Pizza Hut, the second-biggest brand in the portfolio of Romanian restaurant operator Sphera Franchise Group (BVB: SFG), started a reorganization process aiming to streamline its activity and bring it back to operating profit. Costica Misaca, who took over as General Manager of Pizza Hut in September 2023, shares more details about this process.

Pizza Hut recorded declining sales in the first nine months of 2023 and negative operating profit (EBITDA), amid the start of a reorganization process within the brand.

Costica Misaca, who took over as General Manager of Pizza Hut on September 1, 2023, explains the details of this process, which includes closing of 13 Pizza Hut restaurants over a period of approximately 6 months.

The process aims to optimize costs, increase agility in the face of high competition, and improve customer experience, which will reflect in improved profitability indicators.

“We believe we will have positive results as soon as the reorganization process of the network ends, in the first part of next year. Moreover, we expect to see constant improvement afterwards, with a turnaround of the business by the end of 2024,” the Pizza Hut GM says.

Read the full interview below to learn more about:

• Pizza Hut’s results in the first nine months of 2023
• The details of the reorganization process
• The brand’s strategy to improve customer experience
• Pizza Hut’s delivery sales
• Perspectives for the restaurant sector in Romania in 2024

How was the performance of the Pizza Hut restaurants in the third quarter (Q3) and first nine months (9M) of 2023?

Costica Misaca: The results of the third quarter and, implicitly, of the nine-month period, reflect the effects of an acceleration in the streamlining process of the company’s activity that we have started this year. The first step was the consolidation of Pizza Hut and Pizza Hut Delivery under one brand, which encompassed an alignment in terms of platforms, processes, menus and many more. The second step is a reorganization of the restaurant network, which we have publicly announced in the third quarter and is currently fully underway.  

All these changes have a short-term impact on the company’s results. The sales in the first nine months of the year stood at RON 86.65 million, a slight decrease, of 2.3%, compared to the same period of 2022. For the third quarter alone, the sales reached RON 27.7 million, 9.8% lower than in Q3 2022. When looking at these results, we have to consider that we compare to a quarter that was historically very good, as 2022 marked the first post-pandemic year, with consumers returning to restaurants in high waves.

In terms of bottom line, we closed the nine-month period with a normalized negative EBITDA of RON 4.6 million, reflecting the effects of kicking off the reorganization process I have previously mentioned and which we expect that, in the medium term, will show positive results.

In its Q3 financial report, Sphera Franchise Group announced that it started a reorganization process of the Pizza Hut network. What does this process include and what are the associated costs?

Costica Misaca: Indeed, we took the decision to close 13 Pizza Hut units over a period of approximately 6 months, particularly units serving areas with a high degree of overlap resulting from the brand consolidation I mentioned earlier.

The alignment of Pizza Hut and Pizza Hut Delivery operations and activities follows the trend set by our franchisor, YUM!, Romania being among the few markets where the two brands operated separately. It is also the result of new market conditions. With the pandemic, the boundaries between dine-in and delivery blurred, so operationally there was an overlap.

For customers, this alignment improves the experience. First, it comes with the advantage of simplification, with customers having access through a single point of contact to orders and reservations. In addition, the ordering experience is fully digitized, delivery time is improved, and flexibility increases.

However, from an operational standpoint, this resulted in units very close to one another, covering mostly the same geographical area. Just to give you an example, we had two units in the same commercial center.

The reorganization is a two-pronged process, with 7 of the restaurants having already been closed and the rest following in the first months of 2024.

The costs associated with this undertaking derive from several areas, including with rerouting the orders, which involve changes in the online platforms, dismantling and transportation of equipment and other costs, all of which amount to around RON 6.4 million.

How many employees will be impacted by this restructuring and how will you deal with this?

Costica Misaca: The well-being of our employees is a priority in our strategy which we follow through. All colleagues in the affected units have and will receive relocation proposals, within other Pizza Hut restaurants, where possible, or in other Group restaurants (KFC or Taco Bell). We are the largest group in the local foodservice industry, a solid and large company, and we are able to absorb and maintain the development path for colleagues involved in the reorganization process. In addition, the relocation will reinforce the teams in the other restaurants, supporting us in providing improved customer service.

When do you expect to see the first positive results from this restructuring process?

Costica Misaca: We believe we will have positive results as soon as the reorganization process of the network ends, in the first part of next year. Moreover, we expect to see constant improvement afterwards, with a turnaround of the business by the end of 2024. We are also confident in the long-term outcome, which will show the undisputable value of the strategy we have adopted for Pizza Hut.

Home delivery emerged as an important sales channel for restaurants during the pandemic. Has this trend maintained? What’s the share of delivery revenues from Pizza Hut’s sales?

Costica Misaca: The lifting of restrictions brought customers back to our stores, which is understandable – people were eager to go out and enjoy the restaurant experience. As such, the weight of delivery decreased. If we look at the last quarter of pandemic restrictions, Q1 2022, the share of delivery in total sales was 49%. In Q3 2023 it is 35%. However, delivery remains a priority for the Pizza Hut business. We are, after all, among the few in the market that had delivery services even before the pandemic, with strong own channels - mobile app, web and even call center, something that is rare nowadays. Of course, aside from collaborating with the food delivery platforms.  

Does your restructuring strategy also include more focus on delivery and online channels?

Costica Misaca: Since most of the units we are closing are Pizza Hut Delivery, inevitably, we are taking on a larger share of delivery. However, our focus is balanced. As I said earlier, delivery remains an important channel for us, but we want customers to come to our restaurants and enjoy the full experience.

What other measures do you plan to boost the sales of the Pizza Hut brand?

Costica Misaca: First of all, the alignment of the two brands brings in a better experience for our customers with a simplified experience and ease of access across the channels.

Secondly, we are watching closely the consumer’s behaviour, and we are adapting. There is no news that the high inflation and the volatile external context make consumers more prudent and more attentive to how they spend. They are looking for value for money, namely quality products at affordable prices. As such, we make sure we include in our menu value offers. At the same time, consumers remain open to new experiences, so we continue to innovate in terms of products. One such example is our recent addition to the menu, Meltz, which is in full campaign now.  

What is your base scenario for the evolution of the restaurant sector in the next year?

Costica Misaca: We foresee a good year although not without challenges. Inflation, although tempered, remains high and, as such, consumers are prudent. Geopolitical volatility contributes to this, as well. The sector will also be impacted by regulatory changes - the VAT increase for certain sugary food and drinks from 9% to 19%, starting January 1st, and a new rise in minimum wage. It is also an electoral year, and we can only hope that the authorities will be wise to offer stability to counteract the uncertainty coming from external factors.

On the other hand, although consumption seems to have decreased globally, we don’t see it falling significantly. And, while the rise in minimum wage puts some pressure on the companies’ budgets, especially since it usually cascades across the entire salary scheme, it is also an opportunity, as it brings extra spending power. To conclude, we see an evolution similar to this year’s.