Pizza Hut execs 'dissatisfied' with growth, brand has 'a lot of work to do'

Key Points
  • Artie Starrs, president of Pizza Hut U.S., told investors Wednesday, he is "dissatisfied" with Pizza Hut's growth as same-store sales continue to lag.
  • Yum Brands expects same-store sales across its three brands to be up between 2 percent and 3 percent in 2019.
  • The company committed $130 million in 2017 to improve Pizza Hut's equipment, technology and advertisements.
  • Earlier this year, the pizza chain also became the official pizza sponsor of the NFL.
A customer enters a Pizza Hut restaurant in Princeton, Illinois.
Daniel Acker | Bloomberg | Getty Images

Despite a multimillion investment and a new partnership with the National Football League, Pizza Hut still hasn't been able to spark a successful turnaround.

Pizza Hut remains a dark spot for Yum Brands, which also owns KFC and Taco Bell, as it has struggled to differentiate itself from competitors and attract new customers.

The pizza chain has been trying to boost sales and increase the number of people coming to its restaurants. Its parent company even committed to a $130 million investment in 2017 to upgrade equipment, improve its technology and boost its advertising.

In the last year, Pizza Hut has ramped up its value offerings, offering items such as large two-topping pizzas for $7.99 and $5 menu deals. It has also begun marketing more heavily, especially during football games, as it became the official pizza sponsor of the NFL earlier this year. It's also working on improving its digital platforms to make it easier to order food online or with mobile devices.

However, this strategy hasn't exactly panned out the way executives had hoped. In the third quarter, same-store sales fell 1 percent at the brand, continuing a trend of lackluster growth.

Despite Pizza Hut's weak growth, Yum Brands expects same-store sales across all three of its brands to be up between 2 percent and 3 percent in 2019, due to the strength of KFC and Taco Bell.

Artie Starrs, president of Pizza Hut U.S., speaking at Yum's investor day Wednesday, said he is "dissatisfied" with Pizza Hut's growth, telling investors that the brand has "a lot of work to do."

The biggest problem that Pizza Hut is facing is perception, Starrs said, explaining that many of its customers don't associate Pizza Hut with delivery. Most people think about ordering a pizza and carrying it out, or sitting down a table and having a server bring a meal. Starrs said the facade of its locations reinforces this idea and isn't helping to lure in diners.

"When you drive by the location, it doesn't scream 'we deliver.'" Starrs said.

Pizza Hut has only recently getting into the delivery game. Today, 55 percent of Pizza Hut's sales in the U.S. come from digital orders and only 10 percent of sales stem from diners coming into the chain and dining in. Going forward, Pizza Hut plans to make its delivery and mobile options more clear to customers through advertisements and store remodels.

In the U.S., Pizza Hut has worked to develop delivery-centric locations called "delcos." These restaurants are much smaller than a typical pizza hut and focus on delivery and carry out, not dine-in service.

In addition, Pizza Hut has begun refurbishing its locations with a sleeker, more modern design and even transitioning some dine-in modeled stores to be more like fast casual restaurants with limited, but quick service.

So far, there are 70 restaurants that have been transformed into the fast casual model and another 30 are due to open in the next 60 days. Starrs said these upgraded pizza shops saw 30 percent growth after reopening, proving that the issue wasn't with the location, but the look of the building. He said customers even said the food tasted better in these locations, even though it was the same food that had been there before.

Pizza Hut plans to renovate around 550 restaurants in the U.S. each year, some of which will adopt the fast casual design. There are currently around 7,500 Pizza Hut restaurants in the country.

"If you have a problem with your products, you can fix that overnight," David Gibbs, chief financial officer for Yum Brands, told CNBC. "If you have a problem with your assets, you have to fix that over time."

Correction: This story was revised to correct the number of Pizza Huts in the country to about 7,500.

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