How Yum! Brands Is Conquering the World

(page 2 of 2)

The growth trajectory in China has not been without its setbacks, including a dip in sales at existing restaurants there in 2005, but David Novak, the former Pepsi executive who has been Yum! chief executive since 2000, boasts that the company's infrastructure in China will not only carry it through but allow it to best its rivals. "China is predicted to be the fastest-growing major economy in the world," he said in the company's latest annual report. "In fact, it is expected to grow its middle class from around 300 million today to 500 million people in 2020. Like I've said in the past, we will no doubt have some bumpy years, but I wouldn't trade our long-term position in China with any consumer company in the world."

It is worth remembering that what Yum! is doing has never been done before. Who really knows what the Chinese appetite for Western-style fast food really will turn out to be? Both KFC and Pizza Hut have adapted their menus to local tastes, and their advertising, too. But, continuing with its second-quarter results last night, the focus is shifting to other expansion opportunities in China and beyond. The company is trialling a new Chinese food chain, called East Dawning, so that it can use its formidable distribution infrastructure for a more diverse range of brands and cuisines – just in case.

And then there are the other emerging markets. Yum has more than 70 KFCs in India, as well as 160 Pizza Huts, and it just opened its first Taco Bell in the country in March. It promises to hit 1,000 outlets in total by 2015, employing 50,000 people and raking in $100m in operating profit. Meanwhile, Mr Novak is hoping to engineer a dramatic expansion of Taco Bell, too. "Two global brands – and one on the way," he is fond of saying.

Taco Bell, with its menu of Mexican staples, from burritos and nachos to tacos, brought in just 3 per cent of its sales from outside the US in 2008, but that low figure was not for want of trying. The chain has attempted launches across the world on several occasions since the Eighties, but never gained popular acceptance. It is only now sticking a toe back into the European market, with a return to the UK via a first outlet in the Lakeside shopping centre, which opened two weeks ago.

In the US, the focus is on sprucing up the menus across the Yum! outlets, and that means making them healthier. At KFC, less chicken is being fried (hence a preference for using the initials) and more is being grilled. At Pizza Hut, putting chicken wings on a wider menu has helped reverse a slide in revenues, while Taco Bell is pushing salads. More important perhaps to the company's financial health is a move to switch the US business from being owned and operated directly by Yum! from its headquarters at 1900 Colonel Sanders Lane in Louisville, Kentucky, to being run by franchisees. The revenue from licence fees is lower, but at least it is stable and the margins are higher.

In short, the stagnation of its US business does not mean that an American corporation is doomed to stagnate itself, if it can seize opportunities around the world. Yum! is on course to boost earnings by 10 per cent this year, despite falling like-for-like sales in the US. It has peppered its missives to investors with fighting talk, promising to "dramatically improve" its US brands and "aggressive international expansion," with 1,400 new outlets in 2010. It doesn't plan to lose that exclamation mark, and wants to live up to its description of itself: "The defining global company that feeds the world."

Yum! Brands in numbers

509 new restaurants opened in China in 2009

2,950 branches of Kentucky Fried Chicken in China

1,100 branches of McDonald's in China

21 East Dawning Chinese food outlets

$19bn Yum! market capitalisation

440% share price rise since 2000

2% operating profit from China in 1998

33% operating profit from China in 2009

$9.4bn annual sales

1958 First branch of Pizza Hut opens in Kansas

1952 Colonel Harland D Sanders opens first KFC in Utah

11 herbs and spices in KFC's "finger-lickin' flavour"

1962 Glen Bell opens first branch of Taco Bell in California

1 number of Taco Bell stores in the UK

300 million pounds of cheese used by Pizza Hut each year

87,500 Size in square feet of the KFC "face from space" advertisement built in the Nevada desert and showing Colonel Sanders

Provided by The Independent—from London, for Independent minds

Business Exchange

Track and share business topics across the Web.