The Pizza Hut New Zealand chain could be put up for sale if owner Restaurant Brands is unable to turn it around.
Describing Pizza Hut as his company's "Achilles' heel", Restaurant Brands chairman Ted van Arkel today said the board would consider any actions that might end the drain by Pizza Hut on company profits.
That would include its sale if a turnaround was not forthcoming. In the meantime, the company was redoubling its marketing efforts to hold the line in the current economic climate, Mr van Arkel told Restaurant Brands' annual meeting.
He also said Pizza Hut was in a better position than its competitors.
"The pizza market is crowded and price sensitive. Our competitors, all single-brand operators, are also hurting," he said.
"We are increasingly seeing our competitors' pizza franchises on the market, desperately looking for buyers. Several have already gone to the wall."
Pizza Hut, on the other hand, had the backing of Restaurant Brands, which had demonstrated that it could manage brands successfully over the longer term, Mr van Arkel said.
Restaurant Brands, which also has brands KFC and Starbucks Coffee, was in a strong position to weather an economic shakeout and continue to build its brand presence, but many individual operators of single-brand franchises were not.
"With lower levels of disposable income among consumers, all three of our brands remain very competitive and offer good value for money to the increasingly selective consumer dollar," he said.
"We see the economy in the next 12 months as being challenging but not dire."
Restaurant Brands' flatter first quarter for 2008/09 was evidence of the more difficult trading conditions all retailers were facing and second quarter sales to date looked to be slightly behind last year.
"However, we do expect our reliable earners, KFC and Starbucks, to buck the national trend, even if sales do ease."
The next 12 months would be critical for the national pizza market. At any one time as many as 40 rival franchises were up for sale and Restaurant Brands expected that number to rise as the economy slowed, Mr van Arkel said.
In the chicken market, three competitor stores had already closed in the past six months.
Restaurant Brands' total first quarter sales across its three brands, for the 12 weeks to May 19, were $69.8 million, a decrease of 0.9 per cent on the equivalent period last year, although same-store sales were up 0.4 per cent.
Restaurant Brands shares closed yesterday at 85c, and today Mr van Arkel said the company's directors did not consider that price to reflect intrinsic value.
Broker analysts considered the stock worth buying up to around $1.25.
He also advised shareholders that directors were proposing to ask for an increase in their fees at next year's annual meeting, subject to a satisfactory result for the year.
Directors' fees have not been increased since 1998 and no longer rewarded board members adequately for their input, he said.