04.04.13 8:45 AM ET
Pizza Hut’s Evil Genius
When people say the U.S. has lost its capacity to innovate, I point them toward the fast-food sector. It’s an industry that Americans pioneered and continue to dominate. Homegrown brands are expanding throughout the developing world. The uniform customer experiences they provide are triumphs of industrial engineering and efficiency systems management. And they are constantly spending money to create and introduce new products.
Behold the latest offering from Pizza Hut, announced on Wednesday: the “Crazy Cheesy Crust.” It’s the usual Pizza Hut mélange of dough, tomato sauce, and cheese. Except the crust, “the element of a pizza that Pizza Hut has a rich tradition of revolutionizing all around the world,” is now outfitted with 16 dough pockets, each filled with a mixture of five molten cheeses.
Now, “crazy” seems to be something of a theme at Yum Brands, the parent company of Pizza Hut, Taco Bell, and KFC. Last month, we wrote about the triumph of the Doritos Locos Taco. (For those of you who didn’t take Spanish, loco means “crazy” in Spanish.) “It wasn’t intentional,” notes Kurt Kane, chief marketing officer at Pizza Hut, of his crazy pizza. “We picked up a lot of the language consumers used as they were trying it. This is really a consumer-named idea.” (There’s no truth to the rumor KFC is preparing to test The Colonel’s Meshugganeh Kosher Chicken.)
Of course, it’s easy to look askance at the endless iterations of core products—the many flavors of Doritos, the dozens of varieties of Oreos, new twists on Coca-Cola. But such new wrinkles are vital if established brands are to remain successful, keep existing customers happy, and attract new ones. And in a crowded market, Pizza Hut—the market leader in the vast U.S. pizza category—can’t afford to let its guard down.
Yum Brands has enjoyed phenomenal growth outside the U.S. in recent years. Here’s the most recent quarterly report. Last year in China, Pizza Hut Casual Dining same-stores sales rose 10 percent on the year and 7 percent in the fourth quarter. At the end of 2012, there were 12,757 Pizza Huts: 987 in China, 310 in India, 5,251 elsewhere outside the U.S., and 6,209 in the U.S. All in, 604 outlets were added over the course of 2012.
But in the U.S., Pizza Hut has struggled a bit. In 2011, the average U.S. system unit had sales of $875,000 (compared with $1.28 million for Taco Bell). Total combined Pizza Hut company and franchise sales were $5.5 billion in 2011, about what they were in 2008. For all of 2012, same-store sales at U.S. Pizza Huts rose 3 percent. And in the fourth quarter, same-store sales actually fell one percent from the fourth quarter of 2011. That’s bad news in an environment when costs for labor, benefits, and raw ingredients are rising.
And so it seems that some reinvention of the menu would be in order. Yes, Pizza Hut’s menu now includes wings. But the company doesn’t go for out-of-the-box innovations like making a taco shell out of a Dorito, or adding salads and coffee, as McDonald’s has done. If you go to the press room and scroll through the releases, you won’t be bombarded with new product releases. By and large, it offers not-too-revolutionary twists on the Holy Trinity of dough, cheese, and sauce that has fueled millions of study sessions, post-Little League chowfests, and work meetings. “It’s always a combination of dough, sauce, and cheese,” said Kane, the chief marketing officer. “But there are a lot of ways you can make it new time and time again.
Indeed. Crusts stuffed with cheese were introduced many years ago. More recently, the company introduced the Ultimate Stuffed Crust Meaty pizza, a grease-bomb of epic proportions. The crust was stuffed with cheese and pepperoni, Italian sausage, and bacon. In 2011, it stuffed a crust with money (!) (So, dough in dough?) There’s the P’Zone, Pizza Hut’s take on the Calzone, and Cheesy Bites. For this year’s Super Bowl, it introduced Big Pizza Sliders—a group of small pizzas. Side dishes are basically pizzas without the cheese and sauce (bread sticks), or pizza without the sauce (cheese sticks). Desserts include dough with sugar—chocolate dunkers and cinnamon sticks. Many years ago, at a Pizza Hut in upstate New York, I encountered dessert pizzas, which were kind of like big, flat strudels.
Ubiquitous brands find it difficult to get much growth unless they continually refresh the experience. The challenge for Pizza Hut is that core users don’t walk in the door and express urgent preference for different products. After all, pizza in its current form is pretty much a perfect food. “Consumers are really good at reacting to products that we’ve created, but they’re not great at helping us create them,” notes Kane. And while there have been great advances in food chemistry and the science of taste, Pizza Hut isn’t developing new products based on computer algorithms and formulas. “We’ve got an entire team filled with dreamers that focus on dreaming up the next great thing.”
It turns out the thing they’ve been dreaming about is a lot more cheese. To a degree, this cuts against the zeitgeist. This is a world in which officials are trying to ban large soda portions, and in which the biggest food companies are committing to remove fat, sodium, and sugar from their products, all while reducing portion size. Pizza Hut is going in the other direction. It’s loading more calories (and fat) into the existing product, making a comfort food even more comforting.
Kane said that Pizza Hut plans to open “a couple of hundred restaurants” in 2013, which is pretty good for a company with a well-established footprint. “We’re nowhere near close to the point of saturation for our brand, or for our business.” As for the crust? With 16 pockets packed with gobs of molten dairy products, it’s probably saturated.