Pizza Hut will have to appeal to people's wallets as well as their appetites, Yum! Brands Inc.'s chairman said, if it wants to reverse a recent sales slump.

The Dallas-based pizza maker got too involved in marketing new products, David Novak told analysts yesterday. That allowed archrival Domino's a clear field for its value-priced, multipizza promotions.



"While Domino's was launching $5 pizzas and now their $7 Spectacular Sevens, and there was a lot of discounting, we were focused too single-mindedly on the product innovations," Novak said.

Domino's reported a 4 percent increase in sales at established stores last year. Pizza Hut's sales were flat, and the company ended the year with negative comparisons in six of the past seven months.

Domino's introduced its $5 promotion -- three or more medium, one-item pizzas for $5 each -- at the end of 2004 and ran it throughout last year. Last month it began offering three mediums with unlimited toppings for $7 each.

"The five-five-five deal really caught people's attention" and "had great appeal because it provided people with choice," said Tim McIntyre, a Domino's spokesman.

Last month Pizza Hut dipped into value pricing with a Pick Your Pair promotion featuring two medium pizzas with a choice of any two toppings and crust for $7 each. It didn't do so well, and Pizza Hut sales dropped 4 percent.

Novak blamed the marketing, which included a year of free pizzas to the first families to have twins in several major cities -- so mom and dad could enjoy their new "pair" and stay out of the kitchen.

"The advertising campaign was very confusing. We really didn't articulate what the deal was," he said. "It was cute, but it didn't communicate as well as it should have."

But Novak said the pair promotion and similar deals could supplement Pizza Hut's new products, such as its Cheesy Bites pizza with bite-sized, cheese-stuffed crust puffs around the edge.

"We're working on how you improve your value (image) and defend your economics in the category," Novak said. "That's always a balancing act."

The economics distinguishes value pricing from outright discounting, McIntyre said. Offering multiple pizzas at a lower price can be profitable because it keeps check averages higher and offers a chance to "up-sell" drinks and extras.

The food-price equation can be tricky, he said, but the extra labor is minimal, overhead is the same, and it doesn't cost any more to deliver three pizzas to an address than one.
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