Why Pizza Hut is still totally screwed

[00:00:00]Back in the 1980s, Pizza Hut was the largest pizza provider on the planet with 7,000 restaurants. Today, it's the problem child that nobody wants, declining sales, closing stores, and the whole brand was just sold to private equity for basically the price of parts.

[00:00:15]How does Pizza Hut, the king of American pizza, basically end up in a fire sale?

[00:00:20]This video is the rise and fall of Pizza Hut and why this purchase by private equity means it's still totally screwed.

[00:00:27]Oh, and by the way, thanks to Outschool for sponsoring this video. More on them later.

[00:00:32]And if you're like, "Hey Michael, didn't you already do a Pizza Hut video? This seems very familiar." The answer is, "Yeah, I did." There's just been new developments, and so I'm doing it again.

[00:00:41]Here you go. The story of Pizza Hut actually starts back in 1958 in Wichita, Kansas. Two brothers borrow 600 bucks to open a little pizza restaurant. Back then, pizza wasn't what it is today. It was still exotic. It was considered foreign food. And the two brothers had heard from a friend that it was the new hot thing, so they decided to jump in.

[00:01:00]The origin of the name Pizza Hut is fascinating. The sign for the building they rented only had room for a few letters, so they only had three letters after the word pizza available to them.

[00:01:10]And the building looked kind of like a hut, so that's what they ended up with.

[00:01:13]Here's something interesting. The laws around franchising back then were a bit more the wild, wild west. And they started franchising new franchisees almost immediately. When you franchise early in a brand's kind of existence, you end up locking people into things that potentially are well, make them inflexible if the market changes in the future. And that type of idea for Pizza Hut would come back to haunt them. But it was perfect timing. The suburbs were coming, car culture, and people wanted nothing more than something felt like exotic food at the time, pizza. Over the coming decade, the chain would boom, and by 1969, it was large enough that it went public on the New York Stock Exchange. And it's important to recognize about Pizza Hut, it was perfectly optimized for that era of the United States, car culture, suburbia, urban decay. Basically, the little hut with the red building that became part of American life, well, became an icon.

[00:02:01]Remember also this time, most Americans had never left the country. The internet wasn't a thing, we only had a handful of TV channels. The idea of what real Italy was like, well, you might have seen some photos in Time magazine. So, it's a perfect combo of Italian recipes and ideas, basically catering to the American taste with big cheesy layers of cheese and fat and salt and sugar.

[00:02:23]Perfect. And they wrote all that by the 1970s to have over a thousand Pizza Hut locations. In 1977, this is the era of conglomeration when big corporations felt like they just needed to get scale and get bigger. And so, in that moment, PepsiCo, who wanted to use Pizza Hut to sell more Pepsi, bought the chain. This would be the last time in its history that Pizza Hut would actually be owned and run by anybody who actually liked pizza. While Domino's continued to be run by people who are pizza aficionados, the people who are running Pepsi at the time, they were spreadsheet jockeys and financial engineers. They just saw a Pizza Hut as a way to sell more Pepsi. When you make little choices like this and put the wrong people in charge, those things can be okay for a few years. The problem is, you make little mistakes and little changes each individual year, and those mistakes compound over time. And that's what we'll see in the story. In the meantime, it was still a perfect opportunity for Pizza Hut. They brought out innovation after innovation. The personal pan pizza came out in 1983. A lot of people remember the pizza buffets that they had. And my favorite, that salad bar, which at one point I read was the biggest consumer of kale in the world because they put it all around the salad bar stuff. Good times. In 1984, they pioneered something that's pretty commonplace now, the Book-It program.

[00:03:37]Basically, if kids agreed to read books and signed up for the program, they would get a free pizza. And millions of kids signed up. And so, if you look today, a lot of people who are my age in their 50s, we have huge, amazing, nostalgic memories of Pizza Hut. A lot of it was because of this precise thing.

[00:03:53]We read a book, got a pizza, and went there with our parents. It was magical.

[00:03:57]What would happen over the coming years was fascinating. They had created an amazing relationship and an emotional connection with entire generation of consumers. And you'll see in this story, they'd squander it all. Before getting into that, I want to talk about today's video sponsor, Outskill. A lot of people are using Claude today, but they're only scratching the surface. For most people, it's still a chatbot for writing or answering questions. The reality is Claude can do much more than that.

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[00:05:04]If you've been using Claude, but you feel like you're only using a fraction of what it's capable of, this is a good place to start. You can register for free using the link in the description, scan the QR code on screen, and join the WhatsApp community before registration closes. If you look back on the pictures of Pizza Hut in the '80s and '90s, they weren't just selling pizza. They were selling an occasion. Felt something a little foreign. You go with your parents. They have like a Tiffany style lamp. And my favorite also, those red cups that they would just fill with soda after sugary soda. Good times. One thing about human nature is we often look for a thing called the third place. And the idea that uh basically psychologists who put together is that there's a first place where you're at home, the second place is you go to work, and the third place is well, some place like Pizza Hut. You see these places in small towns, the neighborhood coffee shop and cafe where seemingly everybody goes every single Saturday morning. Well, in many communities Pizza Hut became that place, but on a Friday night. Everybody in your brand new suburban neighborhood was driving their 1985 Chevy Suburban uh to the local Pizza Hut. Became as much a part of your community as your workplace, your church, or your neighborhood community center. Here you can see what's happened so far. Pizza Hut is owning Friday night. They're owning an entire generation of kids just as strongly as Saturday morning cartoons are, and they're setting themselves up, well, to squander it all. Perhaps the peak of Pizza Hut would happen in the next couple years. In 1995, they did invent something called the stuffed crust pizza, which by the way happens to be the most American of American food. Just like, "Hey, there's not enough fat in this thing, so let's take more cheese and we'll insert it in the bread." While that was its peak moment of kind of food and innovation relevance, 1998 seemed to be the moment in which the brand of Pizza Hut peaked as well. That was the year they paid a million dollars for former Soviet premier Mikhail Gorbachev, who had brought down the the you know, the wall between the West and the East uh in the 1980s, came forward as a spokesperson for Pizza Hut in a Super Bowl commercial. In 1997, we saw an era in which big corporations like Pepsico got out of the conglomerate idea. They realized you just didn't get much advantage by owning soda business and a snack business and pizza business and KFC and Taco Bell. Like, you think there's synergy in the boardroom, but in practice each one of those businesses is incredibly different. And the problem with conglomerates like that is you can't have a business serving multiple masters. In a perfect world, you want somebody like Pizza Hut making sure they win the pizza game, but in reality Pepsico, well, it's just going to be interested in selling more Pepsi. That's not going to create a great chain at all. In 1997, Pepsi spun off these food brands that they had KFC Taco Bell and Pizza Hut into a new company called Tricon Brands. In 2002, it would get renamed to Yum Brands with an exclamation point on the end. If you look at Walmart, Chick-fil-A, any of the great companies that have sustained for decades, they do one thing incredibly well and there's somebody at the top whose job is to make sure that keeps happening. But it was different in Yum Brands. Suddenly you got a portfolio that is quote unquote diversified. In 2001, the next thing to happen to the brand was delivering pizza to the International Space Station via a Russian rocket at the time. This was perhaps one of the greatest marketing stunts of the era and also one that was going to signal the peak of the brand's relevance. As the 2000s came along, the managers at Pizza Hut and the executives started to see that the world was changing. The baby boomer parents and their kids, well those kids were starting to become adult millennials and Gen X. And those folks didn't have as much time for basically sitting down for long restaurant visits at a Pizza Hut and they sure as heck didn't want to eat an entire plateful of melted cheese. At the same time, Domino's was growing and becoming incredibly threatening. It was a better match for the era in which people were chronically busy, parents were expected to be superheroes and doing everything all the time including going to every single one of little Johnny and Jane's soccer practice. And the logic seemed right for Pizza Hut which was, "Hey, we're going to get rid of the dine-in option and just go head-to-head with where the world's going, with Domino's." Well, in doing delivery basically. There was a problem with this pivot for Pizza Hut. Remember, these are big dine-in style places with salad bars and big red roofs. A typical Domino's was operating out of a tiny leased space with no places for customers to sit. Domino's might be paying 10, 20, or 30% the amount of rent that Pizza Hut was paying. And all that maintenance and insurance and everything else, their cost structure was just inherently lower because they were totally optimized for one thing, delivery. You could have seen this from the beginning that eventually Pizza Hut would become, you know, pivoting towards this entire delivery model, but just be terrible at it because, well, they weren't set up to succeed. This pattern happens a lot on this channel. Things that look great on paper in the boardroom suddenly look like what they are, terrible ideas when you bring them out to the market. That's precisely what started to happen to Pizza Hut in the early 2000s. If you watch the contrast between the two companies, Domino's would publicly come out in 2009 and admit they were struggling because their pizza tasted like cardboard. They came out and faced facts. They redid their entire pizza recipe, improved their supply chain, and repositioned the entire company as a technology-focused pizza delivery company. Pretty cool. In an interesting anecdote of financial history, Domino's stock went from $3 to over $500 over the next decade. It would outperform stock market darlings like Apple, Google, and others during that period of time. You think you could have made money on software, technology, or the internet? Nah, you should have put your money into pizza. Admittedly, Domino's is actually a technology company when you look at it. They just happen to sell pizza. Just like McDonald's is a real estate company that just happens to sell burgers. They did magical stuff with their mobile apps and web stuff. Like go today and buy a Domino's pizza, it's kind of magical when you watch and see them uh basically tell you each step digitally of what's happening to your pizza before it comes to your door. Domino's was building their system and their product to be better. Pizza Hut just counted on having a good brand. As the 2010s went on for Pizza Hut, basically they stopped being the best at dining in pizza and they ended up being kind of second, third, or even 10th place at being a pizza delivery business. The strategic position in the 2010s was what strategic economist Michael Porter would call "stuck in the middle". You're second or third place at everything and not the best at any one thing. They weren't the cheapest, Little Caesars was that. They didn't have the best ingredients in theory, Papa John's was that. They didn't have the best systems, Domino's had that. So, what did Pizza Hut have?

[00:11:30]Well, unfortunately, before I tell you the answer to that, something else that had happened in their history, remember that franchising decision back in 1959 that proved to be pretty inflexible? It was about to prove to be really inflexible because that meant that Pizza Hut couldn't come after Little Caesars or Domino's without cannibalizing their own franchisees. Remember delivery and this low-cost model? It would require different footprints, but that's not what these franchisees had bought. And if those franchisees have taken out personal loans in some cases to buy the land and the building underneath their site, going to be super interested in changing stuff wholesale uh in order to support the strategy that is coming from corporate. You started to see this on the small scale, but also on the long tail. July 1st, 2020, the largest franchisee of Pizza Hut declared bankruptcy. They were NPC International.

[00:12:15]They had 1,200 stores and nearly a billion dollars in debt. One thing if a little mom-and-pop operator goes bankrupt, they make mistakes all the time, but here was somebody at scale, professional, knowing what they were doing, and they couldn't make it work.

[00:12:28]As the 2020s came on, Pizza Hut's stores would basically show single same-store declines year after year. Fundamentally, they weren't positioned at all for what the market wanted from pizza. 2025, they showed a disastrous decline in revenue of over 6%. Fewer stores and weaker sales means it's going from The chain went from 3.6 billion to 3.4 billion in annual sales. Post-COVID era, they're dependent upon something very important, and that's the cost of milk. Remember cheese is the Basically, it's number one input is milk. But while that affected everybody, including Domino's and Little Caesars, something else was hitting Pizza Hut.

[00:13:05]That thing was fewer kids. The United States hit a all-time low of 1.6 birth rates per woman in the United States. To put that in perspective, we need 2.1 to keep the population stable. Pizza Hut was a brand where dining in with kids was the way things happened. And not only were there fewer kids, there was also a change, as I talked about before, in how parenting worked. People just didn't have time to go do a 90-minute dinner at a well, low-end restaurant like Pizza Hut. And believe it or not, 43% of visitors in store to Pizza Hut are families with kids. That suburban third place idea that Pizza Hut used to be, part of that is going away because something simple. There's just fewer kids. And then even in neighborhoods like mine that were built in the '70s, I look around, there's not many kids.

[00:13:51]There's a bunch of gray-haired folks who've been living there for 40 years.

[00:13:54]Not that many bicycles and all that kind of stuff. For Pizza Hut by this time in 2025, it's part of a conglomeration of brands. And the last thing they want is an anchor like Pizza Hut in the portfolio. Yum announces what is called a strategic review. And strategic review is the idea that we are basically hiring investment bankers to go and market this portfolio of the business uh part of the business and figure out what we're going to do with it. And ultimately, well, they would decide what to do with it.

[00:14:18]Oh, and before I tell you what they decided, today's hat sponsor is actually our conference and event business called Compound Conference. Each year, me and a bunch of other business owners, people working on a bunch of different stuff, uh get involved in a cool conference out in Utah in Sundance, perhaps the most beautiful place on the planet. If you're interested in checking it out, check out compoundconference.com.

[00:14:39]Fast forward to just a couple months ago in early 2026 or mid-2026, Yum Brands announced the sale of Pizza Hut to uh those of you who are fans of the channel will recognize Is the Problem, a private equity fund. Yum China actually takes the China business, which is actually doing pretty well for Pizza Hut. Believe it or not, I have some crazy stories about pizza in China based on my business there, but that's another video. Uh but the private equity fund buys the entire rest of the world's operations of Pizza Hut. Important to note what had happened here. Well, in China, Pizza Hut is still seen as kind of a luxury thing and a cool foreign experiment when you're tired of eating kind of regular Chinese food, uh and it's succeeding because of that. Pizza Hut in the United States kind of forgot what it was, and at the same time watched the market kind of go in entirely different direction. The private equity firm is actually called Long Range and I promised to tell you why I think Pizza Hut is totally screwed. Well, their entire business plan is actually based on nostalgia amongst people like me. And look, it's real. You heard me emotionally talk about the Book It program, the times I went to Pizza Hut as a kid, those buffets, the kale, the Tiffany lamps.

[00:15:44]It's for real. There are some fundamental problems with the strategy.

[00:15:46]One is tastes have changed. You know what I am? Lactose intolerant. You know what I don't eat a lot of? Pizza.

[00:15:53]There's lots of people like me who just don't eat that kind of food anymore.

[00:15:56]It's just not the life I want to be living. I want to eat vegetables, lean meat, and try to live a long time. But there's a second problem with private equity getting involved in this whole thing, which is the fundamental reason that private equity sucks at owning restaurants, at least from a customer's perspective, is they have defined hold periods. Private equity raises money that they deploy over three, five, or seven years and there's an idea of selling that business and making a lot of money doing it. Well, the way to make the most money possible is by stripping that company and making it as profitable as you possibly can. Well, that's a problem. If you look at all the great restaurants around the world that you and I love, they do the opposite of private equity. In-N-Out Burger, the early days of Panera, Chick-fil-A, those are all owned by private owners who are thinking in decades, not in a three or five year time period. A big part of the Long Range plan also is this nostalgia of the buildings themselves. But here's the deal. You've seen me go back to that nostalgia place without ever stepping foot or giving a dollar to Pizza Hut. I get that kind of nostalgia just driving by the old restaurants, even if now it's turned into a taco place, which is what's happened around me. But perhaps the biggest damn of this whole plan is nostalgia is not a subscription business. You go back once and you're good and you never need to come back again. That's not a way to build a business. Throw on top of this the fact that the cost structure for Pizza is not what it once was. We're not subsidizing cheese the way we used to. It's not Not cheap meal like it used to be back in the day. But perhaps the biggest problem is people aren't having kids. Remember that birth rate? Well, even if this whole plan worked and the incentives were right, there aren't any kids for families to take to Pizza Hut. The sad part is Long Ranger's probably paying a price low enough that they'll be able to strip mine Pizza Hut, do some financial engineering with real estate and that kind of stuff, and still make a profit.

[00:17:38]The reality is, this guy, if I'm still making these rise and fall videos 5 years from now, you're going to be making one at that point called "Why does everybody hate Pizza Hut?" And I'll tell you why.

[00:17:48]All the things I just told you.

[00:17:49]There are nostalgia plays that can totally work, and they do. Other things like Polaroid, Nintendo, heck I've even seen some Kodak stuff lately that totally works. The reality, it's almost incredibly difficult to pull it off with restaurants. Because even if nostalgia gets you in the door, the reality is they don't have a product you want, you aren't coming back. With Pizza Hut, you can see where all this is going because, well, on this channel we spend a lot of time looking at patterns. Whether it's patterns of companies, people, or countries in general, or even organizations. What happened in the past with other folks in a similar situation will tell you a lot about what's going to happen next. That idea applies both at a large scale of Pizza Hut, but also a small scale. If you're trying to hire somebody who's going to be great at your company, you're trying to predict what they're going to do in the future. The best way to do that is to look at what their track record is, and what patterns they've had in their life before. That's why when I interview people, I spend a lot of time talking about their history and their story and how they think about all that now, and very little time and listen to them promise me what they're going to do when they come work at my company. All right, that's my second take on Pizza Hut. It's exciting to see it continue to create a lot of drama for this channel, so at least there's that.

[00:18:55]If you're going to go back to Pizza Hut, enjoy the nostalgia. Let me know in the comments below. Otherwise, tell me I did a good job on this video. It'll encourage me to make more.