Pizza Hut Earnings: Getting Delivery Religion
(Bloomberg Gadfly) -- In its TV commercials, Pizza Hut likes to declare that "no one outpizzas the Hut."
But if U.S. sales growth is your barometer, then the chain has been getting outpizza-ed for some time now:
Thursday brought some evidence, though, that Pizza Hut is starting to catch up. Its parent company, Yum Brands Inc., reported that same-stores in its U.S. Pizza Hut business were flat in the latest quarter from a year ago. While not exactly a comeback, this is progress.
The improvement is particularly noteworthy because it appears to be fueled by the chain's strategic pivot toward delivery. Other major restaurant brands should pay attention, because this adds to growing evidence that a step change has occurred in the dining business. Delivery will now be a core competency for nearly every major restaurant chain -- and offers one of the surest ways to unlock more sales.
Industry analysts see a food-delivery spending boom coming:
It's safe to assume that many, perhaps even most, of those deliveries aren't going to be incremental spending on food, but will replace visits to drive-thru windows and sit-down spots.
Given that many chains are already struggling with sluggish or declining traffic, they can ill afford to cede any more business.
Pizza Hut clearly noticed this. Executives said Thursday they tend to see a higher average check on delivery orders, showing its potential to perk up business. And while the chain is playing catch-up to Domino's Pizza Inc. -- the clear rock star of the era of e-commerce-centric food delivery -- it's on the right track.
Pizza Hut pledged this summer to hire 14,000 delivery drivers by year's end. It has built new driver technology it says will make delivery times more reliable. And it has invested in developing new pouches to make sure pizzas arrive hot. (After all, it hardly matters if you've got thousands more drivers on the road if you're not bringing people food that tastes good.)
While Pizza Hut has had its delivery awakening, it seems much of the restaurant industry is not quite there yet.
McDonald's Corp., for example, has moved aggressively on mobile ordering for carryout orders, with plans to roll that service out across all 14,000 of its U.S. restaurants this year. But it hasn't moved as quickly on delivery. Through a partnership with UberEats, it's on track to have delivery from only about 5,000 U.S. locations by the end of the year.
Olive Garden, owned by Darden Restaurants Inc., is focused heavily on to-go orders, reworking its operations and redesigning parts of its restaurants to support greater order volume. But it's only testing delivery in a limited way. On a September conference call with investors, Darden CEO Eugene Lee seemed cautious, if not outright dismissive, about delivery, saying we need to see "whether this is a phase or a fad."
In his remarks, Lee highlighted why adding delivery is fraught with tough choices for restaurants. With a bumper crop of third-party services, it's hard to decide which ones to partner with, or whether to try to build your own network. And restaurants have to make sure their food tastes and looks good after a ride across town on a bicycle or in the passenger seat of a car.
But it's high time to start figuring these things out. There's a commonly uttered mantra in the retail world: You have to go where the customer is. Increasingly, for restaurants, that means going to their doorsteps.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
Sarah Halzack is a Bloomberg Gadfly columnist covering the consumer and retail industries. She was previously a national retail reporter for the Washington Post.
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