Whether it’s the advert with Gareth Southgate in, the cheeky re-naming to ‘Pasta Hut’, or just piling slices on to a tiny plate during their all-you-can-eat buffets, most UK residents will have a fond memory of Pizza Hut.
The American-founded chain restaurant quickly became a UK high street staple after opening its first site over here in 1973. Despite it being a well-established fixture on these shores, however, they have recently run into difficulties, with more than half of their portfolio immediately being shuttered.
68 restaurants and 11 delivery outlets have been closed with 1,210 jobs lost after DC London Pie Ltd fell into administration. Pizza Hut’s global owner, the US-based Yum! Brands, has purchased the remaining 64 UK restaurants, securing 1,276 jobs in the process.
While the administrators overseeing the transaction have hailed a deal that “provides a stable platform for one of the UK’s best-known dine-in brands”, though, there’s little getting away from the fact that this is disastrous for Pizza Hut.
But what exactly went wrong for them?
Isn’t this just another high street casualty?
Yes and no. If we look at the many big-name brands that have left holes in the UK high street, names like Wilko, C&A, Woolworths, and Dorothy Perkins, we see that they’re all retailers.
These are companies that capitalised on the pre-internet era by expanding rapidly and utilising large premises. Once customers could order the same items online, sales dwindled and their sprawling portfolios of large sites and staff to fill them became albatrosses around their necks.
For restaurants, however, these large premises still make sense, and the internet is a much smaller threat.
However, Pizza Hut could well have found itself victim to a knock-on effect of the other high street closures: reduced footfall. A number of Pizza Huts are situated in town centres, making the decrease in potential customers a problem for them.
Business rate burdens
Despite the hospitality sector not sharing the same issues as retail when it comes to larger premises, the spacious sites needed to accommodate a standard-sized Pizza Hut would certainly pose a problem when it comes to business rates.
The hospitality scene has struggled with this over the last few years. The previous government had even implemented a temporary 75% relief on business rates for the sector in an attempt to placate the industry. This didn’t stop a raft of businesses buckling under financial pressures, however.
The first budget announcement under the new government then, saw hopes for a permanent reduction.
These wishes were granted, and a permanent reduction was introduced, but with one caveat: the reduction had been reduced to 40%.
Many restaurants are unable to move to smaller premises and still be able to accommodate their customers, so this increase simply had to be absorbed.
National Minimum Wage increase
In the same budget, a rise in National Minimum Wage was announced. This was a significant rise from previous minimum wages, especially when it comes to 18-20 year olds. They’re now entitled to £10 per hour instead of the previous £8.60.
The hospitality industry typically employs a large number of young people and these are often on minimum wage. Unlike retailers, which could get by on 2-3 staff members for a shop the same size, a Pizza Hut restaurant would need that number just for waiting tables. The same number would be needed in the kitchen at the same time, effectively doubling the workforce required.
For many restaurants, the wage rises have been a difficult increase to take on, especially combined with business rate hikes and lower footfall. For Pizza Hut, the wage rises alone were said to cost them over £4m.
A localised issue?
Company closure expert and Senior Client Manager at Forbes Burton, Ben Westoby explains that “given that Pizza Hut still appears to be operating fine overseas, it’s worth looking at issues specific to the UK when considering triggers for these closures. This would suggest that increases in business rates and National Minimum Wage could well be to blame.”
The news of these closures has come as a shock for some, as Pizza Hut occupies a spot among fast food stalwarts such as McDonalds, KFC, and Burger King which haven’t had any public struggles yet.
However, it’s perhaps fair to say that Pizza Hut was always more of a restaurant than its fast-food peers, and viewed through this lens, we see far more contemporaries that have struggled. Suddenly, you can put Pizza Hut among chain restaurant names such as Frankie & Bennies, Pizza Express, and Chiquito, which have all had issues recently.
Is your restaurant finding conditions difficult?
The hospitality sector has had it tough.
If you think that your restaurant might find itself struggling in the near future, it’s best to get ahead of the situation as soon as possible and speak to one of our advisers.
At Forbes Burton, we’re able to help with restructuring plans, strategise the best way to exit, or even find a buyer for your business. Our initial phone consultations are entirely free of charge and will give you an idea of the best route to take.
Call today on 0800 975 0380 or email advice@forbesburton.com for a free consultation with one of our expert advisers and find out how we can help business owners navigate an uncertain future.
