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FDD Talk 2015: The Pizza Hut Franchise Opportunity (Financial Performance Analysis, Estimated Costs, and Other Important Stuff You Need to Know)

by Franchise Chatter on September 22, 2015

in FDD Talk 2017: Food Franchises, Franchise Earnings, Pizza Franchises



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Pizza Hut Photo by Tiffany Bailey

In this FDD Talk 2015 post, you’ll learn the following:

  • Section I – Background information on the Pizza Hut franchise opportunity, including relevant news updates
  • Section II – Estimated initial investment for a Pizza Hut franchise, based on Item 7 of the company’s 2015 FDD
  • Section III – Presentation and analysis of Pizza Hut’s financial performance representations, based on Item 19 of the company’s 2015 FDD, including information on the:
  • 2014 average gross sales, cost of sales, cost of labor, cost of advertising, semi-variable costs, other semi-variable costs, other fixed costs, rent, and EBITDA for the company-owned “Red Roof” Dine-In Pizza Hut Restaurants that had been open a minimum of one year as of December 31, 2014
  • 2014 average gross sales, cost of sales, cost of labor, cost of advertising, semi-variable costs, other semi-variable costs, other fixed costs, rent, and EBITDA for the company-owned Delivery/Carryout Pizza Hut Restaurants that had been open a minimum of one year as of December 31, 2014
  • 2014 average gross sales, cost of sales, cost of labor, cost of advertising, semi-variable costs, other semi-variable costs, other fixed costs, rent, and EBITDA for the company-owned Delivery/Carryout Lite Pizza Hut Restaurants that had been open a minimum of one year as of December 31, 2014

Section I – Background Information

Pizza Hut Goes Bold in Reboot

While other restaurants are simplifying their menus, Pizza Hut is going in the opposite direction – adding new pizzas, half a dozen sauces and other more complex choices – while also revamping the website, rebooting the logo and redesigning the staff uniforms.

Pizza Hut Inc., a subsidiary of Yum Brands Inc. and based in Plano, Texas, announced in November 2014 that it would rebrand to increase sales numbers, which had fallen in the previous two years. Luring younger diners with more and bolder choices was also a consideration.

‘Flavor of Now’ Doubles Pizza Menu

Centering the menu changes is a new menu tagline, “Flavor of Now,” featuring new pizzas, new ingredients, new sauces and new flavor extras.

The menu separates the old from the new, with four distinct pizza sections:

  • Classic Recipes (Meat Lovers, Veggie Lovers, Supreme, etc.).
  • New Recipes, featuring 11 mostly perky names, like Cherry Pepper Bombshell and Pretzel Piggy.
  • Flavor Pioneers, which push the envelope with bolder ingredients such as swirls of flavored drizzles in Balsamic, Honey Sriracha, Barbeque and Buffalo varieties.
  • Skinny Pizza, featuring less dough, lighter portions of meats and cheeses, and emphasis on veggies. You’ll see pizzas loaded with spinach or bell peppers. The recipes are 250 calories or less per slice.

The drizzles are added in a spiral pattern, which coincides with several pizza designs. Drizzles can be added to make-your-own pizzas, along with sprinkles of flavor along the crust edge, such as salted pretzel, Honey Sriracha and Hut Favorite (that butter-garlic blend with parmesan cheese and Italian herbs).

The expanded list of sauces includes Classic Marinara, Premium Crushed Tomato (which boasts a slightly sweet tomato flavor), Creamy Garlic Parmesan, Honey Sriracha, Barbeque and Buffalo.

New Logo Pizza-Shaped

One of the rebranding efforts was a fairly major logo change that places the name and characteristic roof in white on a pizza-shaped red circle that breaks around the edge as if to indicate a round circle of red pizza sauce. The new logo takes a much different color path than that of the red roof, black lettering and yellow underline of the past.

And while the logo is pizza-sauce red, most other concentrations of Pizza Hut’s signature red color, from pizza boxes to website design, have faded to black. The grainy black website background resembles a modern granite countertop, and the brightly colored pizza rounds pop against the stark darkness.

Chain Started with $600 Loan from Mom

It is a younger, bolder look for Pizza Hut, which got its start in 1958 when brothers Frank and Dan Carney, Wichita (Kansas) State University students, opened a single location in Wichita after borrowing $600 from their mother. The chain grew into the world’s largest pizza company, with more than 15,000 locations in more than 120 countries.

Pizza Hut restaurants come in the original dine-in locations and storefront carryout and delivery shops, selling pizza, pasta and wings, as well as a third format that blends the two concepts.

Iconic Pizza Hut Location Closes

But times are changing. The oldest continuously operating Pizza Hut location, in Manhattan, Kansas, closed in July 2015 after almost 55 years in business. Owner Bernie Butler, who owns dozens of Pizza Hut restaurants, told the Topeka (Kansas) Capital-Journal that the pizza business had shifted to more of a delivery model. The Manhattan location, which opened in 1960, wasn’t equipped to handle high-volume delivery, Butler said.

Chain No. 9 on Franchise 500 Ranking in 2014 and 2015

Still, Pizza Hut’s falling numbers don’t indicate failure. The chain was ranked at No. 9 in Entrepreneur’s Franchise 500 list in both 2014 and 2015. It moved from No. 8 in 2013 to No. 2 on Entrepreneur’s 2014 Top Global Franchises list, but dropped slightly to No. 4 in 2015.

Notable, however, is Pizza Hut’s drop to No. 56 in the Entrepreneur list of 2015 Fastest-Growing Franchises, down from No. 10 in 2014. The chain has fluctuated on that list, however, going from No. 6 in 2011 to No. 13 in 2012 and down to No. 66 in 2013 before jumping back up to 2014’s No. 10 spot.

When You Can’t Choose Between Pizza and Hot Dogs

Pizza Hut is still making bold choices in its menu items, pushing the envelope to try to boost interest while still retaining its steady clientele. If there were strict rules for pizza, the Hot Dog Bites Pizza, unveiled in June 2015, would likely break them. This odd variety starts with a large pizza and surrounds it with 28 mini hot dogs wrapped in crust. Diners can pull the hot dogs (or pigs in a blanket) and dip them into the French’s Classic Yellow Mustard served on the side.

The pizza may be new to the U.S., and may have been met with reactions ranging from horror to delight, but it’s not new on the international front, where it’s the chain’s most popular specialty pizza. It was first introduced in Korea in the late 2000s and has showed up in various forms in a number of different countries, including China, the United Kingdom and Canada.

Section II – Estimated Costs

  • Please click here for detailed estimates of Pizza Hut franchise costs, based on Item 7 of the company’s 2015 FDD.

Section III – Financial Performance Representations (Item 19, 2015 FDD) and Analysis



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