Business Profile: Pizza Hut

Meet Jens Hofma, a disarmingly polite Dutch management consultant-turned entrepreneur who now holds the reins at the eat-in arm of Pizza Hut UK. His svelte form suggests he hasn’t eaten many of his company’s 3,000 calorie burger crust pizzas, but he’s certainly an ardent fan of what is arguably the world’s biggest non-QSR restaurant brand.

Brought into the business as general manager back in 2009 by Yum! Brands, his brief was to get the struggling group into reasonable shape before offloading it to the highest bidder. Hofma, however, caught the Pizza Hut corporate bug and hasn’t looked back since.

In late 2012 he played a key role in the sale of Pizza Hut UK from Yum! to Yorkshire-based turnaround investor Rutland Partners, with Yum! retaining the delivery side of the business. Such was his enthusiasm he even put in a sizeable chunk of his own cash to sweeten the deal (see First Wichita, then the world).

Now CEO, Hofma is currently overseeing what is perhaps the biggest ever brand refresh in the UK restaurant space. Some £60m will be injected into the business over the next couple of years with sums at each site ranging from a £50,000 spruce-up to a transformative £450,000 depending on location and condition.

Four sites have been overhauled since the project began at the tail end of last year with a further 60 or so set to be completed by the end of 2014. Over time, every restaurant in the 307-strong UK estate will be treated to a new look. We’re currently perched in the Chill Zone within the group’s flagship restaurant in Crawley, West Sussex. Opened in November last year, the leisure park site was the first to be refreshed and functions as a blueprint for the rest of the chain.

It’s no secret the last decade or so hasn’t been kind to this high street giant, although few in the multi-site sector would argue with its iconic status. The gradual unravelling of the relationship between joint partners Yum! and Whitbread in the late ’90s and early 2000s resulted in a chronic lack of investment and today many sites look about ready to give up. At best pre-refresh sites look outdated and at worst they look positively dilapidated, with worn carpets, peeling paint and battered fixtures and fittings.

A struggle to remain relevant​

This prolonged period of neglect coincided with the rapid growth of other pizza and pasta chains. Pizza Express, Ask Italian, Zizzi, Prezzo and Strada expanded at breakneck pace across the UK’s high streets and Pizza Hut struggled to remain relevant in many locations. A significant proportion of its customer base defected to the higher quality, more authentically Italian pizza and pasta dishes served in more grown up environments. 

But now – and in fact quite sensibly – Hofma is attempting to turn what was a disadvantage into an advantage. “Our USP in the branded pizza and pasta sector is that we’re a US take on Italian food. That’s certainly something we haven’t been clear enough on in the past. It’s foolish for us to pretend that we’re anything else and it’s a great point of difference to our competitors,” he says.

Each refreshed branch sports an all-new menu that lets the brand’s American heritage run wild. Pizzas – available in two sizes and three types of bases (deep pan, thin and stuffed crust) – have dispensed with any semblance of Italian tradition with a line-up that includes the Chicken and Bacon Club topped with lettuce and garlic mayonnaise, the New York Deli – hotdog slices, ham, bacon, onion and mustard mayonnaise – and the BBQ Americano, which arrives slathered in barbecue sauce and piled high with chicken breast, bacon and sweet corn.

New cooking platforms are also helping the menu evolve. Deep fat fryers and high-powered microwaves have been installed at all revamped branches. This might not sound progressive but it’s a significant cultural shift for a team whose only heat source previously was a pizza oven set at a somewhat restrictive 300°C.

The move has opened up new product categories to Pizza Hut which will allow it to better compete with its immediate competition in the casual-dining market including TGI Friday’s and Nando’s. Chips and onion rings make their UK debut alongside popcorn shrimp (£4.55), BBQ ribs (£4.95) and chicken wings (£4.25).

In line with most others in the pizza space, the pizzaiolos (and indeed the pizzaiolas) have been brought into the restaurant by way of a semi-open kitchen where possible. “Every pizza is prepared fresh at Pizza Hut. A lot of our guests didn’t know that, which alters their perception of quality,” says Hofma. “We also find that an out-front kitchen fosters better relations between front and back of house; a closed kitchen creates a divide. Putting our chefs where everyone can see them has been massively motivational, too.”

Pizza Hut’s well-known all-you-can-eat buffet (£6.99 for adults and £3.99 for kids) – which plays a crucial role in driving visits during weekday lunchtimes – is generally integrated into the kitchens at most of the new-look branches and the salad bar has also been improved significantly.

“People are time and money constrained at lunchtimes and the buffet is a very effective way to deal with that. We’re certainly over-indexing on lunch at the Crawley site when compared with our competitors,” says Hofma.

It’s difficult to think of a location that better illustrates the brand’s key competitors. Driven primarily by an IMAX cinema and bowling alley, the leisure park is home to TGI Friday’s, Nando’s, Bella Pasta, Chiquito, Harvester, McDonald's and Charlie Choys. Competition for customers is intense, but on a grey and windy Wednesday lunchtime Pizza Hut's buffet is pulling in the punters - the branch is about two-thirds full and comprehensively beating the other brands, with most filling only a handful of tables. 

A contemporary take on a US diner​

Though hardly revolutionary, the new design of the Crawley site is also playing its part. Harrison Design has extensively remodelled the restaurant by switching out a suspended ceiling for exposed ducting and opening up the restaurant floor. The site also looks more attractive externally with new signage and a digital board that displays menus and offers. The aesthetic is probably best described as a contemporary take on a US diner: there are bright red banquettes, art deco-style standing lamps and textured design elements, all with a durable, wipe-clean finish.

Hofma has also made the interactive elements of the experience more prominent. As well as the new-look salad bar, there’s a self-serve drinks station that allows diners to add their choice of flavoured ‘shot’ to soft drinks via a touch screen.

A remodelled ice cream factory, meanwhile, enables customers to create their own sundaes. 

“There’s a love for those icons, but they’ve become tired, so we’ve reinvigorated them at most of the new branches. The new look, new features, uniforms and music have resulted in a profound physical and emotional change in each of the Pizza Hut restaurants we’ve touched,” says Hofma, who describes the financial uplift at the Crawley branch as being “off the charts” compared with previous refurbs and remodelling programmes over recent years, of which there have been a few.

“We’ve been surprised by the impact the changes have made at this site,” he continues. “Like-for-like sales growth has been clocked at around 40 per cent, attributed mainly to traffic growth but also a small rise in average spend per head; between £10 and £11 across both day parts,compared to less than £10 at the sites that have yet to be converted.” The new ticket price is comparable to most of the brand’s competitors in Crawley Leisure Park, but a little lower than the likes of Pizza Express and Ask Italian.

While the brand certainly isn’t out of the woods yet, there have been some signs of improvement since the business was acquired by Rutland.

Operational losses have been slashed from £17m in 2011 to £4.7m in 2012 and a pre-tax loss of £24.2m has been turned into a £1.3m profit in the same period. This figure was flattered by several one-off transactions, including the sale of the Pizza Hut delivery business to Yum!.

“We tried to combine the two businesses and work more closely, but it didn’t really work,” says Hofma. “It’s surprisingly difficult to run a delivery service from a restaurant because it’s a clash of two cultures – hospitality versus logistics. The recipes are also different because the delivery pizzas need to withstand a half-hour journey.”

The jettisoning of the delivery business signals an important cultural shift away from the former owner’s fast food roots. “Yum! is a fantastic company but the culture there is QSR through and through. Historically there’s been a focus on mass media marketing and driving traffic through discounting but we’ve reined that in, although our marketing spend is still above the industry average. Obviously we’re still looking to drive traffic, but we’re also striving to provide guests with a great experience and raise spend per head – it’s not just volume, volume, volume.”

More targeted digital campaigns​

 Pizza Hut has now moved away from TV advertising in favour of cheaper and more targeted digital campaigns. Its latest round of activity sees comedian and presenter Paddy McGuinness channelling David Brent to lead a series of YouTube videos as Pizza Hut’s (entirely fictional) chief customer officer. This sort of populist viral marketing activity has resulted in a massive presence on Facebook with 1.3 million likes, the highest of any casual-dining brand in the UK. Pizza Hut also has a solid database with the details of two million customers which can be split into types – for example families or young adults – to allow for intelligent discounting activity that targets specific customer segments and day parts.

“We do things that are cost effective and have good talkability and we will discount occasionally. But my basic belief is that the way you drive sales in the restaurant business is not through advertising, but by giving people a great experience that makes them come back and promotes word of mouth,” says Hofma.

His key weapon to promote repeat custom is staff motivation and empowerment. While he never descends into corporate management jargon, Hofma is obsessed with the idea of linking everything back to the front line of the business.

“It’s easy to say you want to do that, but in reality it’s very hard. But it does make perfect sense in our industry. The team members at Pizza Hut make or break the customer’s experience, so making sure those people are engaged and willing to go the extra mile for the brand should be the senior team’s number one concern. We have 10,000 people spread across over 300 branches and a yearly churn rate of 50 per cent, so it’s not an easy task.”

One of the first things Hofma introduced as CEO was Hut Space, a social networking site for Pizza Hut staff accessible via smartphones and tablets as well as desktops, which allows users to upload text, images and videos. Rotas and other company resources are also available.

“Restaurant managers often post to recognise team members for excellent performance and people are allowed to speak their mind – we don’t shoot them down,” says Hofma, who has only had to delete one inappropriate staff post since launching the service three years ago. “Of course some things aren’t appropriate for the wider group, but the staff are good at regulating themselves. Hut Space attunes me to what the guys at the front end of the business are thinking, and that’s an unbelievably useful thing.”

The senior team regularly works in the restaurants. In fact, Hofma will don a carefully ironed Pizza Hut-branded polo shirt and baseball cap later this evening and plans to take on four more shifts this week. “I have my own section at this branch and I can take orders and deal with complaints, and my aspiration is to be able to lead a shift by the end of the year,” he says with a grin.

“There’s nothing more energising for me than to work alongside the rest of the team. Our passion for the business lies with what’s actually going on in the restaurants rather than inhabiting some sort of corporate La La Land.”