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Get Four
|  | DECEMBER 11, 2003
For Yum!, the Whole World Is Fat City With more outlets than McDonald's, the outfit behind Pizza Hut, KFC, and Taco Bell is now also on a roll in China, as execs explain Chicken is the preferred protein in China, a fact that hasn't been lost on the managers at Yum! Brands (YUM ). Most people know the company by its high-profile fast-food chains -- Pizza Hut, Taco Bell, and KFC (formerly known as Kentucky Fried Chicken). It helps, too, that the image of Colonel Sanders, KFC's founder, seems to play as well in Beijing as in Boston. With international expansion key to Yum's growth, China in particular is emerging to be an ever bigger source of future revenue and profits for the Louisville (Ky.) company. Someday, China have more KFC and Pizza Hut outlets than the U.S. does, Yum executives predict. On the home front, Yum, which also runs the Long John Silver's and A&W All-American Food chains, is betting on its strategy of multibranding, or combining two of its brands under one roof. Some 12% of its domestic outlets now feature a KFC and Taco Bell, or some other combo, in the same location. Thanks in part to multibranding and overseas expansion, Yum is expected to deliver 11% higher profits in 2003 on 4% to 5% revenue growth. HARD TO SWALLOW. Yum, which recently surpassed McDonald's (MCD ) in total number of outlets -- nearly 33,000 vs. just over 30,000 -- has its share of challenges, however. It has been underperforming of late against competitors when it comes to sales at restaurants open at least one year. These so-called same-store sales in November were up only 2%, vs. Wendy's (WEN ) 9.4% and McDonald's 10.2%. What's more, a recent campaign developed to energize the KFC brand has attracted the scrutiny of federal regulators after a complaint from health-advocacy group Center for Science in the Public Interest that the ads were misleading. At issue were spots that presented fried chicken as part of a balanced diet and as more healthy than Burger King's Whopper Sandwich. Yum says it was just trying to communicate information about the brand. A new campaign is now in the works. Recently, members of BusinessWeek's editorial staff discussed Yum's plans for growth and other issues with David Novak, chairman and chief executive officer; Aylwin Lewis president and chief operating officer; and Dave Deno, chief financial officer (Jonathan Blum, senior vice-president for public affairs, was also present). Edited excerpts of their conversation follow: Q: International expansion is a big growth driver for you. What's your potential in China? Novak: It's our single biggest opportunity outside of the U.S. There are 450 million urban Chinese in a country where you have 1.3 billion [people]. We think, conservatively, 200 million of those people can afford our food every day. Right now, we're in 12 of the 13 provinces. We're actually going into Tibet next year, so we'll be in all 13 provinces. There's no doubt in our minds that we'll have more restaurants in China, certainly for KFC and for Pizza Hut, than we'll have in the U.S. some day. We just opened up a Taco Bell Grande [in China]. Q: So what do you put in a Taco over there? Novak: About the same thing we would put in one here. Our products are basically executed the same way around the world. We will have regional regional variations. In China and the rest of Asia, they like spicier food. We will have more spicy items on the menu. We have Original Recipe [fried chicken] and pizza in every country. Q: Which brand does best overseas? Novak: KFC is our biggest brand outside of the U.S. It has the most growth potential. Abroad, the menu is much more on-the-go-oriented. There are sandwiches and french fries. It's more like McDonald's than it is in the U.S., where Colonel Sanders built KFC more with the bucket business. We do offer that around the globe, but we're more fast-food oriented. Q: Do you use the Colonel Sanders image outside the U.S? Novak: If you go to Japan, you will see a statue of him outside every one of our restaurants. We use an animated Colonel in a lot of our countries. In China, if you go into the restaurants, you will see the history of KFC, and you'll see a picture of the Colonel and how it all started. American brands are very popular.
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