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Yum! Brands says strategy working for brands
April 15, 2010
Yum! Brands Inc. is confident its 2010 strategy is working for its brands, even as it anticipates the the U.S. market to remain challenging for the remainder of the year, executives told investors in the company's first quarter earnings call.
KFC in the United States, which reported same-store sales declines of 4 percent for the quarter ended March 20, is focused on three key areas to turn the brand around. They include more balanced options such as its grilled chicken line, portable product innovations such as the current Double Down sandwich, and improved operations, Yum! chairman, president and CEO David Novak told investors.
According to various media reports, sales of the Double Down have been successful in the first week of its launch, no doubt due to intense media focus and social media buzz about the product. Fortune magazine sees the product's popularity not only as a good sign for Yum! but for the quick-service industry.
From the story:
But while the Double Down may be a passing fad, it has longer-lasting implications for KFC, which has been struggling to grow sales for several years now. In fact, it's a turning point for the fast food industry as a whole -- proof that customers will now flock to product innovation, not just pricing promotions."It's one of the things that operators do when they start to see light at the end of the tunnel," says Bonnie Riggs, a restaurant analyst at research firm NPD Group. "It's happened in each of the recessions that I've studied: new products arise to divert customers' attention from discounts."
KFC expects the next quarter to be a challenge as it laps last year's introduction of the grilled chicken line, Novak said. The company does expect some lift from the Double Down and the Pink Bucket breast cancer fundraising campaign.
"We have brought in a lot of talent at KFC," Novak said. "We are totally passionate to turning around the U.S. business, and I am really proud of the efforts that are going on, but there is a lot of wood to chop, so to speak."
Taco Bell strategy, Pizza Hut improves
At U.S. Taco Bell stores, transactions were up but comps were down 2 percent as customers bought from the value menu and cut their drink and combo meal orders, Novak said.
Taco Bell has a strong product pipeline for the year, and the company expects its strategy of focusing on sales layers to pay off going forward, Rick Carucci, Yum! chief financial officer told investors. Regarding the limited-time shrimp taco, a new protein innovation, consumer response was good with some stores unable to keep supplies up to meet demand. The company expects to have future targeted seafood LTOs as a results.
Product lines in test include at-home meal replacements, breakfast and beverages.
U.S. same store sales overall were down 1 percent, but the company was pleased with Pizza Hut's performance. It's $10 pizza deals helped lift same-store sales to an increase of 5 percent, a significant recovery over the fourth quarter. Average check was down as a result of the value promotion, but increased transactions contributed to the comps lift.
Benjamin Shepherd, editor of Louis Rukeyser's Mutual Funds financial newsletter, said he has seen several improvements in the U.S. economy to signify that a real turning point has been reached. He cites factors such asgradually improving unemployment, housing markets nearing an inflation point and improving same-store sales from higher-end retailers. "All of these factors and more are major positives for consumer spending here in the U.S."
　
"Specifically in the case of Yum!, the big news wasn't so much the slightly lower U.S. sales as much as the solid international revenue picture," he said.
China leads system growth, comps
China led the company's growth, with same-store sales up in that division 4 percent. System sales growth for the China division was up 15 percent, driven by new unit development of 14 percent over last year.
KFC leads Yum!'s China business with nearly 3,000 stores in more than 650 cities. Successful iniatives in that division include delivery, providing 3 percent of sales, and breakfast, which provides 7 percent of transcations, Novak told investors.
The China division opened 96 new restaurants in the first quarter, including 15 net openings for KFC. The company plans 500 new stores in China this year.
YRI strategy
Yum! Restaurants International division reported same-store sales were down 2 percent, including a negative 1 percentage point impact from the timing of Chinese New Year. The company's strategy continues to be driving aggressive expansion as it build strong brands in markets outside of China, Novak said.
YRI's system sales growth of 1 percent, excluding foreign currency translation, was driven by new unit development. YRI opened 109 new units in more than 40 countries with franchisees opening 89 percent of the new units.
YRI's new growth markets of France, India and Russia were strong contributors, contributing 14 percent of system sales growth excluding foreign currency translation. Taco Bell opened its first store in India during the quarter, and sales have been extremely strong, Novak said, with more than 1,000 transactions a day.
The company also is focused on emerging markets whose gross national income per capita is less than $12,000. Countries in those markets, including Indonesia, Malaysia, India, Russia, Vietnam and Brazil, have a booming middle class population. The company has almost 10,000 stores already in these markets and plans to continue expanding there.
"I'm pleased to report that Yum! Brands is off to a strong start in 2010," Novak said. "We continue to execute against our global growth opportunities, both in China as well as Yum! Restaurants International, with our leading industry new unit expansion. ... Our focus is global, which is particularly strong in emerging markets like China and India. KFC is a leading western brand in many emerging markets and the fastest growing western brand and we are very pleased to be so well positioned in the fastest growing economies of the world, with expanding middle class populations. ...
"In the United States, we are making progress, competing in a tough macro environment. We are encouraged by recent sales trends at each of our brands, with no other we have plenty of opportunity to drive value and innovation as we improve operations."
Financial results, conference call replay
Revenue for the quarter was up 6 percent at $2.3 billion compared to $2.2 billion in the same period last year.
Net income for Yum! was up 10 percent at $241 million, compared to $218 million in the same period last year.
A replay of Yum! Brands' conference call is available by dialing (800) 642-1687 in the United States and (706) 645-9291 internationally. The playback pass code is 66737706.The webcast playback can be accessed via the Internet by visiting Yum! Brands Web site under Investors: News and Presentations.
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