Heart with Smart plans to take a prudent approach to unit growth in 2024 after a slow start to the year, before reigniting expansion in 2025.
Despite positive top line growth, CEO Jens Hofma said the Pizza Hut Restaurants operator’s bottom line is still being hit by cost inflation, weak consumer confidence and general market uncertainty.
But he said there were green shoots of recovery, as energy costs come down, and with the prospect of falling inflation giving customers more discretionary spending power.
He said the group, which recently announced it has refinanced its senior debt until 2027, will also reignite innovation this year to drive efficiencies in its operating model.
Discussing current trading Hofma said: “2023 was very encouraging, we saw very good sales growth last year - albeit with a lot of inflation which was certainly challenging to manage from a bottom line perspective. But we saw very good top line growth last year.
“The start of this year has been more difficult. We’re still seeing good footfall during weekends and school holidays, more challenging during weekdays and particular weekday evenings. It’s been a fairly soft start to the year.
“But we’ve seen a lot of benefits flowing through in terms of inflation coming down, and even some very strong deflation on certain cost lines particularly energy. It’s been a mixed bag.”
Hofma said its lenders Pricoa has been “very supportive” of the business during the refinancing process, which strengthens the business’ balance sheet and gives more flexibility with a new working capital facility.
“We’re in a much better situation when it comes to our balance sheet right now,” he said.
“Others in the hospitality sectors have resolved the whole COVID damage in one big bang in terms of balance sheet restructurings etc. We’ve taken a more sequential approach, we’ve done it in several steps.
“We’re now in a position where we can say, we’ve digested a lot of the damage and we can now start to rebuild.”
Despite the successful conclusion of the refinance, Hofma said the investment climate for hospitality businesses remained “pretty tough”.
“A lot of investors have been burned through COVID and are more reluctant right now to open their wallets - particularly until there’s a more marked improvement in the consumer environment and the economic outlook. Consumer confidence is still fairly low.
“There’s some early green shoots, but deflationary movements such as energy cost and hopefully interest rates have yet to find their way into consumers’ pockets.
“Understandably, many consumers are still continuing to be very conservative when it comes to discretionary spend.
“I don’t think there’ll be a sudden turnaround in consumer sentiment, I think it will be gradual recovery over the next 12 months, step by step rather than a big sea change.”
The franchise group, which also operates itsu restaurants, will continue to be prudent in terms of development, investments and growth, Hofma said.
“We’re holding back for the time being and very much focusing on our existing Pizza Hut business, making sure that we can fire up our innovation engine again.
“We’ve always been quite an innovative player in the pizza sector. Clearly, during COVID and in the immediate aftermath, there was more defensive strategy.
“I want to get more on the front foot and make sure we’ve got some exciting innovation coming down the pipeline.
“We are going to continue to focus on the guest experience, and leverage technology to drive more productivity in our service model.
“It’s very much focusing on the core business at the moment, and then looking for reigniting unit growth come 2025.”
Hofma said the wider casual dining market remains under pressure, with the latest wave of labour inflation another challenging factor.
“There’s definitely a need to bring more productivity into the service model, which we’ve done by introducing mobile phone ordering,” he added.
“Amost two thirds of our guests are now ordering on their phones. We still host people into our restaurants, we still bring the food to the table, we still check back.
“But many of our guests are now ordering and paying on their phones. And that’s been quite successful both in terms of consumer response to that, but also in terms of the efficiency.”
