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Yum! Brands

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Yum! Brands owns three of the world's best known fast food franchises: KFC, Pizza Hut and Taco Bell. None of the three individually matches the global power of the McDonald's brand, but Yum's combined force gives it an impressive system of over 45,000 restaurants in 135 countries. This makes it the #1 restaurant chain worldwide by outlets, although McDonald's outperforms it by sales. The company's stellar international growth currently offsets weak performance in the US. Its most important market by far is now China, where it is the dominant restaurant group with more than 8,000 outlets, mostly KFC, but also two local brands, Little Sheep and East Dawning. Local operations in China were spun off in 2016 into what is now an entirely separate entity, Yum China, which continues to license the main group's three main brands. Two smaller US-based chain brands, A&W and Long John Silver's, were sold to their franchisees in 2011.

Advertising

Who handles Yum's advertising? Click here for agency account assignments for Yum! Brands. Yum declared declared direct advertising expenses of $245m in 2017. However, a large proportion of the group's marketing is paid for by franchisees through advertising cooperatives.

Competitors

See Restaurants Sector index for competitive companies

Brands & Activities

Yum's three brands continue to expand their presence across the globe, with Asia in general and China in particular a special focus for attention. Explosive growth in that region has made up for lacklustre performance elsewhere, especially in the US, where Pizza Hut and KFC are overshadowed by sister brand Taco Bell. To aid customer migration from one brand to another, the group is also intent on developing recognition of the parent brand Yum as well.

Yum Brands is the #1 restaurant group worldwide by outlets, with 45,084 restaurants in its global system at the end of 2017, the vast majority of which are run by franchisees and licensees. The group has steadily refranchised its company-owned outlets with the aim of reducing that estate to only around 2% of the total estate by the end of 2018.

KFC

Yum's biggest brand by total revenues is KFC, serving fried chicken pieces, sandwiches and wraps featuring a famously secret blend of 11 herbs and spices, as well as side dishes and salads. By the end of 2019, there were a total of 24,104 KFC outlets in over 125 countries (including India and China). The Asia Pacific region is a particularly strong market, with KFCs in every country in the area. Combined systemwide sales rose 6% in 2019 to $27.9bn.

The absolute key to this region is of course China, where KFC is unquestionably the biggest imported fast-food brand. KFC was the first Western fast-feeder to enter China in 1987, and remains the country's biggest restaurant brand by far, with almost three times as many outlets as McDonald's, and a presence in every Chinese province. However, it suffered negative publicity at the end of 2012 after it was revealed that some of the company's local poultry suppliers were injecting their flocks with excessive levels of antibiotics. That, followed by a recurrence of avian flu fears, resulted in a worryingly consistent decline in sales for much of 2013. It took almost a year for sales to recover there, before yet another food scare erupted in summer 2014. With no apparent end to these recurring challenges, the group announced plans to spin off the entire Chinese division as a separate franchisee by the end of 2016. However at the same time, performance in that business appears to have recovered. In 2019, China accounted for 27% of KFC's systemwide sales, or over $7.5bn.

KFC has also experienced significant challenges in the US, its next biggest market at 16% of system sales. Share has steadily declined since 2000 as customers shift to smaller or more adventurous rivals. In 2013, for the first time ever, KFC was toppled as the country's leading chicken quick service restaurant by Chick-fil-A, which achieved higher systemwide sales, according to Technomic, despite a significantly smaller retail presence. KFC was still stuck in second place in 2016. NRN estimated US system sales of $4.48bn from its 4,167 outlets, but the rival managed almost $7.9bn from half as many stores. (Popeyes came third with $2.87bn). KFC's sales per unit were under $1.1m, little more than a quarter Chick-fil-A's figure and worse than almost every rival in the segment.

The next biggest markets after China and the US were Australia (system sales of around $2.0bn) and KFC UK (around $1.7bn).

In 2009, KFC scored a notable own goal when it introduced a new line of better-for-you grilled chicken with a promotional push on the Oprah Winfrey show. Consumers were invited to download a voucher which could be exchanged for a free meal. The response was so massive - more than 10.5m vouchers downloaded and millions more photocopied - that the chain was unable to fulfill orders and had to cancel the promotion mid-run, generating acres of bad publicity and negative customer feedback.

In an even bigger screw-up, the company's UK division shifted its logistics contract to DHL in 2018 from foodservice specialist Bidvest. DHL struggled to cope, creating an extraordinary five-day crisis in February in which as many as 650 of the chain's outlets were forced to close for a day or more because they had run out of fresh chicken.

In 2013, the group began testing a new restaurant format, positioned further upscale from standard KFC outlets. The first KFC eleven outlet opened in 2013, serving only boneless chicken and enhanced side-dishes. At the same time, the group has ramped up innovation with a series of new products, not least the highly unusual Double Down Sandwich, in which the traditional bun was replaced by two more slices of chicken. Even odder was the Chicken Corsage, a floral prom decoration with attached chicken pieces.

The group's KFC division reported revenues of $3.11bn in 2017, with an operating profit of $981m.

Pizza Hut

Yum's #2 brand overall is Pizza Hut, the world's largest pizza restaurant company, with around 17,703 restaurants and delivery units spread across almost 100 countries. Yet the pizza market has remained difficult for Pizza Hut for some time, with sales more or less flat since the late 1990s. In 2008, in order to broaden its appeal, the chain started to introduce pasta-based meals in several markets alongside pizzas, and toyed with a rebrand to the new name of Pasta Hut. Although pasta proved reasonably popular with consumers, the change of name was not. In the US, many Pizza Huts also serve chicken wings under a separate multibranded WingStreet banner.

Yum declared global systemwide sales of $12.9bn in 2019. Gains were mostly from international markets. The US is the biggest market by far for Pizza Hut, accounting for 42% of sales, or around $5.4bn in 2019. It is followed by China ($2.2bn).

Pizza Hut declared US system sales of $5.54bn in 2017. That was up slightly, year on year, but not by as much main rival Domino's, which overtook its long-time competitor to become the local #1 for the first time at $5.9bn. Little Caesars is #3 with around $3.9bn. In 2016, estimated sales per unit at Domino's were just over $1bn, compared to $742m for Pizza Hut.

Taco Bell

The company's third major brand, Taco Bell, remains its lead business in the US, accounting for around two-thirds of local group profits. It is the country's dominant limited service Mexican food restaurant serving a variety of tacos, burritos and similar items. It has a total of 7,363 outlets worldwide, but the vast majority are in the US, where it has over 60% market share of the Mexican segment. NRN estimated US system sales of almost $9.4bn in 2016. (Chipotle is a distant but still potent #2, although sales slumped to $3.8bn in 2016 as a result of food contamination scares).

Taco Bell's growth has been fed by significant investments in menu innovation, and the launch of several adventurous new products, including the Waffle Taco and Cantina Bell fresh gourmet-inspired menu. However, the most successful has arguably been the Doritos Locos Tacos, jointly branded to the PepsiCo snack chips, sales of which topped $1bn in 2013. The "Live Mas" marketing campaign earned Taco Bell the title of Marketer of the Year for 2013 from AdAge magazine, and in 2014 the chain followed through with an assault on the breakfast market, and the launch of the Waffle Taco. However Taco Bell's international profile is very limited, with only 300 outlets so far in other countries, mostly in Canada and Puerto Rico. The first UK outlet opened in 2010. (A previous test outlet in the UK closed in the 1980s). Kraft produces a range of Taco Bell meal kits under license for home cooking.

Global systemwide sales were $11.8bn in 2019, up 9%.

The group's biggest single territory is now mainland China, with over 8,100 restaurants in 1,200 cities. That includes over 5,400 KFC outlets and 2,100 Pizza Hut restaurants and dedicated home delivery units. Both brands offer a variety of other menu items beyond the foods sold elsewhere. So KFC also sells some beef and seafood products, and Pizza Hut also sells rice and noodle dishes. Yum's local sales overtook the US for the first time in 2011. In 2012, the group took full control of Little Sheep, a chain of Mongolian hot pot restaurants in China, with 400 outlets across the country. It has also launched the first outlets in a new Chinese cuisine concept of its own creation under the name Dong Fang Ji Bai or "East Dawning". However this business is still very small, with just 30 outlets. China remains by far the group's most profitable business, contributing higher profits than all other international markets combined. However, operating profit has slipped back from highs of over $1bn in 2012 as a result of repeated challenges. For 2015, operating profit was $757m on revenues of $6.9bn. There were signs that the worst of the slump was over in 2016, with solid growth in the first quarter. Towards the end of that year, the entire business was spun off as a separate company, under the name Yum China. It continues to franchise the three main Yum! brands - there are just three Taco Bell outlets in the country - and owns Little Sheep and East Dawning outright. In 2017 it acquired online ordering app Daojia.

The next-biggest market is Japan, with around 1,525 outlets, three-quarters of them KFC. Next comes the UK, which has 1,510 outlets split between KFC and Pizza Hut. The latter was originally run locally in partnership with Whitbread. Yum bought out Whitbread's stake in 2006. In 2008, the group announced plans to broaden its menu at Pizza Hut UK, and rename all those outlets as Pasta Hut. The experiment was not successful and the concept was later dropped. However, Pizza Hut continued to struggle against its main rival, the more upmarket Pizza Express. Eventually, in 2012, Yum sold Pizza Hut UK to investment company Rutland Partners, which now operates all stores under license. Other important markets include Canada (around 1,030 outlets), Australia (around 915 outlets) and now Indonesia and Malaysia, each with around 860 restaurants. The group began stepping up expansion in 2002, opening at least 1,000 international restaurants a year for the rest of that decade. In Russia, it acquired local fast food chicken chain Rostik's in 2006, and now co-brands those outlets as KFC. A key growth market is India, where the group had hoped to have more than 2,000 outlets by 2020, from around 700 in 2015. However peformance there has been disappointing.

While international storms forward, the group has faced considerable pressure in its domestic market since the late 1990s. All three chains have seen their share of the total US restaurant chain slump, and average revenues from the group's own outlets (as opposed to those run by franchisees) have barely changed since the late 1990s. (Franchisee sales have grown by 4%). In a bid to boost performance, the group introduced a new concept of multibranded outlets which combine two or more restaurant brands within the same premises. Yum sees this as the key to the success enjoyed historically by McDonalds, which offers a variety of different foods from burgers to chicken to fish under a single brand umbrella. Chasing this variety, by the end of 2010, the group had converted around 8,000 outlets to multibranding, mostly in the US. The largest number are KFC outlets which also serve a limited number of menu items from other group brands. WingStreet is a dedicated multibrand concept introduced in 2005 to combine items from the Pizza Hut and KFC menus, primarily for home delivery.

The group has also set out to develop awareness of its corporate presence. Although the individual restaurant brands are widely known, the umbrella Yum! brand is largely unknown. The group began a campaign to alter this in 2006, including sponsorship of the famous Kentucky Derby horse race and Indy 500 racing car driver Marco Andretti.

Divested Businesses

Another attempt to boost US performance - ultimately unsuccessful - was through expansion of the group's portfolio, with two chains acquired in 2002. Long John Silver's is America's largest quick service seafood chain (and the only national operator) with just over 1,020 units in the US and around 35% share. Named after the character from Treasure Island, the first outlet opened in 1969, under the name Long John Silver's Fish 'n' Chips. The chain serves a variety of batter-dipped and breaded fish and seafood, as well as sandwiches and salads. There is a small international presence. Virtually all outlets are operated by franchisees. A&W Restaurants, now with around 680 outlets in the US and Canada, is actually America's oldest fast-food chain. It was established in 1919 by Roy Allen, initially as a root beer stand. He recruited partner Frank Wright in 1923 (the A&W stands for Allen & Wright), and they began franchising in 1926. Rights to A&W root beer were sold off in 1963. A&W specialises in all-American hamburgers and hotdogs. Combined systemwide sales from the two brands were around $1.0bn. Even so, neither chain showed signs of developing international appeal, and as a result, Yum put them up for sale at the beginning of 2011. In Sept 2011 a deal was agreed to spin off both businesses to their franchisees and private equity. Long John Silver's was acquired by LJS Partners, a consortium of franchisee leaders and other investors. A&W was acquired by A Great American Brand LLC, also jointly owned by franchisees.

Other formats have also proved marginal at best. In 2002 Yum agreed a joint venture with Hong Kong-based Favorite Restaurants Group, a KFC franchise holder, to test Asian fast-food restaurants in the US. The partners negotiated a licensing arrangement with US celebrity chef Martin Yan to name the outlets Yan Can, after his successful TV cookery show. There were seven outlets by the end of 2003, but they were closed down in 2004. A new Asian format began testing in 2014, selling Vietnamese street food under the name Banh Shop.

Financials

Yum! Brands group revenues peaked in 2012 at $13.63bn, but have gradually declined ever since, initially because of problems in China, then from the move to gradually refranchise almost all company-owned outlets, including the spin-off of all China and India operations.

For 2017, revenues dropped to a multi-year low of $5.88bn. Company sales were down 15% to $3.57bn, offset by a 6% increase in franchise and license revenue to $2.31bn. Net income was impacted by a sizeable one-off tax adjustment, falling 18% to $1.34bn. However pretax income was up by almost a third to $1.34bn.

Full year revenues at Yum slipped 2% in 2019 to $5.6bn, reflecting the continuing shift towards all-franchised outlets. Net income came in at $1.3bn, down 16%. (The previous year included a large on-off gain from refranchising).

Yum! China is now an entirely separate business, with responsibility for all operations in that country. Revenues for 2017 were $7.1bn, including $5.0bn from KFC and most of the rest from Pizza Hut.

Background

Tricon Global Restaurants was formed in 1997, when PepsiCo decided to restructure its increasingly cumbersome portfolio of businesses, which ranged widely from drinks to snacks to restaurants. Pepsi had entered the food market some twenty years earlier. Although the company's drinks sales were booming in the late 1970s, Pepsi was finding it virtually impossible to dent rival Coke's dominance of so-called "fountain sales" in restaurants and bars. The company decided, if you can't beat 'em, buy 'em, and began to look at acquiring some of the US's numerous restaurant chains in order to guarantee an exclusive audience of diners who could be served Pepsi with their meal.

Pizza Hut was already the world's leading pizza chain. The company had been started by brothers Dan and Frank Carney, with partner John Bender. They opened their first restaurant in Wichita, Kansa in 1958 (funded by a $600 loan from the Carneys' mother) and started franchising the brand in 1959. The first Pizza Hut outside the US opened in 1968 in Canada, followed by Mexico, Germany and Australia in 1970. By 1972, when the business went public, there were more than 1,000 Pizza Hut restaurants around the globe, many of them run as franchised operation with owner-managers or corporate partners.

Taco Bell was America's leading Mexican restaurant chain, founded by Glen Bell in 1962 in Downey, California. Bell had tried a number of different food formats before he decided on Mexican. Based in San Bernadino, California, he started with hamburgers in 1956, but was put off by the launch the same year of a rival outlet run by the McDonald brothers. Instead he tried chili hot dogs, opening as Taco Tia in 1956. The Tacos did even better than the chili dogs, so he sold Taco Tia and opened El Taco in 1958. He sold this outlet too before settling in the neighbouring town of Downey, where Taco Bell opened its doors in 1962. An immediate success, Bell expanded the chain rapidly through franchise, and it too went public in 1967.

In the late 1970s, one of the biggest restaurant chains in the US, and indeed worldwide, was Kentucky Fried Chicken. Harland Sanders had developed his special method for spicing and cooking chicken during the 1930s, after a diverse career that included working on the railroad, selling insurance and motor parts in and around the state of Kentucky. Sanders Court, which he opened in the town of Corbin in 1930, was originally an automobile service station, but he added a cafe to serve hungry drivers. He developed a quick way to prepare fried chicken in a pressure cooker, using a mix of spices and flour, and this went down very well with customers. In 1935, the Governor of Kentucky made him an honorary Kentucky Colonel for services to the food trade.

Business did well for a while, until the construction of a new interstate highway bypassed Sanders' garage. In 1952, Sanders, then in his Sixties, began driving across the country from restaurant to restaurant to sell his chicken recipe. His deal with proprietors was simple: if they took his recipe, they had to pay him 5 cents for every chicken meal the restaurant served. Eventually, in 1955, he opened his own restaurant under the Kentucky Fried Chicken brand, but continued to travel the country franchising new outlets. Working tirelessly, he had built up a network of over 600 restaurants by 1964. That year he sold out for $2m to a group of investors, although they retained him for publicity purposes. (He continued working for the company until he died in 1980, aged 90). Kentucky Fried Corporation changed hands several times in the years after Sanders sold up. The business went public in 1966, but was bought by Heublin Inc in 1971 for $285m. Ten years later Heublin was in turn acquired by RJ Reynolds, which later merged with Nabisco.

The first chain acquired by Pepsi was Pizza Hut, bought in 1977. Taco Bell joined the portfolio a year later, and PepsiCo paid RJR Nabisco $840m for Kentucky Fried Chicken in 1986. However PepsiCo's timing was poor. Competition in the sector intensified dramatically during the 1980s, and sales across all three restaurants declined. Worse still, the company had incurred considerable debt to buy the three businesses, and this began to affect the group's finances as interest rates soared at the beginning of the 1990s. Still worse, the group decided it could increase profits by buying out selected franchisees and increasing the number of outlets it owned directly, but this plan also backfired. The group ended up owning more than half its restaurants (four times more than McDonald's), but management couldn't maintain the pace of the business and operating margins dropped. Pepsi tried to revitalise Kentucky Fried Chicken in 1991, rebranding it as KFC, but the company came under increasing pressure from shareholders to fix the debt and performance problem.

In 1997, the entire restaurant division was spun off from PepsiCo to become Tricon Global Restaurants, under the management of former KFC boss David Novak (as CEO). To appease PepsiCo investors, the company was also saddled with $5bn of PepsiCo's debt. After a slow start, business began to pick up, with all three chains showing their first sales increases in several years. But in 1999, Tricon was hit hard when its distributor AmeriServe, another PepsiCo spin-off, filed for bankruptcy. Tricon and Burger King both paid huge sums to keep AmeriServe going while they could arrange alternative distribution methods. (The business was eventually acquired by Wal-Mart).

To improve performance further and reduce debt, the group began reducing the number of outlets it owned by selling individual businesses to franchise-holders. In 1999, the company owned just under 7,000 of its 30,000 outlets. Of the rest, over 18,400 were franchised, with the remainder operated through joint ventures or affiliate arrangements. At the same time Tricon pushed ahead international growth, opening a minimum of 700 new restaurants a year. In 2002 the group announced the acquisition of two further brands in the US, Long John Silver's and A&W Restaurants, for $320m from Yorkshire Global Restaurants. Tricon already operated a number of multi-brand outlets with Yorkshire Global. At the same time the group announced plans to change its name from Tricon to Yum! Brands.

Last full revision 8th May 2018

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