Better Strategies, Better Pizza Hut
Pizza Hut has gone back to the basics with higher quality ingredients, stronger promotions and new products with staying power.

By Jennifer Waters, Special to R&I

If Mike Rawlings had his way, the classic adage would read, “As American as pepperoni pie.”

The Pizza Hut Inc. president talks about his tomato-and-cheese-based pies as if they were a cornerstone of family values. “People really don’t understand what pizza means to Americans,” he says matter-of-factly. “Pizza is the most loved product in America. It’s the No. 1 product with kids, young males, working mothers. It’s the No. 1 product in bringing families together; the No. 1 product eaten in the home today.”

Sound like a pizza zealot? He has to be. With an eroded market share and Papa John’s International Inc. and other upstarts nipping at his heels and sniping at the quality of his pizzas, Rawlings has put Pizza Hut on a very straight and focused path. Since he took charge in 1997, the same year parent PepsiCo Inc. spun off its restaurant division to form Tricon Global Restaurants Inc., Rawlings’ strategy has been simple: If you build the perfect pizza, they will come.

Rawlings says he’s taken a holistic approach to change, implementing improvements and modifications in every nook and cranny of the system, including a $500 million overhaul of the restaurants themselves.

Pizza Hut’s protracted legal challenge of Papa John’s “Better Ingredients. Better Pizza.” advertising campaign sprang from more than mere ego. Pizza Hut’s victory in the case validated Rawlings’ push to make its pizzas with better-quality ingredients, and more of them. The sauces are designed to be tastier and new combinations of toppings and meats have made their way onto the menu.

New marketing and advertising promotions are bolder—some might say out of this world. The considerably spunkier red-roof logo replaces a 22-year-old icon that could best be described as, well, dull. And employees are fine-tuning the pizza-making process after taking intensive “boot camp” courses. In addition, 2,500 more phone lines are speeding up order-taking and delivery.

And the Dallas-based restaurant concern is casting a cold eye on its franchise-heavy system, generally considered a strong one, shuttering or selling off under-performing stores. Underlying the sweeping changes is an attitudinal shift; employees are now referred to as team members, supervisors as coaches. Rawlings himself is not chief executive officer but chief concept officer.

The results have been dramatic. After years of flat-to-declining sales and revenues, Pizza Hut says it’s growing twice as fast as the industry and has increased pizza sales more than any other company. What’s more, Pizza Hut is regaining the ground it lost in the early to mid-’90s, getting back its solid 25% leadership market share status in the $25 billion pizza segment.

UP, UP AND AWAY

In November, a 30-foot version of the new Pizza Hut logo was pasted to the fuselage of the world’s largest rocket, which was to launch the living-quarters capsule for the International Space Station. It was the first such promotion in NASA history. The mission failed after takeoff, but Pizza Hut still reaped tremendous publicity.

“We wanted to use this mythic symbol for what we were doing for the brand itself,” Rawlings says. “‘We hadn’t made changes to the brand for a couple decades and we wanted to make a big deal about the new logo and carry the story of taking Pizza Hut to the next level. It worked.”

Pizza Hut also has been propelled by the unexpected success of the Big New Yorker, the 16-inch pizza with sweeter sauce and thinner crust. After it was launched a year ago as a special promotion, overwhelming demand—75 million had been sold by July—prompted Rawlings to permanently add the pizza to the national menu.

“The Big New Yorker is a huge product for Pizza Hut,” says Roberston Stephenson analyst Andrew Barish. “Not only was the sales pop great, but the way it’s held as a mainstream product has been great.

“That’s always an issue for Pizza Hut,” he adds. “[It introduces] a new product [that’s] well-received, and then the sales would just drop off.”

Rawlings says the Big New Yorker’s success is at the core of Pizza Hut’s momentum: “It’s all about the power of this brand. When you start doing things right, customers start running back because they love the brand.”

BETTER STRATEGIES

Some strategies already were in place or ready to go when Rawlings joined the company. The first leg of the Pizza Hut transformation was “Totally New Pizzas,” a $50 million reinvestment program launched a full month before Rawlings’ mid-June arrival.

Sliced fresh vegetables and meatier meats replaced diced versions. Employees no longer pre-measure ingredients, but rely on the more subjective eye test: If it looks like there are enough onions and green peppers, then there are. Pizza Hut says it uses 40% more ingredients per pizza than its competitors.

The most obvious indications of change at Pizza Hut are in the restaurants themselves. Long considered sleepy and stodgy, the traditional red-roof pizza restaurants are being revitalized with a new, splashier interior. Tables and booths are cleaner and neater, and the once-drab deep red decor is being lightened up and turned into an uncluttered version of an Italian pizza parlor.

The new look apparently is working. “It’s amazing the sales results we see,” Rawlings says. In December, a Vineland, N.J., franchisee says store sales more than doubled after it relocated to a new store.

“You see that taking place more and more,” Rawlings says. “If we could just keep our focus on the basics and constantly improve that, the return on our investments will keep growing.”

Pizza Hut also is diversifying its dining experiences. There are the traditional restaurants, Main Path units, that have delivery, drive-thru and carryout; those without counters for carryout, known as RBDs, or restaurant-based delivery units; and the latest addition, Pizza Hut Express, kiosks in arenas, airports and shopping malls.

The millennium offers much promise for Pizza Hut. New products are in the works, more concentrated advertising budgets are planned and restaurant unit growth is expected to take off. Eventually, Pizza Hut wants 80% of its units to be franchisee-owned.

Rawlings is most pleased when he hears about consumer acceptance from target demographic groups, such as 9 to 13 year olds or teenage males. “For those kids, those heavy users, Pizza Hut will be the brand they choose,” he says.

Jennifer Waters is a Chicago-based freelance writer.

Extra! Goliath Beats David

Pizza Hut Inc. President Mike Rawlings didn’t much like the characterization that the No. 1 pizza chain was beating up on Papa John’s International Inc. when it took the No. 4 pizza maker to court more than a year ago. Especially because Papa John’s “Better ingredients, better pizza” advertising campaign was working. Pizza Hut was losing market share and consumers were beginning to believe that Pizza Hut’s food quality, derided in some Papa John’s comparative ads, was not the best. In a suit filed in Dallas, Pizza Hut claimed that Papa John’s advertising was deceptive and misleading. In November, a jury agreed, but not without scolding Pizza Hut, too, for false advertising in a counter-attack campaign.

To settle the case, Papa John’s has been ordered to stop using its “Better ingredients, better pizza” slogan. The chain also must pay Pizza Hut $467,619 in damages, substantially less than the $12.5 million originally sought.

“We did this to protect the brand for the long term. When we saw consumer perceptions change in such a drastic manner, we had to set the record straight,” Rawlings testified last fall.

Though he insists the Papa John’s onslaught didn’t spark Pizza Hut into a dramatic overhaul of its systems, he admits the impact on sales and employee morale got Pizza Hut’s attention. “The fact that Papa John’s made no bones about its desire to attack us was only used as an example of what could happen if we didn’t get our act together,” he says.

“Consumers were saying to us, ‘You’ve got a great brand, but in recent years, you haven’t been living up to that.’ We’re listening.”