Pizza Hut’s mission to right-size its footprint may have begun years before the pandemic arrived, but COVID-19 undoubtedly quickened the initiative.
The chain closed 2019 with 18,703 stores globally. In 2020, Pizza Hut shed 1,745 restaurants, or 9 percent of the year-ago figure, including 573 closures in Q1 and Q2 combined, and 1,172 total in Q3 and Q4. The closures were partially offset by the opening of 682 locations. Pizza Hut ended 2020 with 17,639 stores, representing a unit decline of 6 percent—it’s the lowest global number since Q3 2018.
Although the numbers are significant, it’s in line with expectations as the brand continues its shift toward a more off-premises-friendly asset base, or as Yum! Brands CFO Chris Turner described it, “transition to a healthier and more modern estate.” Closures were largely underperforming stores with lower average-unit volumes. More closures are expected in 2021.
Feeding into those 2020 shutterings was bankrupted NPC International, which decreased its footprint from 1,200 to 950. Those stores have now been sold to new operator Flynn Restaurant Group. Yum! CEO David Gibbs referred to Flynn as a well-capitalized company that brings a strong track record of operational excellence. The two sides have plenty of familiarity since Flynn already serves as the second-largest Taco Bell franchisee.
“Pizza Hut’s the one we’ve talked about a lot because of remaking their asset base and moving to off-premises, the progress they’ve made on digital,” Gibbs said Thursday during the brand’s Q4 earnings call. “… Twenty percent of the Pizza Hut stores were in the hands of a poorly capitalized operator previously. Now with Greg Flynn entering the system, a proven commodity in the Taco Bell world, we know that that’s going to provide a boost to Pizza Hut. So there's a lot of reasons to be enthusiastic about Pizza Hut with their off-premises skew and the move they made.”
The data continues to back Pizza Hut’s transformation. In the U.S., where off-premises is more prevalent, same-store sales increased 8 percent in Q4 and 3 percent for fiscal 2020. In the quarter, business outside the four walls generated 21 percent same-store sales growth when excluding closed Express units, and 18 percent same-store sales growth with Express units.
THE COVID-19 ROAD FOR YUM! SO FAR:
Pizza Hut Takes Leap Toward ‘Healthier Global Estate’
Yum! Brands, and What It Takes to Hire in COVID Times
How Yum! Beat the COVID Odds, and Got Better Because of it
Yum!'s Digital Business Has Gained Over $1 Billion (latest quarterly report)
Taco Bell to Trim Menu Nationwide on August 13
KFC's Plant-Based Chicken is Headed to Southern California
Yum! Unveils $100 Million Plan to Combat Inequality
1,200-Unit Pizza Hut Franchisee NPC Declares Bankruptcy
Yum! Sales Gain Momentum, Set New Heights
Taco Bell to Hire 30,000 People in Coming Months
KFC to Provide $500,000 Worth of Groceries to Employees
At One Point During COVID-19, Yum! Had 11,000 Closed Restaurants
Taco Bell Wants to Become the Safest Place to Eat
Yum! Brands Has 7,000 Restaurants Closed Globally
As off-premises becomes a larger chunk of sales, the chain is also investing the requisite technology to secure growth. Pizza Hut U.S. launched an omnichannel menu management system that serves as one source for menu customization and pricing that can be synced across multiple digital channels.
U.S. sales were driven by the $10 Tastemaker offering, which mixed more than 20 percent in Q4. Pizza Hut also rolled out the Triple Treat Box, Beyond Meat, and Detroit-style pizza.
“We do think there’s an important role for innovation to play in that brand. I think those guys are spot on in the way they’re bringing it to life,” Gibbs said. “So we’re confident in the brand coming to life. As we’ve always talked about, the challenges are more around the asset base than it is the consumers’ love for the brand or the products that we serve.”
International units—which are more reliant on dine-in—dropped 7 percent in Q4 and 13 percent for the year, with consistent pressure from COVID cases and added restrictions. Their shift to off-premises was aided by a new in-house coaching app called HutBot. Since launching in the U.K., delivery times improved by six minutes and customer satisfaction scores rose 20 points, the company said.
“There's lots of franchise excitement around HutBot and nine other markets have already rolled out the store management and coaching aid,” Gibbs said.
For Yum! overall, digital sales reached a record-breaking $17 billion in 2020, or a 45 percent increase from last year. More than 35,000 restaurants now offer delivery, good for a 16 percent uptick year-over-year.
The company saw same-store sales drop 1 percent in Q4 and 6 percent in 2020. So far in Q1, U.S. comps are trending in the mid-teens, partially due to stimulus checks. Internationally, trends have been softer because of COVID resurgences and restrictions on operating hours.
The company grew its systemwide footprint by a net of 183 stores, including the 25,000th KFC location.