Pizza Hut Parent to Close More Than 400 Restaurants as Deliveries Gain on Eat-In Business
Fast-food restaurant giant Yum! Brands Inc. may close more than 400 mostly franchised Pizza Hut restaurants in the United States over the next two years, eliminating its weakest performing sites and focusing more on take out business as the seller of tacos, chicken and pizza grabs more real estate globally.
The company, corporate parent and franchising manager for brands with their own executive teams and headquarters offices such as KFC and Taco Bell, plans to accelerate the transition of its U.S. Pizza Hut restaurants away from full-service dining and more toward locations capitalizing on rising consumer demand for tech-enabled food delivery, according to executives during a Thursday call with investors to discuss earnings.
Americans are more often ordering fast food delivered to eat elsewhere rather than sitting in a quick-service restaurant, prompting the industry to shrink the amount of outlets and the size of the property they rent. For property owners and investors, the shift means that smaller buildings and parking lots with fewer spaces may be more in demand in coming years as eating habits change.
Pizza Hut is the nation’s 11th largest restaurant chain with $5.5 billion in 2018 U.S. sales, according to industry consulting firm Technomic. Yum! Brands, based in Louisville, Kentucky, has just under 7,450 U.S. Pizza Hut locations, including 6,100 sit-down restaurants and 1,350 “express” units with delivery only. Chief Operating Officer David Gibbs said the planned transition over the next 24 months is forecast to result in that U.S. count dropping to as low as 7,000 total sites, as the company closes under-performing dine-in restaurants.
Gibbs said Yum! Brands, which has more than 48,000 mostly franchised restaurants worldwide, is still on track for 4% overall annual unit count growth on average over the next several years, and Pizza Hut is expected to be part of that growth.
“Importantly, the short-term financial impact should be minimal as the closures will be our lower volume stores and long-term that should improve our system sales and profitability as the closed units are replaced with higher volume stores,” Gibbs said.
Exact locations and timelines for closing have not been announced. Yum! Brands Chief Executive Greg Creed said the company will be looking to minimize time gaps between closings and openings, which are expected to be new delivery-focused locations in cities where dining-room locations are shut.
“As far as the capital required to do this, we are committed to the asset-light model at the 98% franchise [level] and we think the economics of building a new unit stand on their own and we should have no trouble getting either existing or new franchisees ultimately to rebuild in these trade areas,” Creed said.
Among other moves, Yum! Brands last year entered into a franchise agreement with Madrid, Spain-based Telepizza, a delivery-focused chain that is poised become one of the company’s largest Pizza Hut franchisees as it opens nearly 1,500 new locations in European, Latin American and Caribbean markets. The global location count for Pizza Hut recently reached 11,000 with the opening of a restaurant in Dubai, United Arab Emirates.
Creed said franchise agreements have been ramping up for Taco Bell in India and for KFC in China, among other international markets being targeted for new stores.
For the quarter ended June 30, Yum! Brands opened a gross total of 607 locations worldwide of Taco Bell, KFC and Pizza Hut, though net openings with closings factored in totaled 312.
The company posted second-quarter total revenue of $1.31 billion, down 4% from a year earlier, and net income of $289 million, down 10%. Still, it registered better than expected growth by Wall Street. According to CNBC, citing a survey of analysts by consulting firm Refinitiv, analysts had expected $1.28 billion in total revenue; and a 3% increase in same store sales. It beat analyst expectations on both of those. They also beat analyst estimates on earnings per share by 6 pennies at 93 cents.
Yum! Brands recently named Mark King, former president of sportswear maker Adidas Group North America, as the new chief executive of Irvine, California-based Taco Bell, the nation’s fourth-largest restaurant chain based on 2018 sales topping $10 billion at more than 6,500 U.S. restaurants, according to industry consulting firm Technomic.
King succeeds Brian Niccol, who last year left Taco Bell to become CEO of rival Chipotle Mexican Grill, now based in nearby Newport Beach, California. At Plano, Texas-based Pizza Hut, division President Artie Starrs was promoted to chief executive.
