Yum! Brands Inc. continues to see growth opportunities in its key markets, especially China, and plans aggressive expansion in other parts of the world, from Africa to Russia, executives at the company told investors Wednesday.
Yum officials discussed the company's financial outlook at the annual investor conference, including projections of a 14-percent increase in 2010 earnings and a 10-percent increase for earnings next year.
As the parent of the KFC, Pizza Hut and Taco Bell brands continues to expand, chief executive David Novak said the company also sees potential to build sales at its existing restaurants.
“We’ve got over 35,000 assets that we believe are underleveraged,” Novak said. “We’re not selling our products 24 hours a day, we’re not selling breakfast yet, and we haven’t had a strong beverage platform yet. We’ve been working very hard on that.”
Yum executives outlined plans for its three major divisions:
“We’re on the ground floor in China,” Novak said, “and if there’s a big category that emerges there, we want to be in it and be a leading brand."
KFC’s breakfast platform is in place in China, and the brand will expand its delivery services in that country. Pizza Hut Casual Dining, which Novak called “California Pizza Kitchen on steroids,” had double-digit same-store sales growth in 2010 and will add about 60 restaurants next year, he said. Yum will continue to invest in its East Dawning quick-service chain in China as well.
"In 2001, we had 20-percent margins,” he said. “We’ve added 3,000 stores since then, and now we had record margins this year at around 22 percent. This has led to tremendous profit growth.”
Yum Restaurants International
Yum also wants to drive growth in its YRI division in 2011 to complement ongoing strength in China, Novak said. In 2010, 65 percent of Yum’s profits originated from outside the United States, and the company hopes to grow that portion to 75 percent by 2015.
The company’s investment in local management teams to grow its brands in places like India, Russia, France, Germany and Africa will start to pay off next year, Novak said.
“One of the things that helped us drive [growth in] China was that we had great local capability,” he said. “We are building the people capability that will allow us to take advantage of that opportunity.”
Plans call for another 100 units of KFC in India and more Taco Bells, which debuted in India this year. Yum also sees significant long-term potential for KFC in Russia now that the company’s acquisition of the Rostik’s chicken chain in that country is complete. The company also is eyeing expansion of KFC and Pizza Hut in Germany and France, the latter of which boasts some of Yum’s highest average unit volumes in the world.
Yum also pointed out its opportunities in Africa, where it is targeting aggressive growth to double the number of KFCs to 1,200 by 2014, which potentially would double revenues in Africa from $1 billion to $2 billion.
Keith Warren, general manager of KFC Africa, highlighted the continent’s population of 1 billion people and noted that the “protein of choice” there is chicken on the bone, a competitive advantage for KFC.
Another major core strategy for the brand is to improve Yum’s brand positioning in the U.S., continuing KFC’s long journey toward a turnaround while capitalizing on Pizza Hut’s sales improvements and leveraging the growth potential for Taco Bell.
While he acknowledged that turning around falling same-store sales at KFC remained a challenge, Novak pointed out that the brand’s U.S. team was studying the improvements made by KFC U.K., which grew average unit volumes from $1 million to $1.5 million. Yum also will look to aggressively refranchise KFC units in 2011.
Pizza Hut improved markedly this year by simplifying its pricing structure and battling a long-held perception that it was the most expensive pizza chain in the United States, Novak said. The new structure charges $8 for medium pizzas, $10 for larges, and $12 for specialty pies, which the chain plans to expand with more options in 2011.
“At Pizza Hut, we have the foundation of everyday value going into 2011, which is something we’ve never had before,” Novak said.
Yum will build 54 new Taco Bells next year and look to increase its development pace in subsequent years. The company also sees potential in a test of a breakfast menu at the chain.
“We had a pretty good year at Taco Bell, and the good news is we’re getting stronger,” Novak said. “We have a tremendous opportunity to leverage our assets, especially with this test of breakfast.”
Novak told investors he foresees a Taco Bell system in the United States of 8,000 locations.
Louisville, Ky.-based Yum operates or franchises more than 37,000 restaurants worldwide.
Contact Mark Brandau at [email protected].