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Pizza Hut makes massive move into 'craft' pizza

Pizza Hut

Pizza Hut, the largest U.S. pizza chain, is setting out on a major makeover that will add a host of new specialty pizzas, sauces and crust flavors to its menu, while at the same time updating its logos, uniforms and website functionality, in a bid to reboot its growth and capitalize on a burgeoning trend toward artisan, fast-casual pizza in America.

The menu at 6,300-plus domestic stores will expand to offer 10 optional crust flavor toppings, half a dozen sauces, five new ingredients, including Peruvian cherry peppers, salami and fresh spinach, and a variety of "drizzle" sauces, such as balsamic and barbecue.

Crust flavorings will include salted pretzel, toasted cheddar and a curry variety. Crushed tomato, garlic parmesan and buffalo-flavored will be among the available sauces. In terms of specialty pizza recipes, there are 11 of those, with names like Old-Fashioned Meatbrawl, Sweet Sriracha Dynamite, Garden Party and Barbeque Bacon Cheeseburger, along with five lower-calorie "Skinny Slice" pizzas that are said to have no more than 250 calories per piece. The new menu items will be available nationwide starting Nov. 19.

"Today's consumer is more adventuresome when it comes to flavors and ingredients," David Gibbs, Pizza Hut's U.S. president, says. Gibbs, who will replace the retiring Scott Bergren next year as Pizza Hut's global CEO, is optimistic the alterations will lead to "more trial of our brand, more frequency of our existing customers and attract new customers to the brand."

Kitchen considerations

A recent visit to Pizza Hut's Plano, Texas, office and test kitchen made it clear the decisions, in progress for around a year, represent a significant shift for the chain, bringing hopes of greater sales and a more competitive brand.

Pizza Hut's leadership says actions such as altering the logo, boxes and cups were necessary for the revamp. Over 40% of Pizza Hut's business is conducted digitally, so the company is updating the look and capabilities of its online ordering sites, as well as launching a Spanish-language version.

"This is probably the biggest change we've made as Pizza Hut in our history, and so we wanted to signify that to consumers," says Carrie Walsh, chief marketing officer.

[Related: The next Chipotle? It may be Pizza Hut]

Because of a large retraining effort that centered on bringing 1,000 team members from around the country to Plano, who then in turn led store-level training on the new menu, Walsh believes the company's service speed won't be slowed. It will, she says, "if not be the same, actually be improved with some of the new processes and operational standards we've put into place in conjunction with this menu."

Gibbs agrees that the staff training was crucial if Pizza Hut, a unit of Yum Brands (YUM), is to succeed. "A move like this couldn't have been made if we didn't simultaneously simplify what we're doing in the back of the restaurant," he says. "This is really a remaking of our back of house, because we're adding in a lot of new ingredients and flavors, and at the same time we've made some operational changes that have helped enable this change."

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Pricing clearly will matter on the new pizzas. At the moment, Pizza Hut has offers to sell two medium pizzas for $6.99 each or one large two-topping pizza for $7.99, and the crust flavorings and drizzles will be optional with these at no added charge. The specialty pizzas, when ordered online, will be available through a current promotion of $11 for any individual pizza.

"It always starts with the customer, the consumer, and what's happening with them," Walsh says. "What are they looking for in food? And ultimately what we saw is America's tastes are changing."

New space

A company spokesman wouldn't disclose the budget for the project, but said it was "clearly our most substantial ever, from a resourcing, training and advertising perspective."

Though it's the biggest name in the pizza group with about 7,800 stores -- including Express locations that aren't included in the menu changes -- Pizza Hut's U.S. sales of $5.7 billion in 2013 were unchanged from 2012. In the latest third quarter, its domestic same-store sales fell 2%. Meanwhile, comparable sales rose significantly at Domino's (DPZ) and Papa John's (PZZA).

The search for differentiation in pizza is in overdrive, and that's meant new ingredients and creations. Domino's, Pizza Hut's top American competitor with around 5,000 stores nationally, has seen a resurgence prompted by new recipes and specialty pizzas, like spinach and feta. It's relied heavily on technology efforts that led to 40% of its U.S. sales last year being placed digitally, while also implementing updates to its stores. Papa John's, the No. 3 publicly traded chain with about 3,300 North American stores, itself has been benefiting from digital orders and its own line of specialty pizzas that are prominently featured on its website.

Pizza Hut has long had limited-time offers and pizzas like the Meat Lovers, but with the new line it should be better positioning itself against what customers can find at these two. But they're not the only competition. Pizza Inn (PZZI) has launched a craft-style unit with Pie Five, and names from outside the sector are getting involved in the artisan effort: Both Chipotle (CMG) and Buffalo Wild Wings (BWLD) are investing in small specialty pizza stores. In total, PMQ Pizza Magazine, citing industry data, said last year the U.S. was home to 71,400 pizza restaurants, producing annual sales above $37 billion.

Given the industry’s current trends, a move to emphasize new, distinctive pizzas makes a lot of sense for Pizza Hut. Yahoo Finance noted it would previously, especially considering the wins of other large operators and the fact that it's a growing area in restaurants. Interviewed at the time of our prior article, Darren Tristano, executive vice president at Technomic, a food-industry research firm, agreed that the idea was plausible.

"When it comes to lunch, and when it comes to dinner, this whole fast-casual pizza is taking a number of cities by storm," he said. "And Pizza Hut really needs to be aware of it, invest in it and potentially evolve to it."

Pizza Hut, we speculated, could have refashioned itself in a number of different ways: Reshape the menu internally, invest in an already operating fast-casual, craft pizza seller or start an entirely new sub-brand. But a substantial makeover seemed the least likely, with the potential for supply and inventory complications on thousands of stores, retraining employees and getting franchisees to welcome the change. Yet that's the direction Pizza Hut in fact did decide to go.

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