[Congressional Record Volume 140, Number 102 (Friday, July 29, 1994)]
[Extensions of Remarks]
[Page E]
From the Congressional Record Online through the Government Printing Office [www.gpo.gov]


[Congressional Record: July 29, 1994]
From the Congressional Record Online via GPO Access [wais.access.gpo.gov]

 
  STATEMENT OF ALLAN HUSTON, PRESIDENT AND CHIEF EXECUTIVE OFFICER OF 
  PIZZA HUT, BEFORE THE SENATE COMMITTEE ON LABOR AND HUMAN RESOURCES

                                 ______


                           HON. DAN GLICKMAN

                               of kansas

                    in the house of representatives

                         Friday, July 29, 1994

  Mr. GLICKMAN. Mr. Speaker, in the last few weeks there has been a 
great deal of talk about the benefits policies of Pizza Hut, a company 
headquartered in my district. Mr. Allan Huston, president and CEO of 
Pizza Hut, recently testified before the Senate Committee on Labor and 
Human Resources to explain his company's policies. I am including his 
statement in the Record so that my House colleagues can read for 
themselves Pizza Hut's explanation of their policies.

 Statement of Allan S. Huston, President and Chief Executive Officer, 
                            Pizza Hut, Inc.

       My name is Allan Huston and I have the privilege of serving 
     as Pizza Hut's President and Chief Executive Officer. Pizza 
     Hut was born in Wichita, Kansas in 1958 and we continue to be 
     headquartered in our home town. I appreciate the opportunity 
     to appear before the Committee on Labor and Human Resources 
     and I sincerely hope we're all here to productively discuss 
     health care reform in general and mandates in particular.
       Today, there are 10,000 Pizza Huts in 87 countries. Total 
     employment in the Pizza Hut system exceeds 235,000 workers. 
     In the United States, the Pizza Hut system employs 195,000 
     people, 95% of which work part time. In the last five years, 
     we have opened 1,700 new restaurants and created 41,000 new 
     jobs in this country.
       Pizza Hut has the nation's largest employment program for 
     people with disabilities, which is called Jobs Plus. Through 
     this program we employ over 3,000 people. Through these 
     efforts we have been privileged with the receipt of scores of 
     employer of the year awards.
       We also operate the nation's largest reading incentive 
     program, which is called BOOK IT. Children are given free 
     pizza for reading books. The Kids love it and 18 million of 
     them have enrolled. Our efforts in this area has also lead to 
     numerous awards including the President's 1986 Private Sector 
     Initiative Award and the 1989 Family Circle Leaders of 
     Readers Award.
       Both our corporate offices and our franchises participate 
     in community-based educational and recreational programs all 
     over this country, from Little League baseball to police 
     department basketball programs for gang members. Through our 
     Harvest program we feed the needy and help feed those who are 
     victims of national disasters such as Hurricane Andrew.
       We have built our business on the fun of sharing a piping 
     hot pizza with friends and family. It came as a shock to all 
     of us that overnight we were somehow transformed from a pizza 
     baker to a target in a national political debate.
       Seemingly out of nowhere, a group called the Health Care 
     Reform Project launched a campaign against us including 
     derogatory television ads and plans to disrupt our business.
       Accusations have been made about Pizza Hut that have 
     created an overcharged, adversarial atmosphere that is not 
     only unfamiliar to us, but in the end, more importantly, 
     extinguishes any meaningful dialogue.
       Words like duplicity'' and hypocrisy'' have been tossed at 
     Pizza Hut. As I said, our home is Kansas and, in Kansas at 
     least, those are strong words.
       I appreciate the time to set the record straight about 
     Pizza Hut's health plans and our view of mandates, employer 
     and employee. Pizza Hut was the first major restaurant 
     company to make health care available to all our employees, 
     salaried and part-time. A majority of our employees are part-
     time workers, many of whom are young people who recently 
     joined the work force.
       They typically work for us for a limited time with a 
     specific goal in mind, such as funding education, a new car 
     and the like. Our health care programs are tailored to meet 
     the unique needs of our work force. In fact, before putting 
     into place our health plan for part-time workers, we polled 
     them to find out about the kind of health care they wanted 
     and needed.
       Under the plan we put in place for our part-time workers, 
     they pay the cost of their health insurance for the first six 
     month of their employment, after which we contribute to the 
     plan to supplement their benefits. The average weekly cost 
     for a single employee to participate is approximately $11.
       Health care is not the only benefit we provide our part-
     time employees. For instance, we also provide a student loan 
     service, child care discounts, a discount shopping network, a 
     retirement plan and paid vacations. Finally, if they stay 
     with us for one year and work 1,500 hours per year, they 
     participate in a stock option program, and that, is unique in 
     all American industry.
       The recent debate has become confusing to all of us. I even 
     have heard that Pizza Hut opposes health care reform. That's 
     untrue. We support reforms that will enhance competition, 
     such as voluntary purchasing alliances, and other reforms 
     that will contain costs such as tort reform and the 
     abolishment of unnecessary paper work. I also believe 
     Congress needs to address the issues of portability and 
     exemptions of preexisting conditions. From a businessman's 
     perspective, it makes sense to address these fundamental 
     changes to enhance the world's best health care system 
     without risking unintended consequences of more radical 
     changes.
       I think mandates--employer and employee--are the wrong 
     solution for America. My opinion is based on experience--I 
     have seen the effect of mandates on Pizza Hut's business in 
     international markets. My view is anchored on actual 
     experience in a number of foreign markets. From what I have 
     seen of mandates in Europe and elsewhere they contribute to 
     the descending economic spiral of higher prices and 
     unemployment.
       Of course, mandated health care is not solely responsible 
     for higher prices and increased unemployment, but it is most 
     certainly a contributing factor. Although I have real 
     questions about the efficiency of the mandate-driven health 
     care systems such as in Japan and Germany, I will leave that 
     discussion to others.
       In markets with burdensome social costs, Pizza Hut has been 
     unable to develop the kind of business that generates the new 
     jobs and opportunities we have enjoyed in the United States. 
     Despite the burdensome costs of Germany and Japan, have we 
     been successful? Contrary to some of the misleading 
     information published by the Health Care Reform Project 
     during the last week, the answer is no. Our operation in 
     Germany, with only 65 restaurants, despite increased 
     revenues, has been unprofitable in 10 of the last 11 years.
       Our franchisee in Japan has yet to make a return on 
     investment, even though Pizza Huts in Japan average over $1 
     million each year in sales. Our experience is that the high 
     cost of mandates contributes to higher prices, lower profits, 
     unemployment and eventually stifles investment.
       Germany is an excellent example of stifled investment. With 
     85 million Germans, we still, after 11 years, only operate 65 
     restaurants. If we were as penetrated in Germany at the same 
     level as the United States, we would have about 2,500 
     restaurants. With records like this overseas, why would we 
     believe mandates will succeed in the United States?
       Let's look how mandates might effect Pizza Hut in the 
     United States. Some people say we can simply raise prices to 
     cover the increased cost of mandated health care. 
     Unfortunately, experience demonstrates, it's not that easy.
       In a recent article on the effect of mandates, the authors 
     pointed out that purchased meals have a high elasticity of 
     demand, which means that for each percentage point increase 
     in price, consumers will decrease their purchase of meals 
     away from home by 2.3%. A price increase of 5% would result 
     in 11.5% decrease in consumer traffic in our restaurants.
       Let's take a look at an actual example of Pizza Hut 
     elasticity:
       Less traffic means less sales and declining sales 
     inevitably lead to fewer jobs.
       A similar myth is that we can somehow magically absorb the 
     cost increase. Some people claim that the 1991 minimum wage 
     increase had no effect on our business--untrue. In fact, it 
     led to a staffing decrease equivalent to the loss of 16,500 
     jobs.
       With increased costs due to mandates we would be left with 
     a Hobson's choice: Either raise prices, which will lead to a 
     fall-off in sales and eventually lost jobs, or eliminate jobs 
     at the start. Poor choices, indeed.
       At Pizza Hut, as well as any business, cost structures are 
     a linchpin of success. Nothing is more certain to destroy a 
     viable business than run-away cost escalations. The cost of 
     President Clinton's plan worries me. Predicted and actual 
     costs sometimes don't match up. For instance, Medicare in 
     1966 was predicted to cost $12 billion by 1990. The actual 
     cost was $107 billion.
       With the viability of our health system at risk, I am 
     concerned the cost of mandates, like the cost of Medicare, 
     has been underestimated.
       In closing, I am proud that Pizza Hut in the last five 
     years has developed 1,700 new restaurants and created 41,000 
     new jobs in the United States. Frankly, until last Friday, I 
     thought we were simply an excellent corporate citizen, 
     serving our community not only with the world's favorite 
     pizza, but with a variety of civic-minded programs I 
     referenced earlier. Perhaps most surprising to us was the 
     fact we were subjected to attack about health care, by a 
     group we do not know in an area where we have been an 
     industry leader.
       We have been unfairly singled out for criticism for one 
     reason--and for one reason alone: We disagree with certain 
     pressure groups on the mandate issue. It's time we all turn 
     our attention to the issues. As Senator Kassebaum so aptly 
     put it, it is time to seek solutions rather than villains.
       Thank you for listening.

    SINGLE MINIMUM WAGE INCREASED, PIZZA HUT HAS REDUCED 16,500 JOBS    
------------------------------------------------------------------------
                                         1990        1994      Decrease 
------------------------------------------------------------------------
Crew hours per week.................         482         426          56
Equivalent jobs.....................        28.3        25.0         3.3
Units...............................       5,000       5,000       5,000
                                     -----------------------------------
      Total crewmembers.............     141,500     125,000      16,500
------------------------------------------------------------------------

                                                              

                          ____________________