Yum Brands Pizza Hut loses one of its main demographic components

According to GlobalData Retail, Pizza Hut lacks a key demographic: students, who buy rather competition.

Yum Brands Inc. Parent Company

YUM, + 4.58%

Taco Bell (+ 5%) and KFC (+ 3%) same store sales increased in the third quarter. But Pizza Hut recorded a 1% drop in same-store sales.

According to Neil Saunders of GlobalData Retail, the brand is "playing the third role" with young customers, especially students, who are opting for Domino's Pizza Inc.

DPZ, + 0.66%

and "troubled" Papa John's International Inc.

PZZA, + 2.16%

"This is one of the reasons why the channel is so focused on digital initiatives, to better connect to this cohort, which continues to generate the bulk of growth of the market, "wrote Saunders. "In our opinion, it will probably be disappointed, mainly because the success of other channels is not limited to digital: it concerns the perception of the brand, its physical location and its price. Of the three, Pizza Hut is still a bit short.

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Yum executives acknowledged the brand's weaknesses when it called the company's results on Wednesday morning, saying the company had focused on value in the third quarter with pizza promotions, but that she had to do more to attract customers.

"This value and operational improvements have made the brand more relevant and easier," said Greg Creed, chief executive of Yum Brands, on the call, according to a FactSet transcript. "However, the messaging has not been distinctive enough to attract new customers, which is a key goal for the future."

Yum executives say the Pizza Hut chain is being challenged by the US dinner party, which is slowing sales in comparable stores and overshadowing the health of takeaway and delivery business.

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"You are all aware of this unfavorable wind in the United States, where restaurant sales represent less than 10% of the total," said David Gibbs, Yum's chief financial officer. But international meals account for 50%, he said.

"[I]n our opinion [dine-in] internationally, "said Kalinowski Equity Research in a note.

As for Taco Bell, Kalinowski pointed out that with a 5% growth in same-store sales, he added to the short list of restaurants that reached this level in the third quarter. The other three are: Dine Brands Global Inc.,

DIN, + 3.39%

Apple Pizza, the pizza competitor Domino's and Darden Restaurants Inc.

DRI -1.32%

Garden of olive trees.

Nevertheless, said Creed in areas such as food quality, digital and pricing, Pizza Hut has a good foundation. Now, they just need customers.

"I think the current customer base is very satisfied with the fundamental improvements to the brand," said Creed. "This is an opportunity for us to attract new customers by communicating and better communicating this exciting new proposal from Pizza Hut US."

According to a report by Moody, Pizza Hut and Yum Brands are not only facing competition from other restaurants, but also the rising cost of labor. And even with operational improvements like Pizza Hut, sales may not follow immediately.

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Restaurants will benefit from a higher average fare, but traffic will be stable or negative because consumers will limit restaurant meals due to the cost of renting, college and prescription drugs.

"Delivery contributes to business trends, but it will take time before it becomes a significant contributor to results," Moody analysts wrote. "Traffic will remain one of the biggest challenges as the number of sites offering food supply continues to grow in an already crowded sector."

Casual restaurants "will continue to suffer the worst," with companies competing for a share of the market. Fast service like McDonald's Corp.

MCD -0.90%

and Wendy's Co.

MAGNIFYING GLASS, -0.12%

will do better, but "non-traditional" food suppliers like convenience stores and businesses such as Starbucks Corp.

SBUX, + 0.09%

and Dunkin 'Brands Inc.

DNKN, + 0.13%

who are more focused on food, are a threat.

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"In addition, supermarkets have always been considered a cheaper alternative than restaurants, which helps them to get ahead," the report says. Although the gap between indoor and outdoor meals has been reduced, "in almost all cases", eating at home is the least expensive option.

Yum Brands shares rose 3.9% on Wednesday and rose 10% since the beginning of the year. The S & P 500 index

SPX, + 1.50%

is up 1.6% in 2018.