Top of the totem pole

It was 1958, when two brothers Frank and Dan Carney from Kansas, USA were approached by a family friend to open a pizza outlet. Seeing the potential in the venture, the then college students agreed and borrowed some $600 from their mother to start a restaurant in their hometown Wichita. This was the beginning of the glorious journey for world’s largest pizza chain, Pizza Hut – and it now holds outlets over 100 countries.

Some 35 years later, Pizza Hut, which had expanded its strong foothold around the globe entered Pakistan in collaboration with local conglomerate MCR under the leadership of seasoned businessman Aqueel Hassan.

Hassan, a graduate of Dhaka University, Karachi University and University of Cambridge has had a diverse career path. From banking to IT to restaurant industry, Hassan joined his family business MCR in 1991 and brought the international pizza giant to Karachi in 1993 as the first ever international brand to step in the local restaurant industry. Since then, Pizza Hut Pakistan has grown manifold and currently operates 74 outlets in 20 cities.

Profit sat down with the man behind Pizza Hut Pakistan’s overwhelming success Aqueel Hassan and Randall Blackford – General Manager Pizza Hut Pakistan, Middle East, Africa and Turkey – joined us in the conversation right before MCR and Yum Brand (Parent Company of Pizza Hut) signed MoU for MCR’s IPO and expansion plans.

Affiliated with Yum Brands for over a decade now, Blackford has worked in various capacities and businesses of the company. Previously, serving as GM of KFC in Pakistan, Africa and Middle East, Blackford grew familiarity with Pizza Hut which now he considers his most favorite business. On his short trip to Karachi,  Blackford – who resides in Dubai – took some time out and together with Hassan reflected upon Pizza Hut Pakistan’s legacy, expansion and the way forward.

Profit: It has been nearly a quarter-century since Pizza Hut’s arrival in Pakistan. Can you please shed some light on the journey?

Aqueel Hassan: Pizza Hut was the first international franchise to open in Pakistan, at Karachi. There was a lot of excitement then, and, it remains as we have remained on the path of continuous growth. In the last 25 years, we have practically gone everywhere in this country and with as many as 74 stores now, Pizza Hut signboard is visible at most places. What we are proud of is that Pizza Hut has now established itself as an important dine-in category.

Q: So, with 74 stores, how many cities are you operating in right now?

AH: We can be found in every major city in Pakistan – right now we are operating in about 34 cities.

Q: In essence, you were the pioneers –  building the pizza market locally – but in recent years there has been a recent growth in pizza outlets. How do you take on that competition and where do you see yourself?

AH: Competition is not a problem at all. What we have long advocated the government is a level playing field. Most of these mushroom pizza companies in Pakistan have a growth on the back of taxation. They do not pay all the taxes that are due on them; the taxation system is trying to get them in their net but it’s taking time. So, if there is a level playing field, we would be happy with the competition.

Q: I understand taxation is a huge matter, but what is your business strategy against the competition?

AH: Well, if my competitor has an advantage of 20-25 per cent owing to taxation, there’s very little I can do except [work] on our standards, innovation, new ideas and new products.

Q: Who would you consider your biggest competitor in Pakistan?

RB: I think Pizza Hut is at the very top, for I don’t think there’s another brand similar in scale or stature that’s won the heart of Pakistani pizza lovers the way Pizza Hut has. So, I think we’re in a unique situation in the pizza category here.

There’s certainly other competition but when you look at big international brands on this scale it really stands alone and I think that speaks very highly of our partners – all the fun memories, birthday parties, weekend celebrations and just making your family happy over a weekday night, it’s really hard-earned. And I think the team here has done a really terrific job over a long period of time.

Q: How are you looking at things in the context of expansion and planned IPO of MCR?

AH: The big picture is, we have agreed with Pizza Hut International that we are going to open many more stores in Pakistan. We want to maintain the leadership position we have as far as international brands here are concerned. And we are going to franchise some of our stores to local businesses who have the passion to do pizza.

Q: Are you planning to take Pizza Hut to more cities?

AH: We would certainly go to more cities, more communities, and other areas where there is business opportunity.

Q: With MCR going public, what is your plan for the next five years or so?

AH: IPO is something which is not planned for the next 12 months. We will obviously gauge the market and decide if it makes sense for our company to go public. Once the company goes public, it will open opportunities for MCR to expand itself further. We have just signed an agreement [with Pizza Hut international] which will give us the right to do so.

Q: What is Yum Brands?

AH: Yum Brands is our franchise partner, they are the brand owners and they support us wherever they can. And as far as MCR is concerned, MCR is a Pakistani entity, it will continue to operate in Pakistan and it will take the Pizza Hut brand to new heights.

What happens with the IPO is that it gives us presence in the stock market, it improves our compliance standards, and the Pakistani investor may also get an opportunity to be a part of an international brand like Pizza Hut.

RB: This for us is a very unusual business relation which is a master franchise agreement. It allows MCR to recruit their own franchisees.

At this stage, I look after about 25 countries in the Middle East and Africa, and also Turkey and Pakistan and this is the only such agreement; it’s really a special agreement because it’s based on a huge amount of mutual trust built up over 25 years with a partner who has done a great job with the brand and now has capability, ambition and stature to recruit their own franchisees and we find it incredibly exciting.

Q: What are you looking forward to from this deal?

RB: I am looking forward to lots more Pizza Huts. A favorite part of my job is when I go into stores and I see customers celebrating something; there’s really nothing that makes me happier than when I see a group of friends or family celebrating a birthday or even just taking their kids out after school. I find that really nice and to know that this is going to happen many times over, in many more cities and locations; it’s important to us.

Q: How big the Team Pizza Hut Pakistan is right now?

AH: Our team is over 3,500 and as we open more stores our team continues to expand of course. One thing Pizza Hut Pakistan is very proud of is the employment we create in local communities; and training that we give to our team members is exceptional, indeed world class.

Q: Have you shut down any stores in last 5 years due to enhanced competition?

AH: We have never shut down any store, we have had relocation within the zone; for instance, if the lease runs out then obviously we have to look for new lease.

Q: What is your market share locally?

AH: In the pizza category, we would have some 50 per cent market share.

Q: Are you the market leader in dine-in category?

AH: I think we are the market leader in dine-in category nationwide [in comparison to] any brand, any company and any food.

Q: What’s your sales mix? How much of it is delivery, dine-in and take away etc.?

AH: There are two ways to break it; one is transactions and the other is sales. Half of our sales value comes from dine-in and the other 50 per cent comes from delivery. In terms of transactions, they are more or less the same 32-33 per cent in each category.

Q: If I ask you to give me an analysis of the last five years of Pizza Hut against the first few years of your opening in Pakistan, how would you describe the progress and growth?

AH: Obviously we have faced some [obstacles] over the last few years because of so much competition not only from local brands but also international brands. I am happy to report that we have grown every year in the last 5-10 years. We are happy to take competition and we think that Pizza Hut has a great future and our partners think the same. We will continue to work in the fast food business and provide pizza to local communities.

Q: Mr. Blackford this one is for you, how different is the market from the time you started with MCR and how it is now?

RB: I think every market evolves and it would be difficult for me to speak on the broader market of Pakistan because it’s such a big place but I think our business has evolved significantly in the last decade here.

I think there has been a big expansion in many more cities in the last decade as well as the existing cities having a lot more penetration. As Aqueel directly pointed out that diners have always been a strength of ours but in the last decade delivery has become a very meaningful part of the business as well. I think there has also been quite an expansion of innovation within the brand and I am delighted at how the business has evolved.

Q: We have in recent years seen a tremendous shift in buying patterns of middle-income groups and now they have become a strong segment that dines out, indulges in fast food business. Is that an advantage? Where do you see the trend going?

RB: I would agree, I think for us it’s also a great opportunity for more stores and that’s what this agreement is about to continue to grow the business and to allow more Pakistani families to do the business and become a part of the Pizza Hut journey.

Q: Do you think people’s buying power over the period of time has changed and in a way it has benefited the restaurant industry?

AH: In fact, today data has come out that per capita income of Pakistan has gone up. We see that there is going to be more mobility, people will be moving from low income to high-income group. There’s going to be more professional opportunity in Pakistan which will bring out more business for companies like us.

Q: What has been Pizza Hut’s growth rate over the years?

AH: Our growth rate has been variable but it has been in double digits for many, many years.

Q: What is your USP, what makes you stand out amongst the competition?

RB: We have some fantastic products. I was here for an extended stay a few weeks back and seeing how many people love the chicken tikka pizza, especially in pan, it’s heartwarming. We have had some really good innovations, especially around stuff crust and different varieties, triple treat box, cheesy bites and whole range of pretty interesting rice-based products; our wings are terrific.  So, I think it’s just a really good array of products.

But I think the heart of it is executing it well in the restaurant. You know people are giving their hard-earned money and they want to have a great experience for their friends and family. If you have really good food and then if you build a restaurant that is really welcoming that people really want to be a part of, that’s really where the magic happens. So while the food is an important part, but equally important is having teams that are excited and love what they do.

Q: Do you think that your team is your strength?

RB: Oh, big time. Recently I really enjoyed visiting Pizza Hut outlets; just feeling the energy was fantastic. From the guys making the pizza, to the guys selling it in the front, to the people tidying up the stores and delivering pizzas you could really feel the energy in the store is really heartwarming for me and so I thoroughly enjoyed.

Q: What is the foremost challenge for Pizza Hut in Pakistan?

AH: Improving our standards and [obtaining] level playing field.

Q: Mr Blackford what would you consider the foremost challenge for Yum Brands, since you’re operating quite a few restaurants here in Pakistan?

RB: The challenge that we face [while] building out a brand like this, is continued restaurant excellence, especially when we have this kind of bold expansion plans. Having partners like MCR, we feel just terrific about expanding together.

Q: It is a common notion that Pizza Hut is slightly expensive than its competitors; how do you respond to that?

AH: Only about a few weeks ago through a focus group we tested some concepts and also as to exactly where we are. From those focused groups what we found was not so much that we were expensive, but that consumers wanted a few extras when they go to Pizza Hut and we are going to work on that to dispel this impression that we are an expensive place to go to.

RB: There’s lot of work in progress… We have talked to so many customers to get their view. And rather than going stage by stage, I think it’s better that we just launch a great campaign. Bring your family and friends and I think you’ll see some amazing stuff in the coming months.

Q: Moving forward, what’s your business and marketing strategy?

AH: The marketing strategy: get closer to the customer, which we are working on. As Randall has said, in the next few weeks you’ll see the results. We are at the R&D stage at the moment. As far as business strategy is concerned, it’s really improving the corporate nature and corporate governance of the company over the coming months and years.

Q: What’s the timeline of expansion plan?

AH: Every quarter you’ll see that new stores are coming on line.

RB: I’d say that the expansion plans is happening [right now]. MCR has built dozens of Pizza Huts in Pakistan last year which I would not hesitate to guess would be bigger than many entire restaurant chains within the country. So, for that to be built in a single year the journey is happening right now.

Q: What is it in the Pakistani market that interests Yum Brands and Pizza Hut to expand further?

RB: I think the reputation that the brand has earned over the last 25 years. It would be very difficult to think of this kind of bold expansion plan unless we thought there was a really strong core business and that kind of core business at least in the restaurant category is earned over a long period of time.

Q: Mr. Hassan, what is in the Pakistani market that has given you the confidence to expand further?

AH: It’s the sheer demand. Wherever I go, I find people asking that why Pizza Hut is not in that city, or that community. Pakistan has a very large under 25 population and they are our natural customers. We think that whereas Pizza Hut is very popular in families, growing among younger population is also a focus.

Q: Which city is generating the highest share of your revenue?

AH: Karachi, but there are other cities which are coming up; Lahore, Hyderabad, Islamabad and Rawalpindi these are all rapidly urbanizing. In Karachi, we have the largest number of stores, largest number of customers and we do very well here.

Q: Some specific questions for Yum Brands now: Is there any plan to bring Taco Bell or other restaurants from your umbrella to Pakistan?

RB: Taco Bell is our third brand, we do have a few smaller brands within the China business but Taco Bell is really our third brand. It’s been wildly successful in the US and it has been introduced in a few other countries. However, it hasn’t become as big a global brand as either the Pizza Hut or KFC. Pizza Hut launched its hundredth country just last year and I think now we’re somewhere around 104-105 countries and it’s growing every day.

I’m sure that at some stage it’s going to become a global brand as well but for now, we are focussing on our aggressive plans for Pizza Hut.

Q: Like Pizza Hut built the market for Pizza, Yum Brands built a market for the fast food itself. How do you see yourself now since there’s so much competition in the category, where do you stand?

RB: Well, we welcome competition, it makes us stronger and keep us on our toes but it also means there’s much more demand for the category. Competitors wouldn’t be joining a category if they didn’t see the same kind of growth we do. So, I think it’s entirely natural that other businesses would want to participate in that.

Q: What’s Yum Brands strategy going forward, in Pakistan particularly?

RB: Actually I can’t speak to KFC, of course, but our strategy is to continue to grow our brand with the trusted partner. We’ve joined hands and worked really hard to begin to understand the consumer little bit better so that we can have even more compelling programs for them and then we’re all going to continue to work to deliver the same high-quality standards that have earned us nearly 75 stores in the country already.   

Q: Although the IPO is planned in next 24 months, what sorts of capital are you looking forward to raising?

AH: It’s going to be a modest offering and we will see what the response is. What it does to a company like MCR is that opens up the company to more regulation, better governance standards which are essential for the survival of any company.