Jens Hofma, chief executive of Pizza Hut Restaurants UK, has told MCA he believes the industry is obsessed with like-for-like growth ahead of protecting margins and that the brand will not be drawn back into the discounting wars.

Jens Hofma, chief executive of Pizza Hut Restaurants UK, has told MCA he believes the industry is obsessed with like-for-like growth ahead of protecting margins and that the brand will not be drawn back into the discounting wars.

Speaking on the back of the publication of the group’s financial results, Hofma said that the c260-strong group was “prudently” searching for new sites and would continue to evolve its core model while retaining its values.

Hofma, who led a management buy-out of the business is April, said more self-service elements were likely to be added to the core model and work would continue on elevating the bar proposition in suitable sites.

He stressed that Pizza Hut was in a stronger position than many competitors without the distractions of building its delivery business, which is owned and operated by Yum! Brands.

The group’s results for the year to 3 December showed a like-for-like slump but Hofma insisted that on its core metric of trading EBITDA, which strips out royalties as well as exceptionals, there was an increase of 7% to £30.4m.

The business reported an operating loss of £400,000, as opposed to a profit of £7.36m last year, which Hofma said was largely due to a significant increase in royalty fees, which rose year-on-year under the agreement with Yum!

Refurbishments

The ongoing refurbishment programme reached 80% of the estate in 2017 and Hofma said there would be five to ten investments a year going forward. He said there would be a limited number of disposals as part of a natural churn.

On new sites he told MCA: “We opened White Rose in Leeds last year – our first new-build since 2012 – and we have been really pleased with the results. We are now focussing back on growth – but in the short-term it will be modest. We are interested in good city centre sites but finding those at a good price is still far from easy. Any combination of retail and leisure tends to work well for us too.”

The management team was backed by funding from Pricoa Capital Group, and Hofma said that no further investment was needed to support the company’s immediate expansion plan.

On last year’s trading, he said: “I never like negative numbers but given the circumstances -1% lfls was a relatively good number. We were rolling quite high growth from the previous year as a result of our investment in the estate and we also weren’t able to grow incremental sales through delivery, which seems to account for quite a bit of growth for some other brands.

“The key for us was to protect our margins so we stayed away from discounting. The data shows that about 17% of Pizza Hut guests use a voucher – less than half of Prezzo or PizzaExpress. We’re in bottom half of discounters and we want to keep our discipline on that.

“I feel we’re in a good position because we have not taken our eye off the quality of our estate and our offer. What’s happening at the moment is in many ways a healthy dose of realism in what I consider to be quite an overhyped market. I feel we’re turning back to a realisation that running a restaurant requires a lot of hard work and dedication over a sustained period of time.”

New dawn

On performance in the current financial year, Hofma said: “The MBO worked for everyone. Rutland got a fair return on their investment and it has set the business up for the next stage in its development. It is now a business that is under management control so has more freedom, more of an entrepreneurial spirit.

“Trade hasn’t been any easier this year and certainly the weather over the summer did not help us. I would say we are feeling cautious about the short term and it will be all about disciplined management of the business. But, we are very excited about where we can take the brand.”

Pizza Hut implemented its first counter service model in Coventry last year and has continued to rollout the format.

Hofma said: “ We are focussing on how we develop the format so it remains relevant. A key consideration has always been about getting the right balance between full service and self-service elements as part of the experience. Pizza Hut has always sat astride casual dining and fast casual and we’re quite unique in terms of being able to flex between the two models.

“My sense is that the guest wants to be more and more in control of their own experience and to have a frictionless experience with as few things as possible in the way of them and the product. Therefore dialling out some of the more self-service elements is probably the way we’ll go forward. We’re looking at technology solutions – different ways people can order and pay for their meals - to make the whole process more streamlined and cost-effective. We are in the middle of experimenting with that. We continue to adopt the model to fit what customers want in the current environment.”

He added: “Over the last four or five years we have put more effort into celebrating our American heritage and all the positive attributes associated with that, rather than trying to compete in the traditional Italia market, where we don’t have that much credibility.”

Delivery

Earlier this year, the Pizza Hut Delivery business started to roll out a new fast-casual model, which included seating for the first time. Hofma said this was part of an agreed development of both sides of the business.

He said: “We work closely with the delivery side and YUM, the brand owners. When it comes to experimenting with new formats, we are very much doing that hand in hand. We are strongly aligned on how we want to evolve the brand because from a consumer perspective, it is one brand, regardless of how they interact with it.”

He added: “It’s true that we do have to work a bit harder than our competitors because we do not have access to that delivery element. We do takeaway and that remains a good portion of our business.

“It allows you to run a great operation between the four walls of you restaurant and there’s a risk that when delivery is a substantial part of your business it deflects away from your core focus and that you become average at both. That’s part of why we set this system up in the first place.”

On discounting he said: “The moment where you first start weaning yourself off high discounting – and we were in that place ourselves a few years back – you take a real hit but you have to think of your margins. We are in an industry that is obsessed with lfls at the expense of margin. When you take that hit you generally see good improvement and give yourself the financial means to deliver a great experience. If you erode that then you have to make up for it somewhere in your cost base and eventually you will run out of steam and the guests will take notice. That is one of the real dangers the industry faces at the moment.”