Pizza Hut Abruptly Closes Numerous Locations

Pizza Hut has unexpectedly shuttered multiple locations across the Midwest. The closures stem from an escalating legal dispute between the pizza giant and one of its major franchisees, EYM Group, which operates 142 Pizza Hut restaurants across several states.

The conflict came to a head when 15 Pizza Hut establishments in Northwest Indiana suddenly ceased operations. Locations in Hammond, Munster, Griffith, and Schererville, among others, were found closed during regular business hours. Customers were surprised to see door signs that read “location closed” or apologized for the inconvenience, reports NWI Times.

This sudden action affects not only the closed locations but potentially puts over 120 additional Pizza Hut outlets at risk. The dispute centers around allegations that EYM Group defaulted on substantial payments owed to Pizza Hut, failing to meet a June deadline, according to the outlet.

Pizza Hut, headquartered in Plano, Texas, addressed the situation, saying it hoped the closures would be temporary. A company spokesperson stated, “While some local franchisee-operated restaurants have temporarily closed, Pizza Hut remains committed to providing outstanding service and products to our valued customers. The company is working to transition these locations and expects many of them will reopen soon.” However, the pizza chain cautioned that not all affected locations might resume operations.

The root of this conflict traces back to March 2023, when EYM Group initiated legal action against Pizza Hut, claiming breach of contract. The franchisee’s lawsuit paints a picture of a once-thriving partnership soured by what they perceive as Pizza Hut’s failure to adapt to modern market demands.

EYM Group didn’t mince words in its legal filing, stating, “Pizza Hut has failed to keep up with modern times. Pizza Hut failed to adapt to modern business practices. Pizza Hut didn’t observe carefully enough how people had begun to live. Pizza Hut failed to keep up with new technology. Pizza Hut failed to heavily invest in digital and delivery.”

The franchisee further criticized Pizza Hut’s menu innovation, or lack thereof, asserting, “In recent years, the best Pizza Hut has managed to do is change the cheese in its Stuffed Crust from mozzarella to cheddar, or trot out an occasional, ill-fated appetizer like the Stuffed Cheez-It or the Philly steak melt!”

Pizza Hut countered with its own lawsuit in June, accusing EYM Group of financial discrepancies and failure to meet contractual obligations. According to court records, the franchisee initially defaulted on $3 million owed in late 2022, followed by another $2.6 million in 2023, reports NWI Times.

The legal battle has exposed the challenges facing the pizza industry. EYM Group pointed to factors such as inflation, rising labor costs, and intense competition from rivals like Domino’s and Little Caesars as contributors to their financial struggles.

This dispute is not occurring in isolation. The pizza industry has faced significant upheaval in recent years, with Pizza Hut’s largest U.S. franchisee, NPC International, filing for bankruptcy in 2020 after accumulating $1 billion in debt.

The current situation has left hundreds of employees in limbo. Social media posts from affected workers indicate that many were dismissed without warning and instructed to file for unemployment benefits.

As the legal proceedings unfold, both parties are at odds over the valuation and potential sale of the franchised locations. Pizza Hut reportedly asked EYM Group to sell its 15 Indiana locations for $1.5 million, or $100,000 per store. EYM Group contends this offer severely undervalues the restaurants, noting in their lawsuit that they originally paid $8.56 million for these locations, which collectively employ over 200 workers, according to the outlet.

The franchisee has accused Pizza Hut of employing “strong-arm tactics” and sabotaging their efforts to sell the restaurants at a fair price. “Pizza Hut is saying, if you don’t sign our draconian paperwork today, then we will make sure the bank calls your loans on Tuesday,” EYM Group stated in their lawsuit.

This conflict occurs against a backdrop of declining sales for Pizza Hut. Yum Brands, the pizza chain’s parent company, reported a 7% decrease in same-store sales in its most recent quarter. In the U.S. market specifically, Pizza Hut experienced a 6% drop in same-store sales, a stark contrast to the 7% growth observed during the same period last year, reported the New York Post.