Pizza Hut Peter Hearl, President April 26, 2005
Pizza Hut Is an Iconic Global Brand - Built On 47 Years of Success - Domestic units 9,000 8,000 7,000 1969 - Red Roof concept unveiled 1980 - Pan Pizza introduced, becomes flagship product 1995 - Stuffed Crust changes way we eat pizza 2004-4forAll sets all-time sales record 6,000 5,000 4,000 3,000 2,000 1,000 1958 - Carney s open 1st Pizza Hut 1971 - Become world s largest pizza restaurant chain # 1 1977 - Acquired by Pepsico 1986 - Launch delivery 1999 - Big New Yorker boosts sales 20% 0 Energized leadership team excited about building on legacy 2
Leader of $37 Billion Domestic Pizza Category Pizza Hut leads in market share...... and in points of distribution 16% 2004 Year-end U.S. Points of Distribution* Pizza Hut 8,285 65% Local/ Regional 10% Domino s 5,008 Papa John s 2,000 5% Little Caesar s** 2,800 Frozen: 1% 3% A true global brand with nearly 13,000 points of distribution worldwide *Includes Express units **Estimated 1. Source YE 2004 10K 2. Per QSR 8/04 magazine as of YE 2003 Source: The NPD Group, Inc.; NPD Foodworld; Crest 3
Key Facts on Pizza Hut USA 2004 5-year CAGR Company Sales Franchise Sales $1.6B $3.6B -5% +5% PSA # of Traditional Units Company Franchise $794M 3% 6,306 1,741 4,565 # of Franchisees 145 100+ units 8 60-99 units 11 30-59 units 22 15-29 units 21 <15 units 84 4
Sales Growth Has Been Positive 18 Periods Straight! 10% 4-for-All Buffalo Chicken 8% 6% 4% 2% Dippin Strips 4-for-All Sicilian 0% -2% P1 P2 P3 P4 P5 P6 P7 P8 P9 P10 P11 P12 P13-4% -6% 2005 2004 2003 5
... Driving an Increase in Our Market Share Other Regionals 100% 90% 80% 70% 60% 3.1% 3.1% 2.9% 5.5% 5.2% 5.1% 9.6% 9.7% 9.6% 9.7% 9.9% 9.9% 15.6% 15.3% 15.5% YE Dec 04 Pt. Chg. Pizza Hut +0.2 Domino s NC Papa John s (0.1) Little Caesar s (0.2) 50% Regionals (0.1) 40% Mom & Pop s +0.2 30% 20% 10% 56.4% 56.8% 57.0% 0% YE Dec ' 02 YE Dec '03 YE Dec '04 * Source: The NPD Group, Inc.; NPD Foodworld; Crest 6
We Have Clear Strengths & Challenges Strengths Global iconic brand Category leadership Clear, focused strategy Challenges Category growth Commodity inputs Old asset base 7
Three Key Strategies to Grow Our Business Pizza Hut Imperatives Our Strategies Win Home Meal Replacement War Run Great Restaurants as One System - Build a Customer Maniacal Sales Force Full Pipeline of Product/Value News Reposition and Differentiate the Brand - Toward Family Pizza Eating Occasions Revitalize Our Dine-in Business Rebuild and Grow Our Asset Base - Via Asset Upgrades (and Multibranding) 8
Operational Measures Continue to Improve 80 % Company Units With BYA Sales 55 % Perfect Champs (System) 69% 50% 50 49% 60 45% 46% 45 45% 40 2002 2003 2004 40 2002 2003 2004 120 110 100 Company Team Member Turnover % 111% 100% 98% 90 80 70 60 2002 2003 2004 9
We Have Repositioned, Differentiated the Brand Toward Families Families account for 70% of all HMR occasions... Family 55% Both 15% Friends 13% Alone 12% Coworkers 5% Moms decide dinner 85% of time Source: MarketPulse (Annual 2002) 10
Our Brand Positioning Is Paying Off Best For For Sharing With Family Kids Favorite Enjoy When Getting Together Bringing People Together 35 03 04 35 35 03 04 35 45 03 45 04 35 03 0 35 4 30 30 30 30 40 40 30 30 35 35 25 25 25 25 30 30 25 25 20 20 20 20 25 25 20 20 20 20 15 15 15 15 15 15 15 15 10 10 10 10 10 10 10 10 Source: MarketPulse Brand Imagery Ratings 11
... And Our Product Pipeline Has Never Been More Full 2004: 10 Tests / 13 Markets 7 New Products + 3 Special Tests** 2003: 8 Tests / 12 Markets 6 New Products + 2 Positioning Tests* 2002: 3 Tests / 3 Markets 3 New Products Examples: Stuffed Crust Gold Cinnaparts Examples: Buffalo Chicken 4forALL Bagged Salad Examples: Dippin Strips Full House Pepperoni Trio 13 Tests Planned for 2005! 12
We Have Two Key Challenges on the Asset Front Challenge #1: Upgrade Our Dine-In Assets 13
We Have Two Key Challenges On the Asset Front Challenge #2: Build More Delivery Assets 14
... And Two New, Exciting Concept Layers... To Facilitate Rebuilding and Growing Our Assets! As of P13 04 As of P13 04 Life To Date 48 Points of Distribution 327 15
Italian Bistro Is Service, Product, Atmosphere The Pizza Hut Casual Dining Way! DIGM Service Sautéed Pastas, Bistro Pizzas And Toasted Sandwiches Entrée Salads, Wine, And Appetizers New Interior And Exterior Designs 16
WingStreet Is The Largest Dedicated Wing Brand in the U.S.A.* * Based on number of locations 17
... With More Growth and Development Planned for the Future More Restaurants 300+ New Menu Items More Marketing (including TV support) 18
In Summary... Pizza Hut is the recognized industry leader We have a clear brand strategy to drive future growth We have exciting, proven new concept layers The Pizza Hut system will spend about $1.5B Rebuilding the Brand 19
Pizza Hut Harmit Singh Chief Financial Officer April 26, 2005
Our Franchisees Have Experience and Scale 72% of Stores Owned by Franchisees Average Franchisee has 31 stores Average Franchisee Tenure 70 Companyowned 1,740 Franchiseeowned 4560 60 50 40 30 20 16 years 10 0 <5 5-9 10-49 50-99 >100 21
Franchisees Have Committed to Rebuild the Brand in Two Ways Upgrade Dine-In Assets Build More Delivery Assets 88% of qualified assets require major asset action : Rebuild/Relocate Remodel Pizza Hut to notify territory franchisees of unserviced delivery areas Franchisees required to develop within 5 years Remainder require re-image Major asset actions to be completed by 1/1/13 22
Franchisees Are Living Up to Their End Reimage Major Asset Actions Year Required Completed Required Completed 2 12/31/04 35% 24% 5% 30% 3 12/31/05 50% TBD 15% TBD 4 12/31/06 65% 25% 5 12/31/07 80% 35% 6 12/31/08 100% 45% 7 12/31/09 55% 8 12/31/10 70% 9 12/31/11 85% 10 12/31/12 100% Note: Surplus Major Asset Actions will count toward reimage requirement 23
PH s Franchisees Will Spend Over $1.5B in the Next 9 Years FZ Assets 3,000 Cost per Total cost 2,500 Re-image lite $25M $11MM 2,000 Re-image $100M $76MM 1,500 1,000 Major asset action $600M* $956MM 500 Asset upgrades ~$1,000MM 0 New units ~$500MM Scheduled asset actions Total investment ~$1,500MM *Assumes 1/3 replacements/rebuilds at $1MM, 2/3 remodels at $.4MM ** Net of forecasted closures 24
We Are Continually Striving to Improve Returns on Asset Actions Improve Improve Reduce Drive Sales + Hit Investment + + Access to = Higher Returns Rates Capital 25
Focusing on Variety of Initiatives to Drive Sales Franchise Actions Maintain 12 18 month rolling tested marketing calendar Convert/build FZ Italian Bistros 120 in 2005, more going forward Desired Result +3% SSS growth annually $2,500+ incremental weekly sales Convert/build WingStreet units 25 in 2005, more going forward $1,500+ incremental weekly sales 26
Testing RBD-Lite and Delco-Lite to Lower Investment Cost RBD Lite Delco Lite Cost reduction $165,000 (vs. RBD) $96,000 (vs. delco) Status: 2 in test with franchisees 5 more planned for 2005 1 company unit in test 4 more planned in 2005 27
Several Initiatives in Place to Improve Hit Rates Improving Site Selection Sharing Best Practices Market planning 21 FZ territories Buxton tool offered to all FZees Measuring returns Gathered investment data on ~120/180 asset actions in 2004 Calculating returns on period basis Researching, sharing learnings on period basis beginning P4, 2005 28
Franchisees Are Supported by a Deep Team of Dedicated Resources Franchisee Ward Whitworth Head Coach West Franchise Restaurant Readiness FDDs Legal Marketing Finance HR / Training CHAMPS Omar Janjua Head Coach East Franchise Kendrick trative tant Customer Support Team Tom McCord Julie Schultz Wayne Walker Matt Moss Anita Vander Veer Doug Scott Kathleen Kendrick Administrative Assistant Jim Sill FBC Denny Hasiak FBC Bob Gibson FBC Tom Clements FBC Dave Bewley FBC Marla McKibben Jodi Rosen Tanya Williams 9 - FDDs Jessica Bowles Katrina McGuigan Janet Omar Bob Nygren Carlos Maldonado Leo Valdez Sr. Franchise HRL/Trng. Ldr. Diana Styles Franchise HRL/Trng. Ldr. Tracey Weaver Franchise HRL/Trng. Ldr. Jan Litzburg Franchise HRL/Trng. Ldr. Frank Lamont Rick Collinwood Emil Hoffarth Jim Toth FBC Bob Bray FBC Tom Plieman FBC Mark Jaworski FBC Jim Schreifels FBC Ed Jacob FBC Judy Carson FBC 29
Franchise Finance Team Is Committed to Helping Our Franchisees Grow CFO (Harmit Singh) Director, Franchise Finance (Matt Moss 972-338-8305) Capability building Best practice sharing Info management Finance College Pacesetter 1-on-1 financial reviews Margin playbook Asset action returns WingStreet, Italian Bistro results Sales data Store, ownership data Lender relationships Ad-hoc analysis 30
In Summary... Our franchisees have experience, success and scale They are committed to investing in the brand Pizza Hut is committed to maximizing the return of those investments 31
2JR Pizza Enterprises Pizza Hut Franchisee Rodney Lee, CFO Louisville, Kentucky April 26, 2005
2JR Pizza Enterprises, LLC Jeff Reetz, franchisee 25 locations purchased from PHI in February 2000 Louisville Metro and Southern Indiana locations High sales volume, delivery driven - Eleven $1 million + restaurants Operate very much like corporate stores in all aspects due to our backgrounds 5 remodels done to date, 2 more planned for 2005 33
Opened Three WingStreet Locations Since 2004 Glenmary Delco Okolona RBD Bashford Manor RBD September 2004 November 2004 March 2005 $1,300/wk incremental wing sales $1,200/wk incremental wing sales $1,600/wk incremental wing sales 34
Overall Impact Has Been Positive Consistent incremental sales layer at about $1,500 per week Margin impacts modest Food cost up about 1 pp overall Labor is at our normal variable flow rate Investment is between $45 million and $75 million Soon to add nonbreaded wing products, which will help keep our nonbreaded customer Plans for 2 more locations 2005 or early 2006 during remodels 35
Lenders Can Help if They Understand the Opportunity Funding of remodels and the WingStreet sales layer currently limited to internal funds Existing senior lenders may have healthier borrowers if they can fund a portion of the WingStreet implementation Possible benefit to those in your portfolio today who need sales breakthroughs Solid IRR and quantifiable improvements Sales layer Royalty reductions in connection with remodeling 36