Fight to keep Pizza Hut open: How Covid and cost of living crisis are threatening to drive beloved chain out of business – making it latest victim of Britain’s declining High Streets
- Pizza Hut UK must repay £31million of its £73million of debts by April next year
- Debt issues come as people cut back on eating out due to cost-of-living crisis
Pizza Hut faces a debt crisis as people spend less on eating out due to the cost-of-living crisis while it grapples with significant rises in energy and food prices.
Auditors have raised fears over whether the beloved family restaurant can continue trading, while experts claimed similar debt issues are hitting other similar chains.
The US firm’s biggest British franchise, which employs 4,000 workers across 152 outlets, must repay £31million of its £73million of debts by April next year.
Now, it is trying to get revised terms on debt and admitted it could breach its banking covenants later this year in a ‘severe but plausible downside scenario’.
But bosses at Pizza Hut UK – which is the dining franchise and does not include the delivery or takeaway arms – have denied the chain is in trouble and insisted ‘constructive’ refinancing talks are expected to be completed by the end of this year.
It comes amid continuing fears for the future of UK high streets, with the British Retail Consortium revealing last month that 6,000 shops have closed in the last five years and the overall vacancy rate has increased since the start of the year.
Pizza Hut faces a debt crisis as people spend less on eating out due to the cost-of-living crisis
Baywatch star Pamela Anderson once starred in a Pizza Hut commercial campaign in 1996
Caprice and Jonathan Ross share a blind date at Pizza Hut in an advert dating back to 1997
Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown, said Pizza Hut UK outlets had also been affected by their locations in shopping centres or near offices.
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She told MailOnline: ‘Pizza Hut is in a very difficult position. The cost-of-living crisis has heaped a huge amount of pressure on restaurant chains, and especially those who have taken on an onerous amount of debt.
‘Unfortunately, it’s increasingly looking like Pizza Hut is within this camp, and is the latest victim in the cohort of companies that are being stung by higher interest rates, which makes repayments on fat loans a painful reality.
‘Pizza Hut restaurants are also often located in shopping centres or near offices, which are areas that have seen footfall decrease since the pandemic, which when coupled with the fact that consumers have less money in their pocket, creates a potent and difficult situation even tougher.
‘The details surrounding the Pizza Hut developments are relatively thin on the ground, as is something that will certainly be monitored closely by fans of the chain.’
Pizza Hut UK is being charged interest on its debt of up to 14 per cent, and has posted an operating loss for the past two years – including £16.5million last year.
It is continuing to grapple with soaring inflation following the pandemic and Russia’s invasion of Ukraine as it recovers from mass closures during Covid-19.
The company has also been hit by labour shortages, wage inflation and the cost-of-living crisis hitting household budgets.
Gareth Southgate wears a paper bag over his head in a notorious Pizza Hut TV commercial after he missed a penalty against Germany in Euro 96
In its annual accounts – first reported by the Sunday Times – auditors PricewaterhouseCoopers warned that there was ‘material uncertainty which may cast significant doubt about the company’s ability to continue as a going concern’.
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The chain also operates in a crowded marketplace – with restaurant competition from the likes of Pizza Express, Zizzi and Franco Manca, and delivery rivals such as Domino’s and Papa John’s.
Rachel Winter, investment director at Killik & Co, said the concerns over Pizza Hut UK originated in comments from PwC in accounts filed last week about it continuing as a business.
She told BBC Radio 4’s Today programme: ‘They didn’t give a huge amount of detail, but we suspect it’s because of the high amount of debt that the company currently has. And I think a lot of restaurants are in a similar situation.
‘There is a cost-of-living crisis, people are spending less on going out – and that is having a very negative impact on leisure companies including restaurants.
‘Some companies have been trying to get through this by taking on more debt, but they can only do that so long. It’s going to catch up with them eventually, and perhaps we are seeing that now with Pizza Hut.’
Pizza Hut UK reported turnover of £164.4million for the year ending December 4, 2022, which was up from £129.6million in 2021. Its pre-tax loss grew from £9.4million in 2021 to £16.5million.
Mikhail Gorbachev with his granddaughter Anastasia, 10, in a Pizza Hut commercial in 1998
This compared to turnover of £211million and a pre-tax loss of £20.2million in the last full year before the pandemic, ending December 1, 2019.
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Bill Blain, strategist at Shard Capital, told Radio 4: ‘The problem right across the country is for ten years through the QE (quantitative easing) era, everyone thought that interest rates were going to remain low forever, and they operated on that basis, paying big dividends by borrowing more and more.
‘Now, the cost is coming due, so I’m afraid it’s not just going to be Pizza Hut, there’s loads of others in the same position.’
Pizza Hut was founded in the US state of Kansas in 1958 and launched its first UK outlet in 1972 in Islington, North London.
The chain soon became a huge hit with British families who enjoyed its American-style dining experience and all-you-can-eat salad bar.
The UK arm was then sold by its US owner Yum! Brands in 2012 to private equity group Rutland Partners, before a £100million management buyout in 2018.
This was led by Jens Hofma, Pizza Hut UK’s operations chief since 2009, who was backed by Pricoa, a subsidiary of US firm Prudential Financial.
Since 2021, Pizza Hut UK has been officially known as ‘Heart with Smart Group’ (HwS), which operates all of the chain’s UK restaurants.
Former Chelsea footballer and player-managed Ruud Gullit in a Pizza Hut advert in 1998
Mr Hofma, whose official title is chief executive of HwS, pointed out that the chain’s turnover rose 25 per cent in 2022 and claimed the company was now gaining positive momentum.
He told MailOnline: ‘We remain optimistic given the demand for restaurant experience remains strong, energy prices are easing and productivity initiatives and investments are gaining momentum.
‘As of today, we are currently trading well ahead of 2022, with a 16.8 per cent like-for-like growth in restaurant sales in the financial year to date and 12 per cent across the whole business.
‘Our senior debt is maturing to term in April 2024 and we are in constructive discussions with our debt provider, Pricoa, who are also minority shareholders and have been unwavering in their support through-out Covid and ever since.’
A Pizza Hut in Staines-upon-Thames during the Eat Out to Help Out scheme in August 2020
He described these as ‘normal course of business discussions about rescheduling and renewing our debt which we hope to be complete by Christmas’.
Mr Hofma also said the ‘operating result of minus £3million for 2022 is marginal when you consider the impact of Omicrom in the early part of the year, followed by utility bill rises and other cost pressures’.
He added that ‘many operators are facing similar or worse issues with profitability during this period’, continuing: ‘Our current trading results demonstrate we are in strong recovery with fantastic momentum this summer achieving double digit sales growth.’
Pizza Hut UK confirmed HwS also operates five itsu restaurants and is opening further outlets in Liverpool and Glasgow over the next year.
Pizza Hut launched its first UK outlet in 1972 in Islington, North London (pictured above)
The pandemic in 2020 caused mass restaurant closures with the hospitality industry left in chaos.
But in September that year, Pizza Hut UK was pulled from the brink with thousands of jobs saved as its creditors and landlords agreed to a restructuring plan.
Under the deal, known as Company Voluntary Agreement, the chain’s landlords agreed to receive reduced rent for 215 restaurants which remained open, keeping 5,000 jobs safe.
However the company said it would still go ahead with plans to shut 29 underperforming restaurants, putting some 450 jobs at risk.
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