Pizza Hut Deal May Slice Off Piece of Domino’s Market

In a move that could bring pizza wars to Southern California, Pizza Hut said Friday that it has agreed to buy a major part of the Winchell’s Donut Houses in the region to go head-to-head with Domino’s Pizza.

If the deal is completed, it would pit the nation’s two largest pizza chains in a battle in the fast-growing home delivery market in the lucrative Southern California region.

Pizza Hut spokesman James Schwartz said the deal, for an undisclosed price and number of stores, is expected to close by the end of the year. Winchell’s operates nearly half of its 638 stores in Southern California.

Schwartz said Pizza Hut plans to convert the Winchell’s into delivery and take-out locations, which are about 2,000 to 3,000 square feet and offer no seating.

“I think it’s good strategy on Winchell’s part,” said Janet Lowder, a restaurant analyst with the accounting firm Laventhol & Horwath in Los Angeles. “It will really help establish Pizza Hut as a competitor to Domino’s in the delivery business.”

Lowder said Domino’s--which only offers home delivery and uses slogans such as “Nobody delivers better”--has been able to dominate the market niche by establishing a clear idea of what it offers.

“There is usually a lot of confusion in people’s minds in a lot of areas as to whether a pizza restaurant delivers, except for Domino’s,” Lowder said.

Schwartz said the purchase is part of a plan by Pizza Hut, a Pepsico Inc. unit, to increase its presence in the home delivery market. It began operating delivery kitchens in 1986 and currently, about 1,400 of its 6,240 stores offer that service, but only 60 of those are in California.

Pizza Hut, of Wichita, Kan., plans to double the number of its locations by 1994, Schwartz said. The chain has annual sales of about $3 billion.

The move comes at a time when “off-premise” sales in the $15-billion-a-year pizza business have been booming, said David Jenkins of the restaurant industry consulting firm NPD Crest Research of Park Ridge, Ill. Pizza restaurant sales have been increasing at 11% a year, compared to 2% a year in other categories, Jenkins said.

Domino’s, of Ann Arbor, Mich., has been one of the major success stories in the restaurant business during the past decade, growing from 287 stores in 1979 to nearly 5,200 stores currently. It operates about 475 stores in Southern California, spokeswoman Moira McDermott said.

The privately held chain, headed by Detroit Tigers owner Tom Monaghan, plans to double its size by the end of the century, McDermott said. In 1988, Domino’s said it earned $6.1 million on sales of $2.3 billion.

Officers of Winchell’s, the nation’s second-largest doughnut chain after Dunkin’ Donuts, were not immediately available for comment on the Pizza Hut deal.

In November, Canada’s Shato Holdings Ltd. completed its $40-million acquisition of the troubled Winchell’s chain, which had been hit hard by competition and lost nearly $20 million over the past two years.