Why Yum Should Consider Selling Pizza Hut

Just a month into his tenure, CEO Chris Turner is already eyeing Pizza Hut for the exit door. With margins melting faster than mozzarella on a hot slice and a franchise network too fragmented to fix easily, why keep trying to save the toppings? Meanwhile, Yum’s real growth engines – Taco Bell and KFC – are calling for all the attention.

No Pizza Hut was harmed in this photomontage. © FRe

Yum Brands' new CEO, Chris Turner, wasted no time. Barely a month after his arrival, the former head of finance and franchises launched a "review of strategic options" for Pizza Hut. This corporate euphemism often means they're looking to sell to the highest bidder. Between declining performance and a weakened business model, selling the world's second-largest pizza concept appears to be the most palatable scenario for its owner.

Structural problem

Pizza Hut's share of Yum's operating profit has plummeted by 35% since the start of fiscal year 2023 (from 17% to 11%). In the domestic market, same-store sales declined by 6% in the third quarter, while the operating margin also shrank. Management attributes this to technological investments, but the issue appears to be primarily structural.

A network too fragmented to reinvent itself

With 20,000 franchisees worldwide, every strategic decision (closure, rebranding, or price adjustment) becomes a headache. And the international network is struggling: the bankruptcy of a major American franchisee this year resulted in the sale of 77 restaurants at auction for a mere $11.78 million. Sixty-eight other locations have closed in the UK, leading to the loss of 1,210 jobs , and one of the largest franchisees in India, Sapphire Foods, has decided to suspend Pizza Hut's expansion due to weak sales. Under these circumstances, financing a comprehensive transformation is extremely challenging.

Aggravating circumstances: the platforms

In the United States, current market conditions for food delivery strengthen the case for selling Pizza Hut. The rise of third-party apps like DoorDash and Uber Eats has relegated pizza, once a staple for delivery, to the status of just another food category. Large chains, once synonymous with convenience, now find themselves in direct competition with the entire restaurant sector, from fast-casual eateries to family-run bistros.

"Historically, players like Pizza Hut relied on in-house logistics, developing their own delivery operations," noted Amaury Marescaux, CEO of Gondola Foodservice, in his sector analysis report , "Unlock the Future of Food Delivery in Belgium ." In Belgium, food delivery remains largely dominated by direct-to-consumer services organized by these restaurant chains.

Simple calculation

The main threat is not just stagnant sales, but the loss of control over customer relationships. Delivery platforms use their data to promote competitors who pay higher commissions, making it harder for chains like Pizza Hut to retain loyalty. For Yum, keeping a struggling brand means holding onto an asset with an outdated growth model, whose recovery faces unfavorable and costly market dynamics.

This year, the iconic Pizza Hut brand is expected to generate $340 million in operating profit (EBITDA). "At 10 times that operating profit, a deep-dish discount to the 21 times at which peers Domino's and Papa John's trade on average, the enterprise would be worth just $3.4 billion," notes Reuters. A sale, even at a discount, would allow Yum! Brands to reallocate capital to its crown jewels: KFC and Taco Bell, two brands with solid growth and higher margins.

The right strategic recipe

In essence, divestment appears to be the most strategic lever for growth. Yum could streamline its portfolio, simplify its structure, and strengthen its market capitalization.

Selling Pizza Hut? A purely pragmatic move for Chris Turner. Better to take the pizza out of the oven before it burns.