Hot, Fast and Engaged

Pizza Hut has always been known for innovation. After all, it takes a lot of creativity to find a new place to insert mozzarella into a pie. That’s how the “Stuffed Crust” pizza was born.

But the restaurant business has been through some tough times since the economic downturn of 2008, which arrived just over a year after Brian Niccol moved from vice president of national brand marketing and strategy into the chief marketer spot at the Plano, TX, pizza powerhouse. Recession-plagued customers cut back on their restaurant spending, to the extent that same-store sales at U.S. Pizza Hut outlets were off by 12% during the last quarter of 2009 and by 8% the quarter before that.

But by dint of innovation and savvy marketing, Pizza Hut looks like it has begun to flip that script. The most recent quarterly report from its parent company Yum Brands — which also owns KFC and Taco Bell — revealed that same-store sales for Pizza Hut’s first quarter of 2010 rose 5%.

Niccol stresses that the key to the turnaround started with heightened attention to the chain’s basic value for consumers and then moved out to discovering ways to let them access that value easily and conveniently.

“You have to have a value proposition that gets their attention, and then you have to deliver it via media in that they’re open to receiving,” he says.

Clarifying Value

Pizza Hut under Niccol has responded to those changes with a four-fold strategy concentrating on consumer value, menu variety, access innovation and participation in the conversations going on every day in new media.

In value terms, price is the crust in the pizza; it all starts from that base. While it dominates the pizza segment, Pizza Hut has always had challenges in branding itself as a low-price leader, a position that rival Domino’s seems to occupy in the popular awareness. By contrast, Pizza Hut’s restaurant background tended to encourage associations with sit-down dining — although the chain’s 15,000 global units now include dine-in, carryout and delivery-only stores.

But Pizza Hut has embarked on a number of initiatives to promote “every day low price” menu items clearly and indelibly to customers. Starting in June 2009, the chain began to promote its “Big Eats, Tiny Price” menu featuring a handful of relatively small items for $5.

Last November the chain upped those value efforts with an offer of any size pizza with any toppings for $10 — and went on to point out that competing offers from Domino’s and Papa John’s involved only down-sized pies. The only thing diners couldn’t get for a sawbuck at Pizza Hut was the Stuffed Crust pie — that cost an extra dollar.

“We’ve tried to address what consumers told us was our problem,” Niccol says. “They said, ‘Look, we love your pizzas, but the affordability has become challenging for us, so we’re going to have to consume them less frequently.’”

The price promotions have each helped Pizza Hut build business, Niccol says: Big Eats in the lunch daypart, where many customers don’t want a big meal, and now the $10 Any Pizza offer at dinner.

Is he concerned that making a price play will cut into margins and condition customers to look only at price? Niccol says no. “If you get your core business priced correctly — and I think $10 is the correct price — that allows you to then innovate outside your core at other price points.

“A lot of marketers get in trouble when instead of addressing the issues that are making their core business unstable, they go in and try to innovate around those problems. Sometimes marketers get enamored with breaking the mold and being disruptive, when really you just need to showcase for consumers why your value proposition is right now and how it could be more pervasive in their lives.”

Many Meals, Many Menus

And Pizza Hut does mean to be pervasive, with system-wide merchandising initiatives launching entire new menu categories because, as Niccol says, “You can’t eat pizza seven days a week.” WingStreet, a sister Yum brand, began co-locating with Pizza Hut soon after its inception and is now a standard product line in about 80% of the stores.

Then there’s Tuscani Pasta, launched as a Pizza Hut menu category in 2009. The company found that many of its best customers were eating pasta four times a month, and that no competing services were doing home pasta delivery.

“We’re trying to own as many eating occasions as possible,” Niccol says. “We obviously slug it out with rivals for share of the pizza market, but we’re trying to re-define our business as competing for ‘share of stomach.’ Consumers like variety, and we’re trying to use other platforms to own additional incremental eating occasions.”

Other quick-service restaurant chains are moving in the same direction, of course. McDonald’s has added premium coffee and wraps to tap into snacking; Domino’s added toasted sandwiches a-la-Quiznos; and Subway recently introduced egg-and-English-muffin breakfast sandwiches.

“Where you get in trouble is when they’re just added one on top of the other,” Niccol cautions. “If you’re just cannibalizing your one occasion, it makes business more complex.” Like the Big Eats menu, WingStreet offerings and Tuscani help Pizza Hut compete for customers at lunch. They also fit with pizza in that they’re often consumed when people get together as a community for dinner or special occasion such as Sunday football.

In fact, Pizza Hut has been working in its promotions, advertising and in-store merchandising to build day-of-the-week links with its various product lines. Many people already order in pizza on Friday and Saturday nights. But on Tuscani Tuesdays diners can get two orders of pasta with breadsticks for $10. They’ve also promoted “WingStreet Wednesdays” with 50-cent chicken wings at participating restaurants on that night.

“We’re tying those behaviors to key psychographic groups,” Niccol says. “For example, the wing consumer is more sports-minded, and the pasta consumer is more a feed-a-family-of-four type. We dial in on those mindsets and set up a suggestion for when they should buy.”

Next Page: Digital Storefronts

Digital Storefronts

More than other restaurant categories, the pizza business is about access. Customers are just as likely to be calling on the phone as they are to be sitting in-store with a full menu in front of them, and almost as likely to be sitting in front of a computer screen or sending a text message as making a voice call.

While telephone orders still dominate, online ordering is the fastest growing business for all the pizza players and has in fact become something of an arms race for the big brands in the field. Rival Papa John’s recently announced that online orders broke through the $2 billion sales barrier in 2009 to become 25% of the chain’s global business. And reports have it that almost 30% of Domino’s sales come online.

Pizza Hut does not break out sales by channel, but the company has said it expects to hit $2 billion in online orders this year.

A large part of that digital business will come through the Pizza Hut iPhone/iPod Touch app, which launched in the Apple iTunes Store a year ago and hit the one-million-download mark by last fall, at which point it was the number-two free app downloaded on iTunes — after the Starbucks app. (For more on Pizza Hut’s app development, see page 21.)

Pizza Hut already had mobile text ordering capabilities when the app appeared — in fact, all the big pizza names did. And that was part of the problem: No one had come up with a mobile development that was sticky enough to create real brand loyalty.

But by creating an app that made very full use of the iPhone technology — spread your fingers on the touchscreen to change a medium crust to a large, shake the phone to dip your WingStreet wings in sauce — Pizza Hut managed to target the desirable tech-savvy 18-34 crowd, and online sales began to grow exponentially. (It also didn’t hurt that Apple chose to feature the app in an iPhone TV spot in September 2009.)

It’s turned into a point of competitive differentiation for the company. While both Domino’s and Papa John’s offer sites optimized for mobile, they have yet to launch similar apps that can sit on the iPhone home screen, waiting to take orders.

Meanwhile, Pizza Hut has been able to take some of its learnings on the iPhone and retrofit them to its main Web site. Relaunched in April, the new site relies heavily on the same visual ordering that works so well in the app. Users can select their crust size and type, and then select toppings from a carousel wheel and drag them onto the pizza. Apart from the play value, the system helps to eliminate mistaken orders, since people can see what they’re ordering in icon form.

The new site can also remember customers who register and enable simple two-click ordering of stored favorites.

For customers, these online access enhancements mean convenience. For Pizza Hut, they mean increased loyalty, not to mention bigger average-order tickets.

“Most of our business is done off-premise, where people don’t actually have a menu in front of them while they’re ordering,” Niccol says. “The power of the Web is that they can have the full menu experience when they’re off-site, with suggested selling, add-ons, customization and reminders of past orders. We do find that they spend more when they go through the Web site than when they order over the phone.”

Social Skills

Pizza Hut’s new access technologies are designed to be as engaging as they are useful, and that engagement carries through to the chain’s social media strategies. The company currently has about 1.3 million fans on Facebook — where it also offers an in-network ordering widget — and almost 30,000 followers on Twitter.

What do those follower figures mean in ROI terms? Pizza Hut doesn’t know, any more than other brands do. “I view [social media] right now as a pilot,” Niccol says. “It’s a space you have to be in, but it’s a test-and-learn space rather than something we’ve got solved.”

What Pizza Hut thinks it has learned is the kind of content its social-media followers are interested in: deals and discount, yes, but also early access to content from new products to new TV ads. Perhaps its most successful social media promotion so far was a national open call a year ago for a Twitter summer intern, or “Twintern,” to publicize offers on Twitter and Facebook but also to monitor the social reputation, handle posted customer complaints, and offer up pop-culture information of interest to social netizens.

The job was won by 22-year-old UNC senior Alexa Robinson, and her nomination in June 2009 was largely responsible for growing Pizza Hut’s Twitter following from 3,000 to its current size. Since then, she’s been the point person for a handful of social-media promotions, including an offer of free food for signing up to follow the brand and a contest to deliver Edge Pizzas to the five edgiest locations in America.

Robinson was hired as a full-time Tweetologist last December, and her latest campaign is drumming up popular Facebook support to extend the $10 Any Pizza offer. She’s been appearing at live rally events in six cities around the country since mid-May, and fans can track her progress and future appearance on Foursquare.com.

As for future innovations, whether they’re new social media channels like Foursquare or new digital developments, Niccol says Pizza Hut is determined to be open to their possibilities — if they can provide demonstrated value for customers.

“At the end of the day, we always want to be transparent with our consumer about what they will get or experience in exchange for their time or money,” he says. “If it’s not a value-add for them, I really don’t want to be investing the brand’s resources.”