Zippy's chili joining pizza-taco partnership

By Andrew Gomes
Advertiser Staff Writer

In a world of conglomerate companies and multi-branding, it isn't unusual to walk into a Taco Bell and order a Pizza Hut pizza.

Pizza Hut delivery person Jensen Luo balances a barrel of Zippy's chili for delivery. Taco Bell and Pizza Hut restaurants in Hawai'i have started offering Zippy's signature item in a partnership that could boost sales for all participants. Cory Lum • The Honolulu Advertiser

Call it the great chili alliance — between the local Higa family, which owns Zippy's, and TheoDavies Food Service Group, local franchisee of Taco Bell and Pizza Hut restaurants.

It is an unusual relationship between quick-service restaurant competitors, but one increasingly being encouraged by Taco Bell and Pizza Hut franchisor Yum! Brands Inc. of Louisville, Ky.

Industry analysts said this kind of partnership should boost sales for all participants, though there is still a question of whether such deals will work in the long term.

In the chili alliance, TheoDavies buys Zippy's chili wholesale and resells it in Zippy's packaging for a little more than it costs at Zippy's restaurants, anywhere from about 35 cents more for small orders to $2 extra for a 7-pound barrel.

Zippy's gets new distribution channels, with customers able to grab a chili bowl with rice at a Taco Bell drive-thru. Pizza Hut will home deliver the chili/rice bowl and chili in 2-pound or 7-pound containers.

Pizza Hut and Taco Bell get to diversify their limited menus with a very strong locally recognized brand item.

Both Pizza Hut and Taco Bell also are planning to use Zippy's chili as an ingredient for new menu items under development, such as chili nachos, though no recipes have been approved yet.

Local marketing analyst Marty Plotnick, president of Honolulu-based Creative Resources Inc., said that for TheoDavies the arrangement is a variation on the trend of co-branding restaurants to avoid market attrition.

"People get tired going to Pizza Hut, where your choices are pizza or salad," he said. "With minor adjustments they have a new menu addition. I think it's brilliant."

Dennis Milton, a restaurant industry equity analyst for Standard & Poor's in New York, said Yum! Brands has been aggressively pursuing such deals, and has created similar partnerships before.

Yum! Brands, which also owns KFC, incorporated seafood dishes of Long John Silver's and hamburgers, hot dogs and root beer floats from A&W All American Food Restaurants into co-branded KFCs and Taco Bells before buying Long John Silver's and A&W earlier this year.

In California, some Pizza Huts are selling pasta dishes of an unaffiliated pasta company, according to Milton.

"This is something that Yum! Brands has been really pushing," he said. "It allows them to offer more (food selection) without spending a lifetime gaining an expertise on a product."

In Hawai'i, TheoDavies has been converting most of its Pizza Hut and Taco Bell restaurants into dual-stores featuring items from both brands. But it was Zippy's who initially approached TheoDavies about selling chili.

Zippy's first offered its chili earlier this year to Taco Bell and Pizza Hut outlets on the Neighbor Islands, where Zippy's does not operate any restaurants.

Milton said this is another strategy restaurant chains such as Yum! Brands have used to increase sales without opening costly new stores.

"If you increase sales and not pay any more for the real estate, your profit margins are really going to expand," he said.

The customer response to chili at Pizza Hut and Taco Bell restaurants on the Neighbor Islands was so positive that the arrangement last month was expanded to six O'ahu Taco Bells (Kane'ohe, Kapolei, Wai'anae, Ewa Beach, Downtown and Makiki) and four Pizza Huts (Wai'anae, Hale'iwa, Liliha and 'Ewa Beach).

More recently, Zippy's chili has been added to Taco Bell restaurants in Hawai'i Kai, Wahiawa, Moanalua, two phases of Pearlridge Center and Marine Corps Base Hawai'i. In December, Guam Pizza Hut restaurants will begin selling Zippy's chili.

Charlene Kim, Zippy's marketing director, said if the arrangement proves itself, Zippy's chili should be in every TheoDavies Taco Bell and Pizza Hut.

"So far it's been great," she said. "The relationship has been working really well."

Jason Higa, Zippy's president and chief executive officer, said he doesn't believe the partnership will cannibalize chili sales at Zippy's, which sells more than 150,000 pounds of chili a month through its 22 restaurants, supermarkets and fund-raisers.

"Working with Pizza Hut and Taco Bell has only increased our distribution and expanded the availability of our chili," he said.

Plotnick added: "People aren't going to run into a Pizza Hut just to pick up some chili. (Zippy's) is going to get more gallons out into the market."

Likewise, TheoDavies said initial chili sales have not been at the expense of Taco Bell or Pizza Hut food sales.

"Our brands are strong on their own," said Leah Allen, field marketing director for TheoDavies Food Service Group. "We decided to sell Zippy's chili in our stores to give our customers more menu choices."

Reach Andrew Gomes at agomes@honoluluadvertiser.com or 525-8065.