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Pizza Hut now a major business for Yum in China http://today.reuters.com/news/articlenews.aspx?type=inDepthNews&storyID=2006-11-14T160630Z_01_N13216029_RTRUKOC_0_US-LEISURE-CHINA-PIZZAHUT.xml&src=111406_1223_FEATURES_in_depth
Tue Nov 14, 2006
By Nichola Groom
SHANGHAI, China (Reuters) - Sam Su dug into a plate of sizzling garlic-drenched snails at one of his bustling restaurants in downtown Shanghai.
"The world's most inexpensive escargot," he said, smiling broadly. Su is proud of the 32 yuan ($4) snails appetizer, but he isn't trying to hawk high-end French cuisine to his Chinese customers.
Believe it or not, this is a Pizza Hut, and U.S. restaurant company Yum Brands Inc. is using the well-known pizza delivery brand to bring American-style dining to China.
"It's not just Pizza Hut, it's the whole Western dining experience with appetizers, soup and salad," said Su, president of Yum's China division. "For many customers it is their first experience with Western food." Yum China is a rapidly growing business that accounts for nearly a third of its parent company's operating profit. But until recently, much of the focus on that unit had centered around KFC, China's biggest fast-food brand. Now, with more than 225 Pizza Huts in 51 cities, Yum's No. 2 brand in China is quickly becoming a more important part of its business there.
Last month, Yum Chief Executive David Novak said Pizza Hut in China was "now a major business," with returns similar to those of its 1,700-unit KFC chain. He added that the company could one day have as many as 2,000 Pizza Hut restaurants in the world's most populous nation -- comparable to the size of casual dining chain Applebee's in the United States.
Pizza Hut is China's biggest casual dining company, and competition is scarce. T.G.I. Friday's, Outback Steakhouse and California Pizza Kitchen, for instance, each have five or fewer locations in mainland China.
"In the broader sense, our competitors are the Chinese restaurants," Su said. "But I'm not sure people consciously make that comparison."
Unlike its U.S. counterpart, Pizza Hut's menu is more varied than the typical pizzeria, with items such as garlic bread, minestrone soup, pasta and cheesecake.
In addition to the escargot, other items that might raise a Western eyebrow include a wasabi and salmon pizza topped with octopus and spaghetti in a chicken curry sauce.
The decor is modern, with atmospheric lighting and a black, brown and beige palate on its booths and walls.
Yum does not disclose sales and profits of its individual chains in China, but Su said Pizza Huts' same-store sales, a key retail measure, are "good." The chain does about as much business at lunch as it does at dinner, and afternoon tea is also popular. At a Pizza Hut in a busy Shanghai shopping district on Tuesday afternoon, young people, business people and others were scattered throughout the restaurant sharing snacks and drinks.
One elderly woman stopped by briefly for a basket of garlic bread and an iced tea.
TASTE MAKE-OVER
Success did not come easily to the brand, however. Pizza Hut struggled when it was first introduced in China in the early 1990s, Su said, because it did not adapt to the tastes and needs of Chinese consumers.
Later in that decade, Su scrapped the chain's positioning as a traditional pizza place and overhauled the menu and decor to appeal to Chinese tastes.
Now, Yum is adding Pizza Hut restaurants at a rate of about 20 percent a year.
It is also capitalizing on the brand's success with a separate Pizza Hut delivery chain for which it has high hopes.
The service, started in 2001, has a national call-in number that goes to a Shanghai call center where workers can take calls in Mandarin, Shanghainese, Cantonese or English.
Yum's more than 30 Pizza Hut delivery locations in China are distinct from the casual dining restaurants, because, Su said, "fundamentally the needs in the restaurants and the needs at home are different."
Food delivery is a growing trend in China, Su said, because peoples' homes are becoming more comfortable places to stay in for the evening as discretionary incomes rise.
"They not only have regular TVs they have plasma TVs ... so they say why go out when I could be at home?" he said.
Yum recently started advertising Pizza Hut delivery service on television in Shanghai and has lowered the price of delivery service pizzas, which had been comparable to prices in the restaurants.
Both the advertising and the price drop have been welcomed by consumers, Su said.
Domino's Pizza Inc. also has a pizza delivery service in China, with about seven Beijing-area locations.
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