Pizza Hut 2007 Annual Report Download - page 8

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While we clearly believe we have identified the way to win big in the U.S., I’m obligated
to report the reality is we are not achieving the kind of success we know we can.
The fact is even though our category-leading U.S. basedbrands have continually
demonstrated outstanding unit economics on astand-alone basis and generated nearly
$700 million in franchise and license fees, we have fallen short of our goal to grow
profits at least 5% every year.It’s even more disappointing to report that 2007 was a year
where same store sales were flat and operating profits were down 3%. Frankly,the best
thing I can say about our weak U.S. performance in 2007 is that we get to overlap it in 2008!
This is especially true when you consider that last year’sresultswere primarily impacted by
two isolated, and now thankfully distant, highly publicized product supply and pest incidents
that affected ourlargest and most profitable brand, Taco Bell —while Pizza Hut made pro-
gress and KFC basically stood still.
Nevertheless, we turned this adversity into an opportunity by using the lessons learned to
take additional precautions to enhance our stringent food safety and operation standards
for all of our brands.
There’s no question ournumber one challenge is to turn the U.S. performance around. And
as we put 2007 behind us, ourpoor results have only strengthened our resolve to take the
bold steps necessary for us to win big going forward.
The way we see it, our nearly 18,000 underleveraged traditional restaurants represent our
greatest opportunity. When you look at the top 10% of our highest performing restaurants,
the volumes are almost twice what our system averages are. So clearly we can sell awhole
lot more at each of our brands than we are today. More importantly, we have learned from
our experience building astrong and growing business in China, and by studying the enor-
mous success McDonald’s had in the U.S. the past five years as they grew sales 6% from
their existing assets. Our conclusions led us to implement five key strategic initiatives to help
us unlock the value of ourU.S. assets:
1) Create more balanced menu options
2) Grow multiple dayparts
3) Offer multiple proteins, desserts and beverages
4) Provide constant everydayvalue
5) Continually contemporize our facilities
Later in this report, each of our brand presidents will tell you how they are transforming their
brands and attacking each of these areas. Our category-leading brand restaurants present
tremendous upside and we are determined to capture it.
Given that Taco Bell is already the second most profitable quick-service restaurant brand in
the U.S., we are now in the position to open asignificant number of stand-alone Taco Bells
along with KFC-Taco Bell multibranding units. With Taco Bell well-positioned in the quick-
service restaurant space, we are driving net-unit development in the U.S. with this brand.
We are targetingto do the same across ourentire U.S. business by 2009 as our turnaround
plan takes hold. When you consider McDonald’s has almost 14,000 traditional unitsinthe
U.S. compared to only 5,000 traditional Taco Bells and 5,000 KFCs, there’s plenty of ter-
ritory we can still penetrate. Wealso continue to develop Long John Silver’s and A&W All
American Food as amultibranding option for our franchisees, while continuing to improve
the appeal of both brands.
#3.
Dramatically
Improve U.S.
Brand Positions,
Consistency
and Returns.
Thesinglebiggest
opportunity for our
U.S. brands is that
we already have nearly
18,000 underleveraged
traditional restaurants
with minimal
capacity constraints.
Our formula for
success is work-
ing. When we put
people capability
first, then we satisfy
more customers —
and profitability
will follow!