Pizza Hut will have closed five restaurants and redesigned more than 40 by the end of this year as it seeks to improve profitability and cash generation of its UK operations.
The chain, which now numbers 266 restaurants, has been embarking on a deliberate strategy to consolidate its estate and exit sites that are under-performing or not regarded as core to the business at the date of lease expiry.
Management at the firm shut six stores last year, with the decision on each closure based on historic performance, rent terms and mitigating factors that would support a continuing operation.
The closures are supported by a major refurbishment project that has been in place since 2013 and is nearing its conclusion. By the end of this year, 90% of its total estate will have been upgraded and the company even opened its first new site in five years, at the White Rose shopping centre in Leeds, in July.
In its latest annual accounts, filed with Companies House at the weekend, the directors said that “significant progress” had been made in reshaping the restaurant estate for the future, and these actions would deliver “strong performance growth opportunities” for the business.
The report, for the 12 months from 30 November 2015 to 4 December 2016, revealed that sales increased 3% year-on-year to £233m. Pizza Hut said the growth reflected the benefits from its restaurant refurbishments as well as the closure of six restaurants during that period.
“Sales growth will continue to build in 2017 and 2018 as the company benefits from both the full financial year trading impact of the 2016 refurbishments and the additional refurbishments that will take place over the next 12 months,” the directors said.
Operating profit, excluding exceptional items, reached £7.36m, which was 12% lower than last year due to the increase in royalty rates under the franchise agreement that it has and an increase in staff costs.
Operating profit, including trading EBITDA, hit £28.3m, which was 15% ahead of last year and continues the healthy growth in business performance and financial economics that have been delivered by the business over the last few years, the directors said.
They said the continuation of the restaurant refurbishment programme across the financial year had a positive impact on sales. At year there were 192 refurbished restaurants, representing 72% of total restaurant locations. “Some of these refurbishments took place part way through 2016, and the sales and profit impact will continue to build across 2017 and 2018,” they said.
The refurbishment programme has seen the chain introduce a more contemporary design to the restaurants while seeking to capture the essence of its American heritage.
“Our well-proven approach to the refurbishment programme has ensured that we continue to develop and evolve our restaurant design, enabling us to optimise and tailor the design to individual restaurants,” the directors said. “The return on investment is well ahead of target and guest experience surveys are showing significant increases in overall satisfaction value for money and intent to revisit within the next three months.”
Bosses also noted the impact that a restructuring of its menu has had on the business. The addition of starter and dessert dishes combined with the launch of a new flatbread pizza and a continued focus on the bar and alcohol range all helped to generate revenue. “The improved and varied menu has seen positive growth in spend, particularly where new menu items are shared or complement the main course.”
Overall profit for the financial year fell a hefty 40% to £2.8m, but almost a third of that was due to higher tax on profit, with the directors reporting satisfaction with how the business had fared. “Significant progress has been made in reshaping the restaurant estate for the future, and these innovations and initiatives will deliver strong performance growth opportunities for the business,” they said.