The headline from Yum Brands’ third quarter continued to be its Taco Bell system, which reported a same-store sales increase of 4% in the U.S. and system sales growth of 5%.
Executives also touted the 9% growth in KFC’s international units versus last year, with year-to-date gross openings up nearly 150 units. Also, digital sales exceeded $8 billion during the quarter, representing a digital mix of over 50%.
Other than that, there wasn’t much to write home about as the global quick-service giant missed analysts’ targets while continuing to navigate choppy waters with its domestic Pizza Hut and KFC businesses.
KFC U.S.’s same-store sales dropped 5%, marking its third straight quarter of declines, despite the expansion of its Spicy Nuggets flavors and $5 Taste of KFC deals.
During the company’s earnings call Tuesday before market, chief executive officer David Gibbs said the chain’s challenges are driven by a “complex consumer environment,” while its limited-time offers underperformed expectations. He added that “we have fantastic leaders in place working on revised strategies to create a step-change in results.”
On the global side, KFC’s same-store sales fell 4%, while system sales were up 1%. Unit growth was offset by a “complex” global macroeconomic environment, the Middle East conflict, and “transaction softness in several regions,” Gibbs said. As such, closures “temporarily increased” this year.
Pizza Hut U.S. system sales and same-store sales both declined by 1%. Gibbs said the third quarter started strong in the U.S. with momentum from the customizable meal, My Hut Box, and a robust marketing plan for the new Chicago Tavern Style Pizza, which led to positive traffic growth for the full quarter.
“Product news and offers were not sufficient to compete against deep value offers in the market throughout the quarter,” he said, adding that the company recently hired a new chief brand officer – Kalen Thornton – to reposition the brand over the long term.
Meanwhile, Habit Burger & Grill’s system sales declined by 1% and same-store sales declined by 5%. Gibbs said there have been encouraging signs of momentum at Habit as the quarter progressed, while same-store sales trends have improved.
The juggernaut that is Taco Bell
Despite mostly negative trends in the U.S. quick-service category, Taco Bell continued to outperform while significantly gaining market share, Gibbs said. The company is able to do this by following its “magic formula” of brand buzz, entry-level value points, innovation, strong consumer connection, and more.
“These are clear reasons why Taco Bell remains a category of one when it comes to winning with consumers in any economic environment,” he said.
During the quarter, the Cheesy Street Chalupa – Taco Bell’s first innovation from its Cantina Chicken platform – performed strongly, as did the reintroduction of the Cheez-It Crunchwrap and the launch of its $7 Luxe Box.
Also during the quarter, Taco Bell offered its franchisees the choice to opt out of breakfast and focus their marketing dollars instead on growth drivers such as the Cantina Chicken. Notably, Taco Bell is also working on two significant digital initiatives with its voice AI at the drive-thru, now in place at over 300 stores. To date, the system has successfully processed more than 2 million orders. And its loyalty program generated a 50% year-over-year increase in 90-day active users. The program is connected to a broader digital ecosystem at 160 stores that allows members to identify themselves and create a more personalized experience. Chief financial officer Chris Turner said the company is encouraged by early results, which have shown an increase in transactions and no impact on speed of service.
“Taco Bell’s strength is evident in the U.S. and also positive in international and that momentum continued into the fourth quarter,” Gibbs said, adding that the chain’s strength is offering innovative value products that no other competitor has and that help franchisee’s margins. “It’s a powerful set of tools we have in the toolbox. I am confident in Taco Bell’s ability to win in this environment relative to its peers.”
Yum Brands’ Q3 by the numbers
- Global system sales grew 1%; same-store sales down 2%
- KFC system sales up 1%; same-store sales down 4%
- Taco Bell system sales up 5%; same-store sales up 4%
- Pizza Hut system sales down 1%; same-store sales down 4%
- Taco Bell U.S. system sales grew 5%, while Taco Bell U.S. same-store sales grew 4%
- KFC U.S. system sales declined by 7%, while same-store sales declined by 5%
- Pizza Hut U.S. system sales and same-store sales both declined by 1%
- Habit Burger & Grill system sales declined by 1% and same-store sales declined by 5%
- Unit count increased 5% including 1,029 gross new units in the quarter
- Digital system sales exceeded $8 billion, with digital mix over 50%
Contact Alicia Kelso at [email protected]
