Economy First Look

Pizza Hut reports slumping sales. Is the love affair with the popular pie over?

Pizza Hut struggles to keep up with competitors in a rapidly evolving fast food market. 

Pizza Hut is facing slumping sales as competition from other pizza chains, ready made food, and the rise in delivery apps eats into their customer base.
Courtesy of Pizza Hut/AP/File
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Those expectations of strong pizza sales turned out to be pie in the sky.

Yum Brands Inc., owner of fast food titans Pizza Hut, Taco Bell, and KFC, reported lower-than-expected fourth-quarter revenue, dragged down by poor pie performance. While established Taco Bell and KFC restaurants brought in 3 percent more than the previous quarter, Pizza Hut's revenue fell by 2 percent, leaving overall growth at 1 percent rather than the predicted 2.1 percent.

Fast-food and restaurant chains in general are facing increased competition from convenience stores, supermarkets, and delivery services, as well as the challenge of catering to increasingly sophisticated customers. 

"KFC and Taco Bell had relatively strong performance in December, despite difficult US industry conditions," Chief Financial Officer David Gibbs said in prepared remarks. "This momentum has continued into the new year."

Those difficult conditions? Competition on all fronts. In the pizza market, Pizza Hut’s same-store sales have been essentially flat since 2015, while rivals Domino's and Papa Johns have carved out niches focusing on delivery robots and a reputation for quality ingredients, respectively.

Yum Brands also struggled with its operations in China, where a meat supplier got caught violating regulations, and consumers increasingly prefer more wholesome options, leading Yum to spin off its China branch.

Moreover, the growing popularity of smartphone-based delivery apps threatens to do to fast food what Amazon did to Barnes and Noble. Last year takeout was already bringing in $70 billion annually, proving that for many people an additional fee is worth paying to avoid the hassle of visiting a restaurant in person.

That whopper of a figure has not escaped the notice of Silicon Valley, with a number of startups trying to capitalize on the trend. Chicago-based GrubHub offers to bring food from tens of thousands of restaurants to your door in hundreds of cities, and recently announced deliveries up 27 percent over last quarter. Amazon’s trying something similar with Amazon Restaurants. Food and grocery delivery startups gobbled up $5.4 billion in investments in 2015, a billion more than digital health-care companies, according to The Boston Globe.  

Transportation giant Uber is jumping into the fray as well. UberEats promises to harness its ubiquitous network of "independent contractors" to drive food from restaurants to hungry consumers, and is slowly rolling out the service city by city.

But fast food chains aren’t going down without a fight. Dunkin’ Donuts, McDonald's, and even Yum property Taco Bell have all experimented with delivery services in the past two years.

Of course, Pizza Hut is no stranger to delivery, but the explosion of competitors is pressuring them to find a way to stand out from the pack as Papa John’s and Domino’s have.

The glut of options available to peckish consumers allows them more choice than ever before in selecting food that matches their lifestyles. A recent survey asked 1,300 professional chefs what trends were on the rise, and they identified a number of concept-based ideas such as local sourcing and environmental sustainability as “hot.”

Meanwhile, a beleaguered Pizza Hut has no choice but to keep trying to innovate its way out of the slump, despite the 2014 unveiling of a new menu with new flavors such as curry and sriracha that chief marketing officer Carrie Walsh told CNBC “push the envelope.”

This report contains materials from Reuters.

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