Buying a Franchise

Franchises Handling Change: Pizza Hut vs. McDonald’s

Both Pizza Hut and McDonald’s made big changes in their menus recently. And both have seen falling revenue: Pizza Hut’s 2014 figures were down 5% compared with 2012, and McDonald’s was down 2%.

Pizza Hut decided to go trendy with Flavors of Now, offering gluten-free pizza, Peruvian peppers, and spiral-shaped drizzles of honey Sriracha sauce, among other things.

McDonald’s came up with a Create Your Taste menu requiring an investment of between $120,000 and $160,000 for each franchisee. These premium offerings were an about-face from the low-profit Dollar Menu which many franchisees felt cheapened the brand as well as cutting franchisee revenue.

In both cases, the franchisor came back later and acknowledged that the changes hadn’t been successful. Both promised to streamline the menu, and brought franchisees together to talk.

Pizza Hut gathered franchisees for a “Value Summit,” making sure that everyone was on the same page when it came to plans to turn things around.

McDonald’s held what one franchisee called a “cheerleader camp,” focusing on the restaurant of the future and the excitement of heading forward.

The menu, in both cases, was a central point of concern. Fast food relies on limited options, efficient food preparation, and high volume. But the menu wasn’t the only problem.

Pizza Hut acknowledged that there were other issues besides the menu that needed to be dealt with. For example, franchisees are using nine different point of sale systems, making it hard for corporate to keep up with technological improvements they want to make. Pizza Hut is working to help franchisees make the switch to a single system which will allow the corporate office to make upgrades like ordering apps that benefit all the franchisees.

McDonald’s introduced new, expensive tech changes that require sizable investments at a time when many franchisees feel stretched by falling revenue and the promotions that the central office requires them to make. McDonald’s also raised wages at their corporate stores, putting franchisees under pressure to raise their wages as well, without warning franchisees.

A survey earlier this year found a high level of frustration and a low level of confidence among McDonald’s franchisees. McDonald’s pointed out that the survey included a very small sample of franchisees — fewer than 1%. However, the survey has been conducted for 11 years, and the level of satisfaction is the lowest they have ever seen.

Pizza Hut headed the 2014 American Customer Satisfaction Index with an 82% customer satisfaction level, compared with 71% for McDonald’s. Consumer satisfaction may not translate into franchisee satisfaction,  but we’d expect some similarity.

Both companies have faced some challenges, and we don’t know the whole story for either. However, Pizza Hut’s willingness to acknowledge and work on the problems seems to give franchisees greater confidence than McDonald’s full-speed-ahead approach. Perhaps the strongest evidence for that is that McDonald’s, with its angry franchisees in the headlines day after day, is seeing losses of only 2%, less than half those seen for Pizza Hut, and yet doesn’t have so many angry franchisees and is still on top for consumer satisfaction.


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