In this FDD Talk 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 2021 FDD

• Section III – Initial franchise fee, royalty fee, marketing fee, and other fees for a Pizza Hut franchise, based on Items 5 and 6 of the company’s 2021 FDD

• Section IV – Number of franchised and company-owned Pizza Hut outlets at the start of the year and the end of the year for 2018, 2019, and 2020, based on Item 20 of the company’s 2021 FDD

• Section V – Presentation and analysis of Pizza Hut’s financial performance representations, based on Item 19 of the company’s 2021 FDD, including information on the:

• 2020 average, median, highest, and lowest gross sales; average cost of sales; and average cost of labor for the 20 company-owned Pizza Hut restaurants that were open and operating for at least one year as of December 28, 2020 and that were situated on leased real property

• 2020 average, median, highest, and lowest gross sales for the 2,095 franchised Pizza Hut restaurants of the Dine-In/Red Roof and RBD restaurant concept type that were open and operating for at least one year as of December 28, 2020

• 2020 average, median, highest, and lowest gross sales for the 2,537 franchised Pizza Hut restaurants of the Delco Delivery/Carry-Out restaurant concept type that were open and operating for at least one year as of December 28, 2020

• 2020 average, median, highest, and lowest gross sales for the 4,632 franchised Pizza Hut restaurants that were open and operating for at least one year as of December 28, 2020

Section I – Background Information

24 Things You Need to Know About the Pizza Hut Franchise

Appoints New CEO

1.  In late August 2021, Yum! Brands announced that Kimberly-Clark veteran Aaron Powell would take over as Pizza Hut’s CEO effective September 20. Powell, the former president of Kimberly-Clark’s Asia-Pacific Consumer Business, is succeeding Artie Starr, who joined Topgolf as CEO in April.

2.  The new Pizza Hut leader will report to Yum! CEO David Gibbs and will assume global responsibility for driving growth strategies, franchise operations, and performance. Kevin Hochman, president and chief concept officer for KFC U.S. and interim president of Pizza Hut U.S., and Vipul Chawla, president of Pizza Hut International, will report to Powell.

3.  Gibbs said, “We couldn’t be happier to welcome Aaron to the Yum! Brands and Pizza Hut family and believe this global brand division leadership structure will enable the Pizza Hut U.S. and international teams to further implement best practices worldwide and continue their growth trajectory for franchisees and shareholders. Aaron brings more than 25 years of deep experience in the business-to-business and consumer packaged goods sectors and is known for driving break-through innovation and delivering strong performance for iconic household name brands operating in complex environments around the world.”

4.  Powell enters Pizza Hut as the chain continues its long-term strategy of shifting from dine-in business to takeout and delivery. The brand’s U.S. same-store sales grew 9 percent over two years in the second quarter, and off-premises comps lifted 18 percent on a two-year stack. Pizza Hut has also returned to unit growth. In 2020, the brand shuttered a net of 1,063 stores, but through the first half of 2021, the company has opened a net of 170 locations.

5.  Powell has more than 14 years of experience at Kimberly-Clark in a variety of leadership roles across business-to-business and consumer operations, including corporate strategy, M&A, sales, marketing, e-commerce, and operations. He also spent four years with Bain & Company, one of the world’s largest strategic management consulting firms, and worked eight years in sales leadership and brand management roles at Procter & Gamble. Powell holds an MBA from the Wharton School of Business at the University of Pennsylvania and a Bachelor’s degree from Washington University. He currently serves on the board of directors for Sherwin-Williams.

6.  Powell said, “The chance to join an iconic, powerhouse global brand like Pizza Hut, combined with the backing of a world-class and culture-rich company like Yum! Brands, created an opportunity I knew I had to be a part of and simply couldn’t pass up. I’m excited to work with Kevin and Vipul, and can’t wait to begin working alongside and building relationships with such a talented team of employees and franchisees around the world.”

Partners with Beyond Meat to Become First National Pizza Chain to Offer Plant-Based Meat Pizza

7.  In mid-November 2020, Pizza Hut – in partnership with plant-based leader Beyond Meat – became the first national pizza company to bring a plant-based meat pizza to the masses with the nationwide launch of new Beyond Pan Pizzas: the Beyond Italian Sausage Pizza and the Great Beyond Pizza. This first-in-the-category national launch makes plant-based meat pizzas more widely available to pizza lovers everywhere, giving consumers more choices and even more reasons to love Pizza Hut.

8.  Packed with the bold flavor and savory satisfaction you’d expect in traditional Italian sausage, the plant-based Beyond Italian Sausage is one you’ll have to taste to believe. The authentic, mouthwatering taste comes from the high-quality ingredients used, including a mix of classic Italian herbs and spices like garlic, onion, paprika, and fennel seeds.

9.  The Beyond Pan Pizzas were co-created by the Beyond Meat and Pizza Hut culinary teams to deliver the signature taste of Pizza Hut’s Italian pork sausage but in a plant-based option, giving fans even more ways to enjoy their Pizza Hut favorites, no sacrifice required.

10.  The new Beyond Pan Pizzas include:

• Beyond Italian Sausage Pizza: Pizza Hut’s classic cheese pizza topped with plant-based Beyond Italian Sausage crumbles that feature an authentic blend of Italian seasonings, bringing a taste that’s Beyond Belief.

• The Great Beyond Pizza: A specialty pizza crafted with fresh veggie toppings that include tomatoes, sliced red onions, and tangy banana peppers, served up on Pizza Hut’s classic Original Pan crust paired perfectly alongside the savory Beyond Italian Sausage.

11.  David Graves, chief brand officer of Pizza Hut, said, “I’d challenge anyone to go try the new Beyond Pan Pizza and tell the difference. I shared it with friends and family, and they couldn’t. The Beyond Italian Sausage is rich, juicy and has the signature Pizza Hut flavors – pizza lovers everywhere are going to love it.”

12.  Ethan Brown, founder and CEO of Beyond Meat, added, “Our partnership with Pizza Hut is a category first and together we will continue to raise the bar on game changing product innovations as we introduce the delicious taste of Beyond Meat products to pizza fans nationwide. We’re thrilled to be on this journey with Pizza Hut that enables us to further increase access to better-for-you plant-based meat as we continue to expand our partnership with Yum! Brands.”

13.  The Beyond Italian Sausage Pizza and Great Beyond Pizza were available for a limited time while supplies lasted. This announcement came as part of a broader collaboration between the two brands that is anchored in delivering mouthwatering, nutritious, and sustainable cutting-edge innovations to pizza lovers in the U.S. and beyond.

Launches The Hut Lane – A Digital-First Carryout Option

14.  After becoming the first national pizza brand to offer Contactless Curbside Pickup, Pizza Hut announced in late March 2021, that it was doubling down on safety and convenience and launching The Hut Lane, a dedicated digital order pick-up window available at over 1,500 locations across the country with more to come.

15.  As customer preferences shifted during the early months of the pandemic, Pizza Hut adapted to offer a way for customers to place digital orders without ever having to leave their vehicles. The Hut Lane represents the next evolution of this breakthrough experience, offering safety, convenience, and speed without customers ever having to park their cars.

16.  Nicolas Burquier, chief customer and operations officer of Pizza Hut, said, “We are giving our customers a variety of options to optimize their pizza-eating experience as we build on our business momentum. Not only do we offer industry-leading, innovative menu items that are only available at Pizza Hut, we also offer several digital-first pick-up options for our customers, and The Hut Lane is a great example of that.”

17.  The Hut Lane service can be accessed through the Pizza Hut app and Pizza Hut online and is also available for those placing orders over the phone. Upon arrival, customers can simply pull up to the dedicated window, grab their order, and go. If The Hut Lane is not available at a customer’s local Pizza Hut, the app will automatically offer Pizza Hut’s Contactless Curbside Pickup so the customer can still stay in their car to pick up their order.

18.  The Hut Lane is part of the brand’s long-term strategy to modernize through digital ordering and improved customer experiences, and many franchise owners seeking an edge on speed and convenience in their local markets will look to utilize this feature. As Flynn Restaurant Group recently took ownership of over 900 Pizza Hut restaurants, the franchisee plans to prioritize The Hut Lane in many of its stores going forward.

19.  Ron Bellamy, chief improvement officer of Flynn Restaurant Group, said, “As we transition into the Pizza Hut system, we are excited about The Hut Lane and the seamless customer experience it offers. We know from our QSR experience how much value a pick-up window can unlock for the business, and we plan to prioritize The Hut Lane in future builds and relocations of existing stores.”

Company History

20.  Pizza Hut was founded in 1958 by brothers Dan and Frank Carney in Wichita, Kansas. At the time, the Carneys were still attending Wichita State University and borrowed $600 from their mother to start a pizza parlor, which were pretty uncommon at the time. Since it was close to the university, Pizza Hut was a success. The first location was followed by a second just six months later. The following year, the Carneys began franchising Pizza Hut and the first franchise opened in Topeka, Kansas.

21.  Over the next decade, Pizza Hut grew aggressively around the United States and by 1966, there were over 145 locations in operation. Two years later, Pizza Hut opened its first international locations in Canada. In 1969, Pizza Hut adopted its iconic red roof for its restaurants. Pizza Hut’s growth continued and in 1977, the company was acquired by PepsiCo. During this time, Pizza Hut also introduced many staples such as its Pan Pizza and Hand-Tossed Traditional Pizza.

22.  In 1994, Pizza Hut became the first national pizza chain to offer online ordering and pizza delivery. A few years later, in 1997, Pizza Hut (as well as sister brands Taco Bell and KFC) were spun off by PepsiCo and all three restaurant chains became part of a new company named Tricon Global Restaurants, Inc. Tricon became Yum! Brands in 2002.

23.  Despite growing into the world’s largest pizza chain, Pizza Hut has hit some snags, especially in the last decade as the global economy has struggled. In 2019, Pizza Hut announced that it would close about 500 of its 7,496 dine-in restaurants in the U.S. by the middle of 2021. Then in 2020, Pizza Hut said that it would close an additional 300 stores, following the bankruptcy of one of its largest franchisees. Despite the recent closures, Pizza Hut continues to be one of the world’s biggest pizza chains with locations all around the world.

Entrepreneur’s Franchise 500

24.  Pizza Hut ranked No. 59 on Entrepreneur’s 2021 Franchise 500 list.

Section II – Estimated Costs

• Please click here for detailed estimates of Pizza Hut franchise costs, based on Item 7 of the company’s 2021 FDD.

Section III – Initial Franchise Fee, Royalty Fee, Marketing Fee, and Other Fees

• Please click here for detailed information on Pizza Hut’s initial franchise fee, royalty fee, marketing fee, and other fees, based on Items 5 and 6 of the company’s 2021 FDD.

Section IV – Number of Franchised and Company-Owned Outlets

Franchised

2018

• Outlets at the Start of the Year:  6,059
• Outlets at the End of the Year:  6,124
• Net Change:  +65

2019

• Outlets at the Start of the Year:  6,124
• Outlets at the End of the Year:  5,953
• Net Change:  -171

2020

• Outlets at the Start of the Year:  5,953
• Outlets at the End of the Year:  5,323
• Net Change:  -630

Company-Owned

2018

• Outlets at the Start of the Year:  96
• Outlets at the End of the Year:  24
• Net Change:  -72

2019

• Outlets at the Start of the Year:  24
• Outlets at the End of the Year:  23
• Net Change:  -1

2020

• Outlets at the Start of the Year:  23
• Outlets at the End of the Year:  22
• Net Change:  -1

Section V – Financial Performance Representations (Item 19, 2021 FDD) and Analysis

• Set forth below are historical data for certain domestic traditional Pizza Hut outlets owned and operated by Pizza Hut or its affiliates (“Company-Owned System Restaurants”) and certain domestic traditional Pizza Hut outlets owned and operated by franchisees (“Franchised System Restaurants”).

Part 1 – Mature Company-Owned Restaurants

• The financial performance representations below provide certain information regarding Company-Owned RBD and Delco System Restaurants that were open and operating for at least one year as of the end date of December 30, 2019 and December 28, 2020, respectively (each, a “Reporting Period”) that were situated on leased real property (“Mature Company-Owned System Restaurants”).

• RBD stands for Restaurant-Based Delivery System Restaurants from which Pizza Hut pizza and other products approved by PHLLC (“Approved Products”) are sold for dine-in and carry-out consumption, and may be delivered for off-premises consumption.

• Delco stands for Delivery/Carry-out System Restaurants from which Approved Products are sold for carry-out and are delivered, all for off-premises consumption.

• Specifically excluded from Mature Company-Owned System Restaurants are System Restaurants for which PHLLC or its affiliates owned the real property; carry-out only System Restaurants; seasonal System Restaurants; Express Restaurants (for which licenses are offered under a separate disclosure document); or any type of System Restaurant other than traditional RBD and Delco System Restaurants.

• As of December 30, 2019, there were 21 Mature Company-Owned System Restaurants, and as of December 28, 2020 there were 20 Mature-Company-Owned System restaurants, which are reflected in the subset information provided below.

A1. 2019 Average Performance (ended December 30, 2019) – Mature Company-Owned System Restaurants

• Number of Mature Company-Owned System Restaurants:  21
• Average Gross Sales:  $884,486
• Median Gross Sales:  $918,646
• Lowest Gross Sales:  $483,561
• Highest Gross Sales:  $1,363,660
• Average Cost of Sales:  $242,080 (27.1%)
• Average Cost of Labor:  $281,546 (32.0%)

A2. 2020 Average Performance (ended December 28, 2020) – Mature Company-Owned System Restaurants

• Number of Mature Company-Owned System Restaurants:  20
• Average Gross Sales:  $900,704
• Median Gross Sales:  $895,600
• Lowest Gross Sales:  $490,757
• Highest Gross Sales:  $1,374,461
• Average Cost of Sales:  $237,569 (26.3%)
• Average Cost of Labor:  $292,005 (32.6%)

• “Average Gross Sales” is the mathematical average of the total annual cash or other payments received for the sale or use of any products, goods, or services that were sold from the System Restaurants included within the group, less applicable discounts, allowances, and sales taxes.

• “Average Cost of Sales” is the mathematical average of the total annual delivered cost of food, beverages, paper, and promotional items to the System Restaurants included within the group, expressed as a percentage of Average Gross Sales.

• “Average Cost of Labor” is the mathematical average of the total annual hourly labor costs, the salaries and related costs of management, payroll taxes, health insurance, vacation pay, sick pay, bonuses, and workers’ compensation insurance for all employees at the System Restaurants included within the group, expressed as a percentage of Average Gross Sales.

Part 2 – Mature Franchised System Restaurants

• The financial performance representations below provide certain information regarding the Franchised System Restaurants – of the Dine-In/Red Roof, RBD, and Delco Delivery/Carry-out Restaurant Concept type – that were open and operating for at least one year as of the end of date of the Reporting Periods dates listed in the chart below (“Mature Franchised System Restaurants”).

• “Red Roof” System Restaurants are restaurants from which Approved Products are sold for dine in and carry-out consumption. PHLLC generally no longer offers franchises for Red Roof System Restaurants (though it does permit existing Red Roof System Restaurant franchisees to renew and transfer their franchises to the extent such renewal and/or transfers are permitted by the subject Pizza Hut Franchise Agreement governing such Restaurants).

• RBD stands for Restaurant-Based Delivery System Restaurants from which Pizza Hut pizza and other products approved by PHLLC (“Approved Products”) are sold for dine-in and carry-out consumption, and may be delivered for off-premises consumption.

• Delco stands for Delivery/Carry-out System Restaurants from which Approved Products are sold for carry-out and are delivered, all for off-premises consumption.

• Specifically excluded from the definition of Mature Franchised System Restaurants are those DBR/FCD System Restaurants; carry-out only System Restaurants; seasonal System Restaurants; Express Restaurants (for which franchises are offered under a separate disclosure document); or any type of System Restaurant other than traditional Dine-In/Red Roof, RBD, and Delco Delivery/Carry-out System Restaurants.

• As of December 30, 2019, although there was a total of 5,679 Franchised System Restaurants, there were 5,643 Mature Franchised System Restaurants, and as of December 28, 2020, although there were a total of 5,321 Franchised System Restaurants, there were 4,632 Mature Franchised System Restaurants.

• Any Mature Franchised System Restaurant that closed during the Reporting Period in the table below is excluded from Restaurants included in such period.

A1.  2019 Average Performance (ended December 30, 2019) – Mature Franchised System Restaurants of the Dine-In/Red Roof and RBD Restaurant Concept Type

• Number of Mature Franchised System Restaurants of the Dine-In/Red Roof and RBD Restaurant Concept Type:  2,737
• Average Gross Sales:  $922,520
• Median Gross Sales:  $860,366
• Lowest Gross Sales:  $223,833
• Highest Gross Sales:  $3,411,732

A2.  2020 Average Performance (ended December 28, 2020) – Mature Franchised System Restaurants of the Dine-In/Red Roof and RBD Restaurant Concept Type

• Number of Mature Franchised System Restaurants of the Dine-In/Red Roof and RBD Restaurant Concept Type:  2,095
• Average Gross Sales:  $973,080
• Median Gross Sales:  $918,570
• Lowest Gross Sales:  $221,848
• Highest Gross Sales:  $2,922,768

B1.  2019 Average Performance (ended December 30, 2019) – Mature Franchised System Restaurants of the Delco Delivery/Carry-out Restaurant Concept Type

• Number of Mature Franchised System Restaurants of the Delco Delivery/Carry-out Restaurant Concept Type:  2,906
• Average Gross Sales:  $841,187
• Median Gross Sales:  $803,684
• Lowest Gross Sales:  $217,186
• Highest Gross Sales:  $2,375,081

B2.  2020 Average Performance (ended December 28, 2020) – Mature Franchised System Restaurants of the Delco Delivery/Carry-out Restaurant Concept Type

• Number of Mature Franchised System Restaurants of the Delco Delivery/Carry-out Restaurant Concept Type:  2,537
• Average Gross Sales:  $950,058
• Median Gross Sales:  $899,546
• Lowest Gross Sales:  $262,711
• Highest Gross Sales:  $3,058,878

C1.  2019 Average Performance (ended December 30, 2019) – All Mature Franchised System Restaurants

• Number of Mature Franchised System Restaurants:  5,643
• Average Gross Sales:  $880,636
• Median Gross Sales:  $830,410
• Lowest Gross Sales:  $217,186
• Highest Gross Sales:  $3,411,732

C2.  2020 Average Performance (ended December 28, 2020) – All Mature Franchised System Restaurants

• Number of Mature Franchised System Restaurants:  4,632
• Average Gross Sales:  $960,470
• Median Gross Sales:  $906,911
• Lowest Gross Sales:  $221,848
• Highest Gross Sales:  $3,058,878

• The Mature Franchised System Restaurants set forth in Part 2 above includes one System Restaurant that was originally a company-owned System Restaurant, but that was transferred to franchisee ownership during the fiscal year 2019 Reporting Period. This System Restaurant was included in the definition of Mature Franchised System Restaurants since it paid royalties to PHLLC for at least one month during that Reporting Period.

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