Yum Brands, parent company of KFC, Taco Bell, Pizza Hut and The Habit Burger Grill, held its annual investor day Tuesday in New York City and it’s hard to imagine a more confident company right now. Executives touted their diverse portfolio and scale as providing a major advantage against a relentlessly uncertain economic backdrop and presented several examples to support their case. Here are some of the biggest takeaways from the presentation:
The growth engine keeps churning
Yum’s restaurant count number has increased by 12% since 2019, despite Covid-related lockdowns and other unprecedented challenges, and now counts nearly 56,000 restaurants in 156 countries around the world. That pace of development is only accelerating. During the presentation, CEO David Gibbs announced the company is raising its long-term algorithm for growth to 5% unit growth, 7% system sales growth and “at least” 8% operating profit growth (from its 3%, 5% and 5% average, respectively).
“If there is one indicator of confidence that our franchise system has in our business, it’s their ability to build through all of that uncertainty,” Gibbs said.
Notably, this growth includes Pizza Hut U.S., which will be net positive this year for the first time since 2014, according to Pizza Hut CEO Aaron Powell. Yum executives have confidence in the continued pace of expansion because the penetration in the U.S. is about 60 restaurants per one million consuming class customers.
“That’s only 6% of share in the global QSR space,” said CFO Chris Turner said. “We believe there is an additional 100,000 new restaurants ore more that can be added to our (global) system. Opportunity is not our problem.”
Digitally driven growth
Gibbs added that the company’s next chapter of growth will “in many ways be powered by digital.” Prior to the pandemic, Yum generated about $12 billion in digital sales. That number has increased to $24 billion, or about 40% of total sales.
“Digital and technology is taking over everything we do at Yum. We’re really just getting started,” Gibbs said.
Indeed, Yum has made several tech acquisitions throughout the past several years and is in the process of integrating those systems throughout its global footprint. The company acquired Tiktuk in 2021, for instance, and will begin implementing that system in The Habit Burger Grill next year via the WhatsApp platform.
“There is a set of capabilities we are building, and we have also made a number of acquisitions to bring capabilities into our system. We have a competitive advantage on those acquisitions because of our scale. We’re able to see the tech players around the world who are driving the biggest impact and that our franchisees have excitement about. All of our acquisitions have been small but incredibly powerful,” Turner said.
Digital end game: 100%
The goal for Yum executives is to get to 100% of sales powered by digital. Why that is the goal is simple: digital sales generate a lift in check, frequency of existing consumers, new occasions and new consumers, Turner said, pointing to Taco Bell as a case study. The chain had virtually zero digital sales in 2018 and is now north of $3 billion. Turner added that $1 billion of those sales are incremental.
RED Innovation Team
In addition to acquisitions, the company is working to add to its digital capabilities by building and testing “further-out technology” that could drive performance. This initiative is driven by the RED (relevant, easy, distinctive) innovation team, which focuses on four specific areas: computer vision to help team members more effectively fulfill orders, for example; labor productivity, including a test of robotics in the back-of-house; drive-thru productivity, including conversational AI at the drive-thru; and Internet of Things to help save on administrative and other costs such as energy. Turner said IoT is the furthest along and has proven to reduce administrative time.
KFC accelerating access
At the brand level, KFC CEO Sabir Sami said the company is beginning to accelerate its digital business, not only by digitizing every order, but also in creating a better experience for customers and a better ability for the company to understand its consumers better. It is investing in kitchen technology, automation and intelligence so team members can better focus on guest experiences. Kiosks have been a major driver in creating more access and the sales mix from kiosks has reached nearly 40%. KFC is also focused on driving loyalty and expects to roll out a new program in the U.S. in 2023. KFC U.S. is also targeting more lunch and snacking occasions to drive unit volumes and plans to launch chicken nuggets systemwide in 2023 to support that goal.
Taco Bell aiming for more occasions
Taco Bell is striving to beef up its breakfast and lunch occasions, with CEO Mark King pointing to McDonald’s as a benchmark example of the opportunity that exists for the brand.
“Our competitors have way more reasons for customers to go to them, if you look specifically at McDonald’s dayparts, coffee treats,” he said, adding that Taco Bell’s breakfast and lunch dayparts are “significantly” behind the Golden Arches, even though dinner and late-night business is on par.
To close this gap, Taco Bell is looking at adding French fries permanently, which King believes will “increase lunch dramatically.” Also, desserts, beverages, chicken and breakfast are opportunities.
“We’ve been in and out of breakfast for seven years. It’s time to commit to it. We are committed to closing both of those gaps and have big opportunities in just those two dayparts to increase business in the coming years,” King said. “Chicken is a big one. Right now, a large percentage of our business is beef and the Gen Z consumer wants chicken.”
Another opportunity is in the digital business and King echoed his peers in wanting to eventually reach 100%. He is also intensely focused on loyalty and getting light users to buy more products.
Pizza Hut getting younger
Powell said his company’s modernization efforts will “materially add to Yum’s growth" and describes modernizing as becoming digital-first – not just on the consumer interface, but also on the operations side. It also means updating Pizza Hut’s assets to be more delivery and carryout-centric. Finally, “getting younger” means adding more everyday occasions – beyond just the Friday, Saturday, Sunday family night orders. Pizza Hut’s new Melt platform, launched in October, has supported this goal.
“It’s intentionally designed for young people. Value is important and at $6.99, we’re competing with everybody. This is a filling, compelling meal against all categories,” Powell said. “We’re very pleased with the same-store sales growth, transaction growth, new customers and repeat customers since this launched.”
The Habit getting bigger
Shannon Hennessy, president of Yum’s newest concept The Habit Burger Grill, said her concept has bold ambitions for growth as it has experienced a 30% system sales increase since joining Yum in 2020. The goal is to double The Habit’s footprint, which is currently just north of 330 units, in the next five years.
‘The scale player wins’
Perhaps the biggest takeaway from a morning full of presentations is that Yum Brands’ diversified portfolio and scale allows the company to remain insulated from persistent headwinds. During the Great Recession of 2008-10, for instance, system sales grew by 12%. Throughout the past three years of Covid and inflation, system sales have grown by 19%.
“If you are dealing with inflationary headwinds, the scale player wins,” Turner said. “It gives us advantages as we move forward. Think about the digital space as an example. Most of our investments are fixed costs.”
Potential to add more scale?
Once again, Turner was asked about the company’s willingness to add another brand to its mix and add to that advantageous scale. He answered, simply, “We’re always scanning the market for opportunities,” but added that the bar is “really high” and that any such brand must generate shareholder value.
Franchisee and consumer pulse
Finally, to get a clearer picture of Yum executives’ confidence in the company, Gibbs said franchisees are asking how to access more development opportunities, while consumers haven’t presented a “wholesale shift in behavior” to the company – despite mounting pressures and uncertainties.
“Our franchisees have seen that we can navigate cost pressures and I’d say they have more confidence than ever because we went through such a difficult period,” Gibbs said.
Contact Alicia Kelso at [email protected]
