Northeast Corner

Going Public, Going Big

1968 was an energetic, turbulent time for Americans. The conflict in Vietnam became increasingly contentious back at home. Protesters and police officers clashed at the Democratic National Convention in Chicago. Martin Luther King, Jr. and Robert Kennedy were assassinated. Richard Nixon was elected President. Civil rights, the Women’s Movement, the counterculture, and rock music were shaping a new generation of American youth.

Meanwhile, Pizza Hut prepared to go public. The chain had expanded to more than 300 stores nationwide, but it lacked the capital of public companies like Kentucky Fried Chicken and McDonald’s.

In order to attract Wall Street’s attention, Pizza Hut needed to own many more than the six stores it had in Wichita.

To that end, the Carneys orchestrated what was then the largest Class B merger in history, convincing franchisees to sell a total of 187 existing or under-construction Pizza Hut stores to Pizza Hut Incorporated. (166 stores remained in the hands of franchisees.) Meanwhile, the company developed a management system to handle the massive influx of new stores into the company.

On January 30, 1969, 410,000 shares of Pizza Hut common stock were offered to the public at $16 a share. By the end of the trading day, the value of Pizza Hut stock rocketed to $35 a share. Within a 24 hour period, Wichita was suddenly inundated with a fresh batch of millionaires. Pizza Hut had $5 million in capital with which it could grow its business.

What Would You Do?

If you are running a successful franchise and PepsiCo approached you offering to buy your company, would you accept? What would you want to know before you made that decision?

Image: Dan and Frank Carney, ca. 1977. Courtesy of the Carney Collection, Ablah Library Special Collections.

The End of an Era

For all the good vibes echoing around the Pizza Hut corporate offices in late January 1969, a harsh reality would soon set in.

As Pizza Hut historian Robert Spector points out, “Overnight, Pizza Hut, Inc., had gone from owning and operating ten stores (six in Wichita and four in Las Vegas) to running 129 units in twenty states.”

When the time came for those newly purchased units to report their weekly sales, it became clear there was no system in place to track an individual unit’s financials and relay them back to the larger company. There was little accountability or oversight. Dan Taylor, an accountant hired by Pizza Hut as controller, remembered that Pizza Hut was “spending all this cash and they weren’t keeping track of it…I realized [Pizza Hut] had spent all their money.” Pizza Hut’s stock, which had peaked at $32 a share, was suddenly down to $3.75. The company was in danger of going under. In response, the Carneys instituted strict financial discipline. Instead of massive layoffs or restructuring, the Carneys worked with their employees to keep overhead to a minimum. “We just needed to establish controls,” Frank recalled.

In 1972, with Pizza Hut’s financial standing stabilized, Dan Carney began in earnest the transitional work needed so that he could step aside as CEO of Pizza Hut, Inc. Frank Carney took over as Chief Executive Officer, while Dan took on a more limited role as a board member of the company.

Although no longer CEO, Dan Carney’s lasting influence can be seen in the aggressive growth, innovative products, and people-first philosophy in Pizza Hut today. As franchisee Ken Wagnon said: “Dan brought everything to the table. He was the visionary.”

As Dan stepped aside, Frank Carney brought renewed vision and focus to the CEO position. Under Frank’s leadership, strategic planning led to a new Pizza Hut opening every nineteen hours on average in the early 1970s. Frank sold off underperforming operations such as the Next Door, Flaming Steer, Taco Kid, and Fiesta Cantina restaurants. As McDonald’s expanded into breakfast foods and KFC experimented with spareribs, Pizza Hut focused on its core product, and in 1975 introduced a new thick-crusted pizza to increase the company’s market share in the East, where more traditional pizza crusts were the norm.

Frank Carney’s greatest contribution to Pizza Hut also signaled one of the most significant changes in Pizza Hut’s history. Amidst growing competition from companies like Domino’s and Little Caesars, Pizza Hut began to explore a merger with one of America’s largest and most storied corporations: PepsiCo. On November 7, 1977, Pizza Hut was bought by PepsiCo, and in many ways, the Carney era at Pizza Hut came to a close.

Image: Dan Carney stands outside an early Pizza Hut headquarters. Courtesy of the Carney Collection, Ablah Library Special Collections.

New Partners

Frank Carney stayed on as CEO of Pizza Hut International after the 1977 merger with PepsiCo. For the company’s employees and franchisees, Frank provided consistency and steady leadership during the ownership transition.

From his office in Pizza Hut’s new Wichita headquarters, Frank worked to keep Pizza Hut on the right course for the sake of all involved.

The Frank Carney-PepsiCo era had its fair share of challenges. Profits fell significantly early on, due in part to inflation. In the late 70s the price of food and other goods shot up 10 percent, and labor costs rose 15 percent. In response to these tough times, Pizza Hut raised its prices by 12 percent. The pizza-eating public responded negatively, leading to a loss of market share and negligible growth.

Internal relations were also strained. PepisCo’s marketers were worried that the Pizza Hut brand was dated. Some in the company even recommended abandoning Pizza Hut’s iconic red roof. However, Pizza Hut pushed back, keeping its signature architectural style intact and ultimately providing the beverage giant with valuable insight into the intricacies of the restaurant business.

Frank Carney resigned as the CEO of Pizza Hut in June 1980. For the first time in Pizza Hut’s history, someone other than a Carney would be at the helm of what had become the world’s largest pizza chain.

The early post-Carney era at Pizza Hut was marked by ups and downs. Donald Smith, former CEO of Burger King and senior vice president in PepsiCo’s food services division, was brought in to lead Pizza Hut into the 1980s. Smith clashed with franchisees over contractural agreements and authority over advertising. It took quite a while for Smith and IPHFHA to see eye-to-eye, and there were tense exchanges between Pizza Hut and its franchisees throughout the early 80s.

In an effort to turn around sagging sales and money losses, Pizza Hut began pushing a new product that Frank Carney had initiated several years earlier: Pan Pizza.

The Pan Pizza was all about abundance and choice, including a thicker crust and a variety of toppings. New offerings included the now-famous Meat Lovers, Pepperoni Lovers, Cheese Lovers, and Veggie Lovers pizzas.

As popular as Pizza Hut’s Pan Pizza became, initially franchisees were skeptical. A new type of pizza meant different kinds of dough and a new oven that could handle the pans the pizza cooked in. However, Pan Pizza was a runaway hit, and with the addition of Personal Pan Pizzas, Pizza Hut became a destination for the lunch crowd as well.

What Would You Do?

What questions would you want answers to in order to make decisions about the future direction of your company? Who would you ask, and why would you ask them?

Image: Frank Carney in front of an early Pizza Hut headquarters. Courtesy of the Carney Collection, Ablah Library Special Collections.

Becoming Yum!

Steve Reinemund’s tenure at the helm of the Hut was marked by substantial growth in the delivery sector. After Reinemund moved on to CEO positions at Frito-Lay and eventually, PepsiCo, Allan Huston followed as CEO. Huston ushered in an age of new products and innovation at Pizza Hut. One major innovation was Stuffed Crust Pizza, which featured mozzarella baked inside the crust of medium-sized pizzas. As Pizza Hut historian Robert Spector notes, Pizza Hut became the world’s single largest consumer of mozzarella string cheese, “purchasing almost 50 percent of the 35 million pounds produced in the United States” per year.

The menu wasn’t the only place to experience change. Pizza Hut moved most of their operations – including administration – to Dallas, Texas, where PepsiCo already had a significant presence. Wichita’s Pizza Hut offices subsequently became the PepsiCo Restaurant Support Center, where accounting and other support resources were offered to Pizza Hut and other PepsiCo restaurants.

In 1996, former Pizza Hut marketing guru David Novak was tapped to run Pizza Hut and KFC. Novak injected a new energy into the brand, improving food quality and enticing former customers back to the restaurant with innovative and risky strategies.

Novak also continued to offer new product along with his bold strategies. In the span of five years, Pizza Hut introduced pizza lovers to the Big Foot (1993), Stuffed Crust (1995), TripleDecker (1996), Edge (1997), and Sicilian pizzas (1998), capped by the $80 million dollar launch of the Big New Yorker 16” pizza in 1999.

In 1997, PepsiCo spun off Pizza Hut, KFC, and Taco Bell, creating Tricon Global Restaurants the world’s largest restaurant company.

The addition of Long John Silver’s and A&W in 2002 merited a name change; and so Yum! Brands was born. Based out of Louisville, Kentucky, Yum! eventually sold off Long John Silver’s and A&W and focused on its three flagship brands. Novak pushed the concept of “multibranding,” where two or more Yum! restaurants shared the same storefront.

Images:

LEFT: David Novak celebrates Tricon Global’s first appearance on the New York Stock Exchange, 1997, trading as YUM.

RIGHT: Steve Reinemund’s personal mission card. Reinemund carried this card in his pocket everywhere he went. BOB STRONG/AFP/Getty Images, Courtesy of Steve Reinemund.

Steve Reinemund, Pizza Hut CEO (1985-1992) [VIDEO]

Steve Reinemund joined Pizza Hut in 1984 as a senior vice president of operations. In two years he rose to the position of CEO of Pizza Hut North America, and immediately positioned Pizza Hut to take on Domino's Pizza for a major share of the pizza delivery service market, turning a dine-in behemoth into a nimble home delivery machine. Want to know how he did it? Check out the video above!

Button 1: Steve Reinemund on his successes and failures as Pizza Hut CEO.

Button 2: Steve Reinemund on his relationship with Dan and Frank Carney.

Button 3: Steve Reinemund on why Pizza Hut still matters.