmatched franchise operating capability, bold restaurant development and unrivaled culture and talent.” 
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