Yum! Brands Inc. exports successful restaurant concepts around the world, particularly to China. But after reporting second-quarter earnings last week, the company said it hopes to import some of its best international practices and reverse the disappointing performance of its domestic units.
Weakened U.S. sales weighed down 2 percent comparable-sales gains in Yum’s international division and 18-percent gains in China in the second quarter.
On the same day Louisville, Ky.-based Yum disclosed a 4-percent drop in same-store sales for its 17,294 U.S. restaurants, a report surfaced that chief executive David Novak would call on the company’s ad agencies to devise a plan to improve domestic sales at Taco Bell, KFC and Pizza Hut.
However, considering Yum structural challenges Novak identified during a conference call with financial analysts last week, the company may have challenges beyond just marketing. Yum’s three principal brands all face fierce competition in their segments. In the case of Taco Bell, its most profitable domestic brand, negative publicity from a withdrawn lawsuit dampened sales and traffic more deeply and for longer than executives expected.
“Yum’s U.S. business takes the ‘prize’ for the worst-performing restaurant business we know of,” wrote J.P. Morgan securities analyst John Ivankoe, “with all three of its brands negative-4 percent versus our negative-2-percent [estimate], including negative-2 percent at Pizza Hut and negative-5 at KFC.”
Taco Bell’s second-quarter sales fell 5 percent in the United States.
Yum is expected to convene a “brainstorming session” with its three main ad agencies: DraftFCB, which handles advertising for Taco Bell and KFC; the Martin Agency for Pizza Hut; and Ogilvy & Mather, which has much of Yum’s international portfolio, according to Advertising Age.
Without discussing the agency meeting during the second-quarter earnings call, Novak told the financial community that Yum would look to revitalize its domestic system by examining what’s working so well in China and for Yum Restaurants International.
“It’s a good challenge, and one thing we’re focused on is sharing knowhow and building our capability through leveraging the scale of our experience around the world,” Novak said.