Appearance on Motley Fool Live, March 27, 2020

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April 7, 2020 · 10:41 AM

CAN THE TEAM TRYING TO PULL OFF PIZZA HUT’S COMEBACK DELIVER?

How the execs that rescued KFC hope to revive its sibling pizza purveyor     

By Jessica Wohl. Published on March 09, 2020

If any duo can fix the ailing Pizza Hut, it just might be George Felix and David Graves.

Each bring years of experience at Procter & Gamble, and already helped turn around one tired American fast-food chain. They play off each other’s strengths and admit their new brand’s weaknesses.

“We haven’t been very consistent with how we go to market,” Felix says. “We should be able to answer: Why would a pizza lover love this?”

Diners aren’t exactly loving Pizza Hut these days. The long-time top pizza chain lost that status to Domino’s in 2017. After a turnaround effort failed, parent company Yum Brands turned to the team behind one of its success stories for help.

Felix, Pizza Hut’s new chief marketing officer, and Graves, its new chief brand officer, hail from KFC. A few years ago no one would have called KFC a savvy marketer with ads as crispy as its chicken. But under their stewardship, Colonel Sanders was reinvigorated in ads starring celebrities and promoting new items such as Nashville Hot chicken. Sales at longstanding KFC locations increased for 13 consecutive quarters through the third quarter of 2017. U.S. quarterly same-store sales have since declined only twice.

Felix and Graves believe they can pull from a similar playbook, using the 62-year-old brand’s heritage as an asset. “I think there is a lot of similarity to where KFC was six years ago,” says Felix.

Team history
Felix and Graves are at Pizza Hut thanks to Kevin Hochman, the KFC U.S. chief marketing officer turned KFC U.S. president who is now also interim president of Pizza Hut U.S. At P&G, Hochman and Felix worked on revitalizing Old Spice. In 2015, Hochman called Felix as he was setting up shop at KFC. Graves, after a dozen years at P&G on brands including Herbal Essences, Pantene and Pampers, got a similar call and joined the guys a year later.

In 2018, Felix left Louisville-based KFC U.S. to become director of marketing at KFC Global, which, like Pizza Hut, is based in Plano, Texas. Now, he and Graves are reunited. “It’s going to be hard, but we will be our own toughest critics,” says Graves.

Pizza Hut’s U.S. same-store sales fell in three of the last four years, including a 1 percent decline in 2019. After Pizza Hut’s U.S. same-store sales rose 2 percent in 2018, various efforts to keep that momentum failed to take hold.

Plans to deliver beer along with pizza from at least 1,000 locations by the summer of 2019 didn’t juice sales. With only 700 restaurants delivering beer across 15 states, according to Pizza Hut, the program fell short of the goal.

And NPC International, the biggest U.S. franchisee, is reportedly considering a bankruptcy filing. 

Here’s the challenge: Pizza Hut doesn’t have a consistent message; it hasn’t fully capitalized on its budding relationship with the National Football League; and it’s bogged down with plenty of sit-down restaurants when delivery and carryout are the main drivers of the pizza business. Pizza Hut declined to say how many of its restaurants offer dine-in service.

“Nothing they’ve done, at least in my mind, has stood out as a message that is compelling enough to break through the clutter,” says David Henkes, senior principal at restaurant research firm Technomic.

Pizza Hut has bounced back before, with products such as pan pizza in 1980 and stuffed crust pizza in 1995. Work is underway on new items. “We want to be the first choice of America,” says Graves.

Churn
Pizza Hut churned through eight CMOs in the two decades before Felix joined. Graves is only the company’s third chief brand officer, but it’s a position that didn’t exist until 2015. When it comes to creative agencies, BBDO managed to hold onto the account for 22 years. Pizza Hut has worked with five more creative shops since BBDO lost the gig in 2009.

“That’s part of why the brand hasn’t been very consistent,” Felix says.

The current creative incumbent, GSD&M, won the account in 2018. Spark is the media agency. 

For now, no agency changes are being made. But when a new CMO comes in, that person often turns to the creative talents that were a good match at a prior job. At KFC, Hochman brought in Wieden+Kennedy, which had worked on Old Spice and went on to lead the “Re-Colonelization” of KFC.

Is Wieden poised to add Pizza Hut to its client roster, which already includes KFC and McDonald’s? Not just yet. There’s an energy with GSD&M and there’s value in the continuity, says Felix. 

Meanwhile, rivals are chugging along. Domino’s is known for ease of ordering, Little Caesars is promoting delivery for the first time, including in a recent Super Bowl commercial, and even Papa John’s is regaining some footing under new CEO Rob Lynch. Plus, there are thousands of local pizza chains and individual shops to compete against.

“There’s a lot of loyalty to those local places, so I think the pizza chains have to do something extraordinary to get consumers to order from them,” says Henkes.

About 40 percent of the U.S. pizza industry’s $43 billion in 2018 sales came from local operators, with the other 60 percent handled by chains, Henkes noted. Pizza Hut’s slice was nearly 13 percent.

And it isn’t just competing against other pizza purveyors. Among diners who chose Pizza Hut, the top restaurants in their consideration were, in order, Domino’s, McDonald’s, Papa John’s, Little Caesars, and Burger King, according to data from Technomic.  

Company history
Pizza Hut was started in Wichita, Kansas, in 1958. As the story goes, two landladies, inspired by a story they’d seen in a November 1957 issue of The Saturday Evening Post, suggested to Dan Carney that he open a pizzeria. Dan and his brother Frank opened the restaurant with the help of John Bender. On opening day, May 31, 1958, a large pie was $1.50, according to “The Pizza Hut Story,” a 176-page book published by the International Pizza Hut Franchise Holders Association in 2008.

Soon, pizza was catching on across America. In 1959, Little Caesars opened its first restaurant in Michigan, followed a year later by Domino’s. All three rapidly expanded. 

By the 1960s, Pizza Hut had a mustachioed mascot, Pizza Pete. Pizza Hut’s first TV spot featured the slogan “Putt Putt to the Pizza Hut,” featuring a man driving a miniature car to pick up his order.

It’s easy to forget what a cultural touchstone Pizza Hut has been. Ed McMahon promoted it on “The Tonight Show.” Rich Little appeared in a campaign. So did Aretha Franklin. In 1995, the unlikely duos of then-divorced Donald and Ivana Trump, plus David Robinson and Dennis Rodman, promoted stuffed crust pizza. In 1997, Mikhail Gorbachev hawked a pie called the Edge. In 2006, Jessica Simpson sang “These Bites Were Made for Poppin’” to sell the Cheesy Bites pizza, in a campaign that also starred Miss Piggy. 

“Pizza Hut should be a happy, fun-loving brand,” says Felix.

Felix is a fan of some of his predecessors’ plans, including the retro red roof logo and the “No One Outpizzas the Hut” tagline from Droga5 in 2016.

“I personally think there’s a lot to that and don’t think we’ve lived up to it,” says Felix.

Now, the team is eager to define the brand’s north star. Felix and Graves spent time earlier this year in Wichita, visiting the company museum, and speaking with franchisees about everything from profitability to the “fairy dust” seasoning they used to use. 

Felix handles brand positioning and strategy, advertising, brand communications, public relations, media and social impact such as the “Book It” program—which rewards kids for meeting reading goals with coupons for free personal pizzas. Graves is responsible for culinary, food safety, brand and consumer insights, and planning the cadence of deals.

Graves reflects fondly on the days when Pizza Hut pizza was considered “superior, abundant and great-tasting.” The chain already overhauled its pan pizza and stuffed crust, and he’s pleased with those. Now his team is working on other projects. The limited-time mozzarella poppers pizza introduced in February, which pushed 16 mini mozzarella sticks into the crust, was already in the pipeline.

Asked to name their favorite Pizza Hut foods, Graves listed the pan pizza and stuffed crust. “I’d forgotten how good it was,” says Graves. Felix chose the pan supreme and the chicken wings, which he says are an unsung menu hero.

To Graves, the goal is to have “pizzas you can only get at Pizza Hut” that resonate with consumers. 

Graves, who recalls his grandmother taking him to redeem his “Book It” coupons, sees heritage in the details from Tiffany lamps to the red plastic cups used in the dining rooms.

Then again, so did his predecessor, Marianne Radley, who had worked at Pizza Hut as a teen and joined its marketing ranks in 2018. She was out in less than two years.  

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Culver’s just turned 34. Its butter burgers, custard are ‘exporting Wisconsin’ nationwide.

636668377472612258-APC-CraigCulver-032918-01.JPG

PRAIRIE DU SAC – A hunk of fresh ground beef hits the hot flat-top grill in the test kitchen at Culver’s headquarters.

Craig Culver, 68, uses a large, perfectly polished metal spatula to press the beef into perfectly round patties, with the help of an equally well-polished round metal canister. That grill isn’t quite hot enough, by the way, he comments.

I’ve watched (maybe secretly wishing I was in) the Culver’s commercials with the restaurant’s co-founder surprising customers, offering to bring them into the kitchen as he cooks their burgers. That was a tricky shoot, Culver says, because they were doing it during lunch hours at a Culver’s in Tampa, Florida. Continue reading

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Filed under Burger, Casual Dining, Dave Henkes, Fast Food, Menu, Press Release, Sales, Sales & Profits

For CEOs in crisis, Starbucks offers an ‘instructive playbook’

For CEOs in crisis, Starbucks offers an 'instructive playbook'

Sarah Whitten
© 2018 CNBC LLC. All Rights Reserved. A Division of NBCUniversal
https://www.cnbc.com/2018/04/18/for-ceos-in-crisis-starbucks-offers-an-instructive-playbook.html

  • Kevin Johnson’s response to the arrest of two black men at a Philadelphia Starbucks is an “instructive playbook” for other CEOs dealing with crisis.
  • Johnson flew out to Philadelphia on Monday to speak with the two men.
  • Starbucks will close 8,000 of the company’s U.S.-based locations to train 175,000 employees and address implicit bias, promote inclusion and help prevent discrimination.

Starbucks is just the latest brand to find itself under scrutiny in the public eye. However, the company’s response to a viral video of two black men being arrested in one of its cafes last week, is what sets it apart.

On Thursday, a woman posted the video online and said that staff at a Philadelphia Starbucks had called police because the men had not ordered anything while they waited for a friend to arrive.

On Monday, Starbucks CEO Kevin Johnson was on the ground in Pennsylvania meeting with them.

“That’s very rare,” Aaron Allen, founder and CEO of global restaurant consulting firm Aaron Allen and Associates, told CNBC. “And it sends a message not just externally, but a strong message internally.”

Allen said that for the majority of companies, the initial inclination is to “batten down the hatches” and stall for time to figure out a solution.

One sign of the success of its strategy is that Starbucks stock has remained relatively stable throughout the whole incident.

“I agree Starbucks and Kevin Johnson have done a good job in responding to this incident,” Denise Lee Yohn, a brand leadership consultant, told CNBC via email.

She noted how quickly Johnson took responsibility for the incident, committed to reviewing the company’s culture and practices, provided clear statements to employees and customers and flew out to meet with the two men who had been arrested.

“These steps provide an instructive playbook for other leaders facing crises like this,” Yohn said.

On Tuesday, Johnson went one step further. The company announced that it was closing all of its company-owned restaurants in the U.S. during the afternoon of May 29 to conduct a racial-bias education program.

Some 8,000 of the company’s U.S.-based locations will participate so that nearly 175,000 employees can attend the training program that will address implicit bias, promote inclusion and help prevent discrimination.

“The CEO was slow to address race, which remains a big stain on Starbucks’ brand trust,” Eric Schiffer, chairman of Reputation Management consultants, told CNBC via email. “But, the closing of Starbucks stores for racial-bias training is the single smartest move they can make. It shows through action, not talk that they get it and they value doing the right thing over earnings and customer cash.”

Starbucks isn’t the first restaurant brand to close stores in order to host a company-wide training session. Chipotle Mexican Grill shuttered its stores for an afternoon to conduct mandatory food safety training after a series of foodborne illness incidences tattered its reputation.

Still, some question how effective this racial-bias training session will be for the brand.

“For [Johnson] to decree implicit bias training is a start, but [it is] unclear if it will really be all that helpful,” Rosalind Chow, an associate professor of organizational behavior and theory at Carnegie Mellon’s Tepper School of Business, told CNBC via email. “The evidence on the effectiveness of such training is pretty poor.”

Chow suggested that it would be much better for Starbucks to institute new policies that are enforced across the board. For example, if the company says that people who do not make purchases must be asked to leave, then it doesn’t matter what the race of that person is, they will be asked to leave regardless.

“Large chains with tens of thousands of employees face this challenge every day,” David Henkes, principal at Technomic, told CNBC via email. “Front line workers are the face of your brand, and when they do something that gets negative press, especially when it goes viral, all the training and processes that are in place get put under a microscope, and the brand gets a black eye.”

“I’ve been impressed with Kevin Johnson and their communication strategy and think they’ve been doing what they can to be proactive,” Henkes said.

While experts have found Starbucks’ efforts exemplary, how customers view the brand is slightly different and, perhaps, a closer measure of how the cafe chain’s sales will be affected.

Over the weekend, Starbucks dropped to its lowest consumer perception level since November 2015, according to a report by YouGov Brand Index. The company’s “buzz” score — a measure of positive or negative sentiment around a brand — dropped from 13 on Friday to -8 on Tuesday. (Scores range from -100 to 100 and are gathered from people who have made Starbucks purchases in the last 30 days.)

The last time Starbucks saw a score this low was when it faced backlash for launching solid red cups for the holiday season, causing some customers to claim the brand has waged a “war on Christmas.”

While buzz slipped dramatically, other metrics that YouGov Brand Index monitors saw less of a dive. Purchase consideration, the percentage of customers who would consider making a purchase at a specific restaurant the next time they decided to buy food or a drink fell from 28 percent on Friday to 25 percent on Tuesday.

In addition, the company’s reputation score, how proud or embarrassed the respondent would be to work for the brand, dropped from 14 to 4 during the four-day period.

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Starbucks CEO sees Nestle deal as way to give $20 billion to shareholders over next three years

Starbucks_CEO_sees_Nestle_deal_as_way_to_give_$20_billion_to_shareholders_over_next_three_years

Sarah Whitten
© 2018 CNBC LLC. All Rights Reserved. A Division of NBCUniversal
https://www.cnbc.com/2018/05/07/starbucks-ceo-sees-nestle-deal-as-way-to-return-value-to-shareholders.html

  • The $7.15 billion deal with food giant Nestle will help Starbucks return value to its shareholders.
  • The deal gives Nestle the rights to sell Starbucks’ products, including single-serve coffees and teas as well as bagged beans, around the world.
  • Nestle has agreed to take on about 500 Starbucks employees who work in the consumer packaged goods segment as part of the deal.

Starbucks CEO Kevin Johnson said Monday that its $7.15 billion deal with food giant Nestle will help return value to its shareholders

“This will increase the $15 billion we have committed to [return to shareholders] … to $20 billion over the next three years, cash returned to shareholders in the form of dividends and buybacks,” Johnson said Monday on CNBC’s “Squawk on the Street.”

When asked by CNBC’s Jim Cramer about why the coffee chain was not funneling the proceeds from the deal into growth initiatives rather than doing stock buybacks, Johnson highlighted the growth the company has seen.

“We have had great success over the five years or so with K-cups on the Keurig platform,” Johnson said. “This opportunity brings Starbucks coffee to the Nespresso platforms globally and there are more households in the install base of Dolce Gusto and Nespresso than Keurig.”

The deal gives Nestle the rights to sell Starbucks’ products, including single-serve coffees and teas as well as bagged beans, around the world. Nestle will continue to pay royalties to Starbucks after the initial fee.

“For Starbucks, the deal will help to drive brand recognition outside of its core North American and European markets as Nestle ramps up expansion using its distribution capacity,” Neil Saunders, managing director at GlobalData Retail, told CNBC via email.

Starbucks has struggled with slow sales in the U.S. for several quarters and relinquishing its retail business to another company allows it to focus more on its cafes.

In addition, Nestle has agreed to take on about 500 Starbucks employees who work in the consumer packaged goods segment as part of the deal.

“While Nestle’s coffee business is immense, its product line didn’t really align with the U.S. consumer market and Nestle lacked the star power that Starbucks brings,” David Henkes, principal at Technomic, told CNBC via email. “In my mind this is really about giving Nestle a much better foothold in the U.S. coffee market and creating a counterweight to JAB Holdings, which through its acquisition of Keurig/Green Mountain, Mondelez’s coffee business and others has come to be the primary coffee source for millions of consumers each day.”

JAB Holding, a privately held company and investment arm of the wealthy Reimann family, owns such brands as Keurig Green Mountain, Krispy Kreme Doughnuts and Peet’s Coffee & Tea. The company, which has been steadily building a coffee and breakfast empire over the last five years, scooped up Panera Bread for $7.5 billion last year.

Nestle has made plans to focus on higher-growth areas like pet care, infant nutrition and coffee. It sold its U.S. candy business to Italy’s Ferrero for about $2.8 billion in January.

“Look, we are excited about pet food, too,” Mark Schneider, CEO of Nestle, told CNBC. “This is one of the other growth categories we are very much involved in that market. So a lot of interesting things underway there.”

 

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What’s Fresh at McDonald’s? The Beef in Some Burgers

What's_Fresh_at_McDonalds

Associated Press
https://www.snopes.com/ap/2018/03/06/whats-fresh-mcdonalds-beef-burgers/

McDonald’s said that it is serving Quarter Pounders with fresh beef rather than frozen patties at about a quarter of its U.S. restaurants.

NEW YORK (AP) — The Quarter Pounder is getting a fresh makeover.

McDonald’s said Tuesday that it is serving Quarter Pounders with fresh beef rather than frozen patties at about a quarter of its U.S. restaurants, a switch it first announced about a year ago as it works to appeal to customers who want fresher foods. It will roll out fresh beef Quarter Pounders to most of its 14,000 U.S. restaurants by May.

The fast-food giant, which has relied on frozen patties since the 1970s, said workers will cook up the fresh beef on a grill when the burger is ordered.

“The result is a hotter, juicier, great tasting burger,” said Chris Kempczinski, who oversees McDonald’s Corp.’s restaurants in the U.S.

Its pricier “Signature Crafted” burgers, stuffed with guacamole or bacon, will also be made with fresh beef since they use the same sized patty as the Quarter Pounder. The Big Mac and its other burgers, however, will still be made with frozen beef.

Fresh beef has always been used by rival Wendy’s, which aired a Super Bowl commercial last month criticizing the “flash frozen” beef at McDonald’s. A Wendy’s Co. representative gave a frosty response Tuesday, saying that “it’s awesome” that McDonald’s “is recommitting to using frozen beef on the majority of its hamburgers.”

McDonald’s, however, has signaled that it may use fresh beef in more burgers. Earlier this year, the Oak Brook, Illinois-based company confirmed that it was testing a fresh beef burger that used a patty that was slightly smaller than the one in the Quarter Pounder, but larger than the one its hamburgers and cheeseburgers.

The change at McDonald’s is the latest as it seeks to shed its junk food image. It has removed artificial preservatives from Chicken McNuggets, and made other tweaks, including replacing the apple juice in Happy Meals with one with less sugar.

“Fresh in the mind of the consumer really has a better-for-you connotation,” said David Henkes, a senior principal at Technomic, a food industry market research firm. “It certainly has a perception that it’s better than frozen.”

The company tested the fresh beef Quarter Pounder for about two years in Dallas and Tulsa, Oklahoma. Eight more cities are serving it now, including some restaurants in Atlanta, Miami and Salt Lake City. It’ll come to Denver, Houston and other cities over the next month before the nationwide rollout.

McDonald’s said the switch is a major change for the company, and has said the rollout takes time because employees need to be trained to safely handle fresh beef and to cook the patties only when ordered.

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Taco Bell overtakes Burger King as 4th-largest U.S. chain

Taco Bell Overtakes BK 4th-Largest U.S. Chain

Leslie Patton
Bloomberg
https://www.sfgate.com/business/article/Taco-Bell-overtakes-Burger-King-as-4th-largest-12629994.php

Lovers of chalupas and crunch wraps have spoken: Taco Bell is now bigger than Burger King.

The Mexican-themed chain eclipsed its burger rival in U.S. sales last year, becoming the fourth-largest domestic restaurant brand, according to a preliminary report by research firm Technomic. McDonald’s, Starbucks and Subway Restaurants held on to the top three spots.

Taco Bell’s systemwide sales — the total sales of restaurants that carry the brand — jumped 5 percent in the U.S. to about $9.8 billion in 2017. The company, owned by Yum! Brands, has made inroads with indulgent fare, along with $1 items that appeal to budget-strapped millennials.

The ranking change also underscores the surging popularity of Mexican-inspired fare. Last year marked the first time that Taco Bell has overtaken Burger King, the data showed.

McDonald’s, Taco Bell, IHOP and other chain restaurants have hidden health gems in their menus

Though Burger King has fared better than many restaurants brands in recent years, it hasn’t kept pace with its biggest burger rivals — McDonald’s and Wendy’s Co. — or chains like Taco Bell. Its domestic sales rose just 1.5 percent in 2017, according to the Technomic report, which will be finalized in March.

Burger King faces a “resurgent McDonald’s,” David Henkes, senior principal at Technomic, said in an interview. Upscale burger chains, such as Shake Shack Inc., also are threatening its market share.

Taco Bell, meanwhile, has drawn customers with wacky new foods, including fried-chicken taco shells, and a marketing campaign dubbed “Live Mas.” In January, the chain introduced $1 nacho fries.

“They certainly continue to do pretty well, and bring out some interesting and new menu items,” Henkes said. “They’ve done a good job of connecting with the millennials and Gen Z.”

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