Pizza Hut finalises acquisition of 50 Eagle Boys stores as franchisees appeal $4.95 pizza case
Tuesday, May 2, 2017/
The Australian branch of global pizza retailer Pizza Hut has finalised the acquisition and conversion 50 Eagle Boys stores.
Pizza Hut acquired the stores in 2016, after administrators were appointed to the Eagle Boys chain and fund manager Allegro took control of the Pizza Hut stores in a master franchise deal with US parent company Yum! Brands.
The retailer offered all Eagle Boys franchisees that were outside of existing Pizza Hut trading zones the opportunity to convert to Pizza Hut stores.
“Our goal was to bring across as many Eagle Boys franchisees as possible that were not in conflict with our trading zones across the country,” said Pizza Hut Australia chief executive Lisa Ransom in a statement.
“While we warmly welcome the new franchisees, we sincerely wish the very best to all of those franchisees we were unfortunately unable to accommodate within our network.”
SmartCompany understands around 60 Eagle Boys stores have not been converted to Pizza Hut outlets.
The move places Pizza Hut as the second largest pizza retailer in the $3.7 billion industry, according to IBISWorld data. The largest player is currently Domino’s, which is estimated to hold 25% of the market.
A merger of Pizza Hut and Eagle Boys was estimated to give Pizza Hut a market share of around 35% at the time the deal was flagged, with the retailers’ combined store footprint coming in at 384. However, estimates from IBISWorld over in July put the potential combined market share of the two retailers at 15.3%.
However, Retail Oasis analyst Pippa Kulmar told SmartCompany the acquisition of 50 new stores won’t necessarily automatically translate into better business for Pizza Hut, saying the chain will need to dial-up its “innovation” efforts to compete with Domino’s.
“Pizza is a takeaway opportunity, so any new stores are going to be doing a majority of business as takeaway. Spending capital to buy new stores only makes sense if Pizza Hut needs to increase their distribution,” Kulmar says.
“Domino’s increased lead hasn’t been achieved through retail operations, its through excelling at innovation and digital offerings.
“The holy grail is how to become available to more people, more often. This is across breakfast, lunch, dinner, snacks, everything,” she says.
Franchisees take on Pizza Hut over $4.95 pizzas
As Pizza Hut Australia readies to unveil its newly acquired stores, the brand’s American franchisor Yum! is readying to face its franchisees in Federal Court next month.
The court hearing is an appeal for the majority of Pizza Hut’s Australian franchisees, who in 2016 lost a class action against Yum! over claims the franchisor caused significant losses for franchisees via the introduction of its $4.95 pizza deals in 2014 in order to stay competitive with Domino’s, who had also slashed pizza prices.
The appeal is being run by liquidator Bob Jacobs from Auxilium Partners, who has put up his own money to run the case, reports Fairfax. Jacobs is acting as liquidator for three companies that represent eight Pizza Hut stores, and he told Fairfax those companies owe the Australian Taxation Office a total of $1.5 million.
He estimates the total bill owed to the ATO from failed Pizza Hut stores to be more than $10 million.
Kulmar believes the $4.95 price slashing was a “poor move” by the pizza-slinging heavyweights, saying it’s a short-term tactic, which is unlikely to build a strong brand in the long-term.
“They failed to build brand quality at the same time as price quality, where for customers it’s not always about price. People will still pay $20 for a pizza,” she says.
“The growth in pizza is still around gourmet offerings, and that’s where smaller operators have the edge. People are seeking that mid-range local restaurant, that’s an awesome experience but isn’t going to cost a lot.”
SmartCompany contacted Yum! but did not receive a response prior to publication.