Pizza Hut is to become the latest major UK restaurant chain to test landlords’ appetite for transforming the basis on which it pays rent when it unveils a comprehensive financial restructuring this week.
Sky News has learnt that Pizza Hut Restaurants, which employs more than 5,000 people in Britain, is to propose switching to a turnover rent model, which would see it paying landlords based on revenue levels in each of its 245 outlets.
The proposal would be implemented through a company voluntary arrangement, making Pizza Hut Restaurants the latest in a string of big hospitality names to turn to insolvency mechanisms to reorient their business during the coronavirus pandemic.
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Insiders said the CVA, which is being supervised by the restructuring firm Alvarez & Marsal (A&M), could be launched as soon as Wednesday evening.
Pizza Hut Restaurants is the main franchisee of the Pizza Hut brand in the UK, and is a separate company to the Pizza Hut UK business, which is focused on food delivery from a further 380 sites.
In a statement, a Pizza Hut Restaurants spokesperson said: “Pizza Hut Restaurants, the UK dine-in franchise business of the global Pizza Hut brand, can confirm it is planning a Company Voluntary Agreement (CVA) in order to mitigate the financial impact of COVID-19.
“We are in the final negotiation stages with our creditors and expect an agreement to come to a close in the following days. However, we cannot comment further on the terms of the CVA until it is underway.”
The vast majority of the brand’s UK restaurants have now reopened, seeing a major boost from the government’s Eat Out to Help Out promotion, the taxpayer subsidy for which ended last month.
News of the Pizza Hut Restaurants CVA comes just days after rival PizzaExpress secured creditor approval for a restructuring that will trigger 73 restaurant closures and 1,100 job losses.
Image: Pizza Express is closing dozens of sites
So many casual dining chains have turned to insolvency mechanisms to expedite cheaper rent deals with landlords that those which have not now face a significant financial disadvantage.
However, the attempt to transition to a turnover rent model may not be straightforward.
New Look, the fashion chain, is facing a backlash from some landlords over its efforts to implement such a regime, although that disquiet has been fuelled by the fact that the company has already undertaken a CVA in the last couple of years.
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It was unclear on Wednesday whether any restaurant closures and redundancies would be part of the Pizza Hut Restaurants CVA, or what the implications would be if creditors decline to support it.
Numerous other restaurant operators have turned to administration or CVAs since the advent of the COVID-19 crisis.
The Café Rouge owner Casual Dining Group, Bella Italia’s parent, Azzurri Group, and Carluccio’s have all fallen into administration – with parts of their businesses subsequently rescued by new investors.
Prezzo, Itsu and Wahaca are among those which have called in advisers to examine their financial positions or plan CVAs, while A&M itself has been hired to help Pret a Manger with rent negotiations across its estate.
Pizza Hut Restaurants’ fortunes had improved prior to the coronavirus outbreak, following a long period of under-performance.
The company’s chief executive, Jens Hofma, orchestrated a management buyout in 2018, with backing from Pricoa Capital, a financial investor.
The business trades in the UK under franchise from its US-based owner, Yum Brands.
Despite the success of Eat Out to Help Out, there remain grave concerns about the long-term survival of many chains given the impact of COVID-19 on consumer confidence and continued implementation of social distancing measures.
Wednesday’s announcement by Boris Johnson of new curbs on social gatherings of more than six people are likely to have a significant impact on trade, particularly if they continue through the traditionally busy period before Christmas.