The Most Profitable Part of the PizzaBy Joel Litman, chief investment officer, Altimetry
 Frank Carney stood at the corner of Bluff and Kellogg, craving a slice of pizza...
But he couldn't find one anywhere. He had scoured the Wichita State University campus... and came up with nothing. This might seem odd today, but it wasn't unusual in the 1950s. Most Americans were just getting their first taste of pizza. Before World War II, the food was mostly confined to Italian communities, like the Little Italies of New York and Chicago. In fact, many Americans didn't have their initial slice until the war brought them to Italy. Millions of young soldiers fell in love with Neapolitan pizza – the combination of tomato sauce, mozzarella, and oregano atop a thin crust. And once the troops came home, they wanted more pizza... not mom's meatloaf. Pizza became one of the hottest 'new' foods in the U.S...So much so that oregano sales jumped more than 5,000% from 1948 to 1956. Back in Wichita, Kansas, Frank and his older brother Dan saw a big opportunity – an untapped market for pizza enthusiasts. They borrowed $600 from their mother to open a pizza parlor in a tiny, 600-square-foot building east of downtown. There was only room for eight letters on the storefront, though. And the brothers knew they had to put "Pizza" somewhere on it. With the three remaining letters, they spelled out "Hut" to describe the small space. That's how the first Pizza Hut was born... at the corner of Bluff and Kellogg. Now, Frank and Dan didn't approach their pizzeria as a simple mom-and-pop business. They worked to revolutionize the pizza-making business...
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They wrote manuals for everything, including the number of pepperoni slices that go on a large pie, how to greet customers, and how to mop the floors properly. Frank and Dan also came up with the iconic slanted red roofs. The brothers wanted to create an identical experience at every Pizza Hut. And within 20 years, these standards shaped 4,000 Pizza Hut locations worldwide. But Frank and Dan didn't do it all on their own...They let other folks do much of the heavy lifting for them – by allowing them to franchise their own Pizza Hut locations. If the brothers had wanted to own every location themselves, the growth would have taken much longer – and far more cash – to accomplish. They would have had to hire managers for each location... and foot the bill for each store's startup costs. By franchising the Pizza Hut name and blueprint, they were able to grow their empire much faster. Simply put, the business was a resounding success. And Frank and Dan continued to focus on growth. So it was only a matter of time before Pizza Hut caught the eye of another food and beverage giant...In the 1970s, PepsiCo (PEP) was the second-biggest beverage company in the world, behind Coca-Cola (KO). And it was making a big marketing push to close the gap. (You might remember the Pepsi Challenge, where customers completed blind taste tests.) PepsiCo was also easing into the fast-food market... And Pizza Hut seemed like the ideal entry point. The company acquired Pizza Hut for $300 million in 1977. And Frank Carney stayed on as president to aid in the transition. Three years later, he stepped down to pursue his goals in venture capitalism. But like many great founders, it wouldn't be long before Frank replicated his success in a familiar place. In 1994, Frank turned to one of Pizza Hut's fiercest competitors – Papa John's. And he got back to doing what he did best... running pizzerias. Frank became one of the largest Papa John's franchisees in the world, with more than 130 locations. It didn't take long for Frank to get back in the business because franchising makes growth easy...Take hotel giant Marriott (MAR) for example. Between 2009 and 2018, the company more than doubled the number of hotels in its portfolio... from about 3,200 to 6,800. But Marriott wasn't out there building all those hotels itself... It licensed its brand name to franchisees. That let it double in size in a decade without investing much of its own cash. Thanks to that rapid growth, its stock trounced the S&P 500... returning about 450% versus 170% for the index. As we mentioned, good franchises establish the rules that franchisees need for success... then they let each business run on its own. As long as the business stays consistent with the brand's image, this lets franchise businesses grow much faster than corporate-owned chains. The company doesn't need to go through the hiring and local contracting required to launch a new store... That responsibility falls on the franchisee. Occasionally, retailers or restaurant businesses will switch from being corporate-owned to a franchisee model... and that's a sign to investors that growth is set to take off. These are the kinds of transformations to keep an eye out for in investing. Regards, Joel Litman
July 15, 2026
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