In Focus
EXECUTIVE INSIGHTS | Kevin Santos, Australia
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From rebuilding to reinforced: How Pizza Hut's customer experience mantra led them to double-digit growth

CEO Phil Reed talks to QSR Media to elaborate on the chain’s latest take on expansion, Allegro Funds’ role in their transformation, and why they are keeping a conservative approach in product development.

Once relegated as just the cost of doing business, customer experience is now understood to encompass the entire consumer journey - a concept that remains on the minds of fast food industry leaders as demand for delivery and takeaway grows.

For Pizza Hut’s Australian operations, this has become a mantra that has been paying dividends, according to chief executive Phil Reed.

“By focusing on that customer experience, many Australians were in a position where they could enjoy Pizza Hut for the first time in many years...it reinforced our position,” he said in an interview with QSR Media.

Reed revealed that Pizza Hut has now experienced five consecutive quarters of being the country’s fastest growing pizza chain, having sold over 15 million pizzas and over 50 million chicken wings just last year.

Rapidly integrating payment options such as Apple Pay, Zip Pay, along with the country’s top aggregators guaranteed brand relevance, Reed said, even as the coronavirus hit.

“We were in a position where everything was enabled, everything was optimized,” Reed recalled, adding that they learned from Pizza Hut’s operations in China in introducing contactless delivery during the height of the lockdowns.

“We were probably one of the first in Australia to have contactless delivery in place. Literally two or three hours later, we invented contactless pickup. We were the first brand in the world to actually introduce it,” he claimed.

Reed joined Pizza Hut’s Australian operations in 2018, bringing with him turnaround acumen from c-suite roles in Southeast Asia. For him, customer experience also meant building the capacity of its franchise network through a people-centric approach.

“The role that I've had here is really to rebuild the Pizza Hut Australia brand, to support our franchise partners, to support the people and also the investors at Allegro Funds [the chain’s master franchisee since 2016]. It's been one of those journeys of evolution, where there have been various pitfalls and challenges but also [where] opportunities have presented themselves,” he said.

“It's all about enabling people to build their capability, build their capacity and to grow. And sometimes, it's also about giving people permission to grow.”

Partly, this meant tech-driven improvements on their kitchen management systems and aligning them with their digital and sales platforms and even the GPS tracking of their rider fleet.

Average delivery times have been halved compared to last year, Reed said. Franchise partners also saw a growth in their cash flows and their gross profit, having generated $20-$23 million for the system.

“They love that dough again,” he said. “Maybe it sounds a little bit strange, but if a pizza is prepared with care, it tastes so much better.”

Staying excellent with their existing menu
Whilst looking at new menu items, especially with a growing lunch daypart, Reed opts for a conservative approach, sticking to the chain’s traditional offerings but is open to considering different forms and types of pizzas in the future.

“We don't want things to get too complex. It may sound like a trend, but the more complex you make it, the more chances that we're going to disappoint our customers. So we continue to focus on excellence with our existing menu,” he explained.

“Significant” opportunity to grow via multiple formats
Reed is determined to position the brand as the top pizza chain (“We will get Pizza Hut Australia back to number one,” he said.) and said there is a “significant opportunity” to grow, explaining that 45% of Australians are not within a “trade zone” of their nearly 300 restaurants.

“Del-co” outlets, short for delivery and carry-out restaurants, will primarily pave the way.

“The vast majority of our action and activity all gravitate around the delivery [and] carry out stores. Currently, over 80% of our transactions are digital; the customer does not actually see the restaurant,” he said. In contrast, their remaining 12 traditional red-roof dine-in formats are facing challenges as they cannot operate their buffet offering.

With Pizza Hut benefiting significantly from delivery, Reed also finds interest in seeing aggregators and how they have been “accepted” by major brands.

“The partnerships which are developing [between] the major QSR chains and aggregators is interesting to see whether that will be sustained for the future,” he said.

Pizza Hut is also experimenting with new formats, having recently announced its grab-and-go kiosk concept that is currently being trialed at EG Group’s service stations. Reed lauded Allegro’s role in offering “strategic clarity.”

“Sometimes, private equity funds are not always seen as active partners within the business, but Allegro are quite different because they have operating partners. And these guys have come in and they've been able to help and support us, giving operational experience,” he said. “Those 500 sites that EG have purchased are very, very prominent locations.”

Growing investor confidence in fast food space
Allegro Funds investment manager Jeremy Trouncer, also speaking to QSR Media, expects the partnership with EG to replicate similar models overseas where QSRs are finding success in fuel stops.

“That provides the opportunity to reach a greater number of Australians and provide our offering through a large portion of the territory,” he said.

Trouncer, who also lauded Pizza Hut’s management team for its performance despite COVID-19, added there was more investor confidence in the fast food space, referencing the $86.8 million investment by Magellan in Guzman y Gomez last December.

“A large part...is the resilience that the QSR market has demonstrated,” he said. “That translates for us as well - the proposition we can offer franchisees as part of a larger group.”

Trouncer expressed excitement about Pizza Hut’s growth potential, believing that they can win back market share by increasing distribution and promoting more access. He also said that an ASX initial public offering is one option they are looking at, considering their investment period.

“At some point, we will be looking for an exit of our investment and will be looking for a future partner to take to the next stage of growth,” he said. “We haven’t commenced an IPO process at this point, but...it will be one of the considerations once we come to what that realisation of our investment looks like.”

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