‘Back to basics’ Pizza Hut ready to deliver

Pizza Hut plans to double its outlets in Australia over the next few years and boost turnover to around $1bn as it challenges market leader Domino’s, says chief executive Phil Reed.

Pizza Hut plans to double its outlets in Australia over the next few years and boost turnover to around $1bn as it challenges market leader Domino’s in the competitive quick service restaurant market, chief executive Phil Reed told The Australian’s Global Food Forum.

A former executive with McDonald’s and Burger King, the British-born Reed has spent the last few years shaking up the Pizza Hut business, doubling its market share from around 7 per cent when he took over in April 2018, to 10 per cent, and now has plans to step up its footprint.

The company has some 250 outlets in Australia, well behind the 755 of Domino’s, which dominates the Australian market.

“We are still only servicing around 50-55 per cent of Australians,” Mr Reed said.

“Over the next four or five years, we will be opening a significant number of new restaurants.

“There is a huge opportunity for us.”

He said Pizza Hut expected to have as many as 550 stores in Australia in the four or five years, taking the business, which currently turns over around $300m, to more than around $1bn.

The business is owned by Australian private equity firm Allegro, which bought it from US based Yum! Brands in 2016.

Mr Reed said Pizza Hut’s revenues would be pushing around $300m this year, compared to only $160m when he took over and part of the turnaround had involved extensive partnerships with its suppliers.

“Working with suppliers is absolutely critical,” he said.

 

The highly competitive pizza business in Australia has long been dominated by Domino’s, which has an estimated 46 per cent of the market.

Pizza Hut has changed from a company known for its red-roofed restaurants to smaller scale outlets, with 75 per cent of its orders now done online – for both home delivery and instore pick up – and only 25 per cent walk-in trade.

Mr Reed said he had to reset the business when he took over.

“We needed to reset the business and reset our expectations,” he said. “What I have done is move away from just looking at product and price and looking at the brand and the customer and reigniting the passion for Pizza Hut here in Australia again.

“When you consider that there are thousands of small pizza outlets and just short of a thousand Domino’s and other brands, for us to be pushing 10 per cent from where we were when I started, when it was around 5-6 per cent is great going.

“Our franchise partners have seen a doubling of their turnover.”

He said his strategy was about taking the business “back to basics”.

It involved taking some tough action in the early days to cut costs, slashing staff by 30 per cent over three days in late 2019. His restructuring program has included emphasis on new technology, including digital marketing, and using technology including artificial intelligence to better organise the production process and connect with delivery drivers.

“We have reduced our delivery times by over 40 per cent,” he said.

“By using digital technology from ordering through to the delivery, our restaurants have better insight into not only who’s ordering pizzas but the actual process of producing it so the customer gets their pizza as quickly as possible.”

Pizza Hut uses a system called Dragon Tail to calculate the address of the customer, and is able to tell the team in the restaurant which pizza to put in the oven first because they are tracking where the driver is using GPS.

“It’s a learning process which artificial intelligence helps optimise over time.”

Pizza Hut has changed from a company known for its red-roofed restaurants to smaller scale outlets, with 75 per cent of its orders now done online. Picture: Brenton Edwards

Mr Reed said striking long-term partnerships with suppliers was one of the keys in holding down costs for the company. Pizza Hut’s inflation level was around 4.7 per cent over the past year and this has been achieved by holding some suppliers to their contract prices and also being able to do deals with suppliers on the basis of large volumes and the prospect of these volumes increasing with his growth strategy.

He said concern about rising inflation in Australia has led to companies too easily accepting price rises from suppliers.

“A lot of this is rhetoric,” he said. “It’s easier to say ‘Oh, there’s hyperinflation and we’ve got to put prices up’ which many businesses have accepted because it has been the approach from suppliers.

“But we don’t have hyperinflation. This is not Brazil, it is Australia.

“We are not suffering from hyperinflation. I’m a child of the 70s — I remember.”

Mr Reed’s turnaround strategy has included the expansion into new products, including pasta and chicken wings. The company is set to launch a new pizza with pasta on top, which it will promote using the popular cartoon cat Garfield.

While the labour shortages of a year ago are reducing as more students and migrants come into Australia, he believes that Australia needs to do some thinking about how it handles workers for lower-paid jobs.

“The pressure on our franchisees has diminished significantly with international students being welcomed back in Australia.

“That has really helped.

“But there are still opportunities for Australia to free up the labour market.

“There are a limited number of people who are prepared to do the tough jobs – whether it be delivery drivers or people working in restaurants.

“There’s a lot of opportunity for us to really understand what labour Australia needs to keep the engine running.

“I was lucky enough to get my visa on the Global Talent Program, but there is still a dearth of talent at the moment.

“We need to get to a situation where there is more labour — not Global Talent visas but people who are there, actually doing the tough jobs.”