Pizza Hut faces cuts in the UK after latest rescue

The British wing of Pizza Hut has been sold out of administration for the second time in a year, with a new deal with Yum! Brands securing the company’s future. However, a stringent restructuring programme is now expected, with almost half of Pizza Hut’s UK workforce expected to face redundancy.

After years of financial troubles, Pizza Hut’s UK entity looked to have turned a corner in 2018. Consistent sales growth had seen EBITDA rise by more than £17 million, and a management buyout was agreed, backed by funding from the Pricoa Capital Group, the international private capital investment wing of PGIM. The new ownership structure also obtained a franchise agreement in place with Yum! Brands – the global owner of Pizza Hut.

The group seemed to be in good shape, but that optimism did not last. When the pandemic struck two years later, Pizza Hut’s chain model was exposed to significant financial strain, and did not recover. This triggered a succession of insolvencies.

The latest of these has seen DC London Pie, the firm running Pizza Hut’s restaurants in the UK, place the company into administration – less than a year after it had purchased the restaurants from insolvency. FTI Consulting was appointed to oversee proceedings.

Working quickly to secure a pre-pack deal, FTI’s professionals sold Pizza Hut’s UK operations back to its global parent group – the American hospitality giant Yum! Brands – in a rescue deal that will save 64 sites and secure the future of 1,276 workers, across 64 sites.

A spokesperson for Pizza Hut UK confirmed, "Approximately 2,259 team members will transfer to the new Yum! equity business under UK TUPE legislation, including above-restaurant leaders and support teams."

However, a significant restructuring programme still lies ahead. Pizza Hut is reportedly set to close 68 restaurants and 11 delivery sites with the loss of more than 1,200 jobs, to shore up its financial footing.

Commenting on the situation, Nick O’Reilly, restructuring director at MHA, said, “Pizza Hut’s second stab at rescue highlights the significant challenges faced by retail and leisure dining businesses with larger real estate portfolios. Many of these portfolios were established before the Covid-19 pandemic, at a time when store count was a primary driver of growth and before the rise of delivery platforms such as Just Eat and Deliveroo. As a result, Pizza Hut was left with a portfolio which was just too big.”

O’Reilly, who is the former president of restructuring representative body R3, added, “Although the first rescue in January retained all staff and properties, it has taken less than a year for the owners to realise that the outlays are too high and that they must shed the loss-making stores to concentrate on the profitable sites. Unfortunately, Pizza Hut will not be the last company to undergo this painful recalibration of their real estate portfolio under evolving market conditions.”