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Yum highlights expansion targets

Company cites India, Indonesia, Malaysia and Vietnam

Executives of Yum! Brands Inc. told investors Tuesday that emerging markets overseas outside of China would help fuel its growth this year.

The parent company of more than 37,000 restaurants worldwide under KFC, Taco Bell, Pizza Hut and other brands discussed its growth prospects at the Cowen and Co. Consumer Conference in New York by touting the potential of Yum Restaurants International, or YRI, a division often overshadowed by its China business.

Euromonitor projections show China’s middle class of potential restaurant consumers growing from 450 million today to 650 million in 2020, said Tim Jerzyk, Yum’s senior vice president of investor relations. However, he added, in the emerging markets contained within YRI’s portfolio, the consuming class would double to nearly 2 billion in 2020.

“I still believe YRI is one of the more underappreciated aspects of Yum Brands,” he said. “Looking at 2010 forecasted profits, we’re expecting these emerging markets to drive 40 percent of profits.”

YRI projects about 900 new restaurants in 2011, Jerzyk said. The Asian market outside of China holds plenty of potential, he added, citing in particular Indonesia, Malaysia and Vietnam. From 2005 to 2010, the compound annual growth rate for system sales rose 21 percent in YRI’s 800-unit market in Indonesia, 13 percent in the 780-unit market in Malaysia and 54 percent in the 102-unit market in Vietnam.

YRI just reached the 100-unit milestone this year in India.

“We’re well on track in India to match KFC’s early development pace from China,” Jerzyk said. “We feel good about our prospects in India, and we’ve only started to develop Taco Bell there.”

Jerzyk noted that KFC also is reaching critical mass in Russia, helped in large part by the completed acquisition of the 150-unit system of the Rostik’s chicken chain.

As Yum noted late last year at its own investor conference, Africa will be a major emerging market in the years to come. KFC already has a 44-percent market share in South Africa, which will serve as YRI’s base for northward expansion into the rest of Africa.

“There are 1 billion people in Africa, and their protein of choice is chicken on the bone,” Jerzyk said. “This market is definitely set up for KFC.”

He did not discount Yum's competitive advantage in China, however. The company plans to open about 500 restaurants in China this year, and it already has a large lead in the number of units there compared with other Western competitors. Between KFC and Pizza Hut Casual Dining, Yum has about 3,900 restaurants in China, while it estimates that McDonald’s and Starbucks combined have about 1,800 units in the country.

“The important thing here is that we’re not just growing in big tier-one and tier-two cities,” Jerzyk said. “We have over 250 restaurants in Shanghai alone, but of the nearly 500 restaurants we built in 2010, 52 percent were in tier-three through tier-six cities, so we’re everywhere in China, with representation especially for KFC and each year increasingly for Pizza Hut Casual Dining.”

At this point, the split between developed markets and emerging markets is about even for generating profit growth for Yum Brands, Jerzyk said, and the company expects emerging markets to account for 60 percent of profit growth by 2015.

“If you do the math, from 2009 to 2015, we expect to add $1 billion in profit from the emerging markets,” Jerzyk said. “We’re opening about 900 units a year in YRI and 500 units a year in China, but we’re still on the ground floor of growth.”

To illustrate his point, Jerzyk pointed out that Yum’s penetration in the United States is about 60 restaurants per 1 million people. While the company doesn’t expect saturation in other markets to come close to that level, there’s still plenty of room for growth, he said, as Yum has 2.7 restaurants per 1 million people in China, 0.2 units per million people in India and 1.7 units per million people in the rest of the top 10 emerging markets.

Louisville, Ky.-based Yum operates, franchises and licenses the KFC, Pizza Hut, Taco Bell, A&W and Long John Silver’s concepts.

Contact Mark Brandau at [email protected].

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