Q: Kurt, despite Pizza Hut being a household name, not many Australians would be aware that it is owned by Yum! Restaurants, part of the largest restaurant company and in 90 countries. Before we discuss Pizza Hut's local franchise system, can you shed some light on some of the other franchises Yum! Restaurants controls in Australia and if there are plans to introduce some new international brands here?
The other brand that we operate in the Australian market is KFC. At the moment we don’t have immediate plans to bring any of our other brands into the market. Those other brands which operate in the US and in other international markets include Taco Bell, A&W and Long John Silver’s, but we’re always looking for new opportunities. In reality we’ve got quite a large growth opportunity with the Pizza Hut brand in Australia as it stands.
Q: Why is there specifically more growth opportunity for Pizza Hut?
KFC has about 570 restaurants in Australia and about 97 in New Zealand so it’s a larger organisation than Pizza Hut. Whilst KFC’s a large brand, Pizza Hut definitely will provide us with opportunities for growth. With KFC, there’s significantly more stores, so the brand is more penetrated than Pizza Hut is in relative terms, so that’s where the opportunity is for us.
Q: Since Pizza Hut's inception in 1958, it's become a global chain with more than 12,000 stores in 90 countries. How many franchise units operate in Australia and in which state is Pizza Hut enjoying the most success?
We have approximately 300 stores in the Australian market and in fact we are seeing growth in most of the markets in Australia. As I said, there remains significant opportunities in most markets – in particular, we’re actively seeking franchisees in New South Wales, Queensland, Victoria and WA.
Q: Has Pizza Hut’s presence increased or decreased in the local market since its peak in the ‘80s and what kind of impact has competition from Dominos, Eagle Boys and Pizza Haven had in recent years? The numbers have stayed relatively stable, however what has changed is the nature of the pizza category. We’ve moved from being principally a restaurant business from when we started in the 70s through to being principally a delivery and takeaway business. That hasn’t been a change that’s been created by our
Pizza franchise, but more by the market dynamics, so we’ve done a lot of work on realigning our asset base to access the growth segment in the category which is clearly the delivery/takeaway segment. Most of that hard work’s been done now, and we’re now in a position to really start actively growing the brand.
Q. Are there any statistics on market share between Pizza Hut and its competitors?
There’s a range of statistics, not all of them as accurate as one might like. However, largely the market is dominated by ourselves and Dominos – the two major brands in the market – and between us, we have the lion’s share of the category.
Q. What is Pizza Hut’s unique selling point, and why would a prospective franchisee be better off joining your franchise as opposed to your competitors? I think first it has to do with our significant brand recognition. Consumers readily recognise our brand in Australia, we basically started the category in the market. The other reasons I think is that we’ve got huge depth in terms of product innovation; we can draw on the global resources and strong culture in the Yum! business which goes across all our brands.
Q. Now onto a question many of our prospective franchisees will no doubt be interested in. On average, what is the turnover that franchisees can expect to make from Pizza Hut each year? That is a difficult question to answer, principally because of the number of variables that are involved. Our approach really is to give franchise candidates, all the information that they need for them to develop their own understanding of what those returns are likely to be in the initial process. To do otherwise, would create a situation where we are creating an expectation for that franchisee. So we tend to allow franchisees to do that themselves, but we give them as much information as we can, and certainly enough information to allow them to do that through the process.
Q. Are there any financial benchmarks available? We provide them with some franchise benchmarks which are averages of other franchisees’ results that they provide us, but we don’t set a target return on investment. We give them all the information that we can and we allow them to do the calculations and work out whether or not the return on investment that they believe is likely is adequate to meet their expectations.
Q. Lets talk about recruitment. Can you walk us through Pizza Hut’s selection process of prospective franchisees? It generally starts with a phone enquiry or an internet enquiry and there’s a screening process:
? Initial phone interview
? Application forms
? One on one meeting where we present detailed info
? Prospective franchisee then prepares a business plan using a template we can provide
? Completion of 2 rounds of interviews focusing on – Operations – Human Resources – Development
? The prospective franchisee then undergoes an on the job experience in store for up to two full days (this helps them determine if they enjoy the in store environment)
? Another interview with members of our Leadership Team, usually myself and our Chief Development Officer
? Following this interview the franchisee would begin our intensive 8 week in store training program.
Q. So in total, how long does the process take? Depending on how quickly the prospective franchisee is able to get information together and complete the business planning process, including the training, it’s approximately three months.
Q: Can you walk us through some of the start up costs involved? The start up costs, again, tend to vary. A new store is generally going to cost between $300,000 and $350,000 depending on the amount of work that’s required on the site. Initial fees are about $50,000, so including initial fees it would be about $350,000. Then obviously there are the normal legal costs and professional fees that they would expect to pay when going into the business.
Q: And then there are the royalties and associated fees? Yes. The royalties are 6 per cent and the marketing fees are 5.5 per cent, which is paid into the advertising cooperative. Franchisees are also required to spend .5 per cent of revenue on local store marketing, so essentially it’s six and six per cent.
Q. What kind of prerequisites are you looking for in star franchisees? Well there are really two principal ones that we’re looking for. Firstly a real hands-on approach to the business, the category really demands that as it’s a very operationally sensitive business – performance can often be driven just on the basis of very strong operations. The second one is a desire to get out and drive sales principally through local store marketing. And although it’s not necessary obviously it helps if the individual has previous retail experience or small business experience, or management experience for that matter, but those aren’t prerequisites. Lastly, a good cultural fit with our organisation would prove key.
Q. With regards to your stores, how many of Pizza Hut’s franchises are owned by Yum! Restaurants and how many by independent franchisees? From a Pizza Hut point of view, we have about 80 per cent of the stores in Australia franchised and 20 per cent company owned. That’s pretty consistent with our general approach globally.
Q. What is Pizza Hut’s failure and success rate among its local franchise systems?
We have quite a low turnover of franchisees compared to some other franchise systems. In fact, we have a rapport of quite long term franchisees in the business as we have franchisees whom have been with us for 20 years. When franchisees do leave, they tend to leave either because they want a change of lifestyle or they just want to do something different or because they’ve got some other business opportunity that they want to take up.
Q. Lastly Kurt, what are the top three strategies Pizza Hut plans on executing within the next 12 to 18 months?
The first one is that we’re going to continue to incentivise and work with existing franchisees to upgrade their assets, both through relocating them where it’s needed and also re-imaging their assets. Secondly, and really importantly, is we will incentivise new franchisees to build new stores (existing franchisees as well) so we are driving new store growth. Lastly, we plan on continuing to make sure we’re bringing in and partnering with the right franchisees who are passionate and motivated around the brand – that’s where we are heading in the next in the next 12 to 18 months.
This article appears courtesy of Franchising Magazine.
8-Feb-2008