Pizza Hut's multi-decade reign in the pizza sector could come to an end in 2018

Key Points
  • Pizza Hut's share of the limited-service pizza category has declined from 25 percent in 1995 to just 14.3 percent in 2016.
  • A Nomura-Instinet analyst predicts that Domino's will become the dominant player in the pizza category in 2018.
  • Yum Brands hopes that investing $130 million into Pizza hut will boost sales and foot traffic.
An employee places plastic box supports around a freshly cooked pizza as he prepares a takeaway order for a customer, in the kitchen of a Pizza Hut restaurant, owned by Yum! Brands Inc.
Chris Ratcliffe | Bloomberg | Getty Images

Pizza Hut is on the brink of losing its position as the pizza category leader.

Technomic data recently showed that its share of the limited-service pizza category has declined from 25 percent in 1995 to just 14.3 percent in 2016.

Mark Kalinowski, a Nomura-Instinet analyst, predicts that Pizza Hut will continue to lose market share to its competitors and by 2018 will no longer be the dominant player in the pizza category.

Domino's Pizza will claim that title, he said. Currently, the gap between Pizza Hut and Domino's is less than a percent, with Domino's holding onto 13.6 percent of the sales in the market.

"For 2017, we expect that Domino's will earn 14.1 percent market share, surpassing Pizza Hut, which we project will end 2017 with 13.3 percent market share," Kalinowski said in a research note Wednesday.

Kalinowski's forecast is a reflection of Pizza Hut's most recent struggles with sluggish same-store sales and lackluster menu innovation. While its partner brands KFC and Taco Bell have thrived, the pizza chain has stumbled to keep pace with its closest rivals.

Yum Brands, Pizza Hut's parent, said earlier this month that it is investing $130 million to revitalize the brand. The company will be upgrading equipment, improving restaurant technology and boosting advertising through 2018.

The investment is similar to the $180 million that Yum put into KFC in 2015. The chicken chain has since seen 11 quarters of same-store sales growth. The company hopes to see similar improvement in its Pizza Hut brand.

One of Pizza Hut's biggest issues is its lack of popularity among younger consumers. It also has lagged in digital innovation.

"This is one of the reasons why the chain has focused so much on digital initiatives, in an attempt to better connect with this cohort, which is driving much of the market growth," GlobalData Retail analyst Hakon Helgesen said in an email earlier this month. "In our view, it will likely be disappointed, mainly because the success of other chains isn't just about digital — it's about brand perception, physical location and price. On all three, Pizza Hut currently falls short."

That was apparent in a Harris Poll, published Tuesday, which showed Pizza Hut lost its title as America's "best pizza chain brand of the year" to Papa John's. Pizza Hut had held that crown for the last four years.