Pizza Hut looks to digital delivery to shake off legacy dine-in brand

Profile picture for user slauchlan By Stuart Lauchlan December 10, 2018
Pizza Hut has a legacy dine-in brand problem that it's looking to digital spend and delivery services to transform.

In looking at the Quick Service Restaurant industry - that’s fast food chains to you and me - the increasing importance of digitally-enabled delivery services is a theme that’s become ever more prominent over the past 12-18 months.

In large part this is down to the rise of disruptive third party aggregators, such as Deliveroo and Uber Eats, as firms such as McDonalds strike deals with such providers to deliver their own delivery fulfilment. But such alliances, expedient though they may be, have the disadvantage of leaving money on the table for the food providers themselves. As such, in some quarters there’s a shift towards seeking methods of bringing this aspect of the digital business model in-house.

The most recent example can be seen with the planned acquisition by Pizza Hut of Quick Order, a deal announced last week. It’s a purchase that follows a 20 year old partnership whereby Quick Order acted as the e-commerce engine for the pizza firm. While that’s been a success to date - roughly half of Pizza Hut’s US sales were processed via the platform - the feeling now among senior management is that bringing this capability inside Pizza Hut, the firm will be able to accelerate its own e-commerce and delivery roadmap.

That’s important as Pizza Hut sets out on a wider transformation journey around its business model. The brand, which is 60 years old this year, has been a dine-in operation, but that’s now regarded as a legacy model in decline, a decline sufficiently sharp as to blunt the success of digital iniatitives. Artie Starrs, President, Pizza Hut USA, says:

When we look at our digital business, it's growing a lot, in the U.S. over 15% this year, 55% of our delivery and carryout business is coming online now and 40% internationally…

It wasn’t so long ago that people were talking about Pizza Hut and digital being a weakness, digital and technology was a weakness…[now] our digital business is growing 15%, some months even more, most of our online business is mobile.

But there’s a problem:

The thing that's hanging over all of us is our dine-in business….this creates some challenges and also creates some opportunities….Even though we have- over 6,000 delivery points of distribution in the US, people still don't necessarily associate us with delivery. And the dine-in the red-roof legacy, I think certainly has something to do with that. But continued investment in value and making sure we’re putting delivery in digital online, I think will help this.

Digital spend

Which is where the Quick Order acquisition comes into play. There are clear objectives here, says Vipul Chawla, VP of Pizza Hut International:

The Pizza Hut brand has been built and started with the legacy of being a dine-in full service restaurant concept. We know that going forward we will unlock the true potential of this brand by delivering on a modern pizza delivery experience to our customers. That growth will be unlocked when we make our brand more distinctive and relevant by making it easier for our customers to access a better pizza…we have to make it easier for our customers to access that better pizza experience.

That ease is going to come from two sources, he argues. The first is value - people have to want to buy your pizzas in the first place! - and the second is a frictionless digital experience, one that is being built by Pizza Hut’s Digital Ventures arm, an internal “innovation hub”. Chawla explains:

This is a full service in-house platform, which allows us to build out our e-commerce so that we can trade and interact and transact with our customers. In the UK, where we launched it, we have seen a double-digit growth in conversion, and conversion is measured by the number of customers who purchase from us, once they have visited our site. Taking those learnings, we have expanded it to another nine markets. And in each of those markets where we have gone, whether it’s in Asia, whether it is in Europe or in parts of the Middle East, we have seen a double-digit growth in our conversion.

Optimizing delivery and carry out- or off-premise, as Chwala calls it - business is crucial here, as is a franchise tie-up with Spanish firm Telepizza, which will vastly increase Pizza Hut’s footprint. Most importantly, it brings 1,400 entirely delivery-focused stores into the Pizza Hut orbit. Chwala says:

The alliance brings our full capabilities in delivery-focused assets and delivery capabilities as well as, of course, in supply chain….The market franchise rights of Telepizza in Iberia and Latin America, will instantaneously double the size of our estate there and take us to number one. So we’re excited about that. But it's not just that. Currently, our delivery estate in this region has less than 70%. And that will instantaneously become more than 90%. So it is, in some ways, the model of the future….They have at the moment 1,600 stores, but through the alliance, 1,500 will come into our fold.

My take

A digital base topped with delivery options - it’s a major business model transformation for Pizza Hut, but a necessary one. It’s also one that, importantly, has senior management commitment and buy-in.

The pizza sector of the fast food game has seen Dominos take a digital lead, while Papa John’s - when not putting out its own fires! - has been playing catch-up. Pizza Hut has a different set of challenges in its legacy dine-in model, but the objectives are clear. Starr's summation is simple:

We focus the business on delivery. We’ve increased our digital capabilities and we’re offering competitive value in every market. When we think about our delivery business and re-transferring the Pizza Hut brand on a delivery-focused strategy, we put forward these words - hot, fast and reliable…[when] you’re in the restaurant business, in particular the Pizza delivery business you get three complaints - cold, slow and wrong.