What's slowing Pizza Hut down, and the gap between dine-in and carryout
The red-roof model. Creed was straightforward in discussing what’s going on with Pizza Hut’s once-classic look, and the stark split in international versus U.S. business.
“I think one important difference between the U.S. and international is our international dine-in stores are actually in fairly good shape. These are good assets in good locations and in many countries we actually have a very strong dine-in business that we have confidence in for the future,” he said. “That's quite a contrast to the U.S. where we have a lot of red roof restaurants that are in the wrong part of the trade area, haven't been remodeled, and clearly need to go away.”
At this point, 90 percent of new units are built to the “Delco” model, which is a smaller layout with a lower investment point geared toward delivery and carryout. But replacing units requires significant capital. Eighty percent of all replacement units are delivery/carryout focused, Creed said.
The gap between dine-in sales and sales from delivery and carryout is wide at Pizza Hut, with both the U.S. and international seeing a roughly 10-point differential. “Dine-in is waning in relevance in a lot of markets and importantly complicates pricing decisions in our ability to offer disruptive delivery value, especially in international markets with a high percentage of dine-in sales. We have a long way to go given some of the challenges in legacy dine-in markets such as Europe and China,” Gibbs said. "However, the good news is the estate is shifting toward delivery/carryout, given that 90 percent of net new unit openings and 80 percent of all replacement units are delivery/carryout-focused."
About half of Pizza Hut’s sales are coming from dine-in globally, Creed said. Within three to four years, he expects it to drop to 25 percent. That’s thanks to a natural shift, the Telepizza deal, as well as building out its net Delco base and replacing dine-in restaurants with delivery ones.