Yum to step up growth in China and beyond

Global growth, particularly in China, was at the core of Thursday’s Yum Brands 2012 Investor Meeting in New York City.

“Our brands, by every metric you can look at, have never been stronger,” said Yum chief executive and chairman David Novak. “I’m very confident we’re going to have solid same-store sales growth.”

Louisville, Ky.-based Yum owns KFC, Taco Bell and Pizza Hut, as well as other international brands and spinoffs. The theme of the meeting was “On The Ground Floor of Global Growth: China and So Much More.”

“We’ve got brands that are part of the vernacular, a part of life, everywhere you go,” Novak said.

Although Yum is also focused on growing its brands in Africa, India and Russia, Novak called the growth opportunity in China the “retail opportunity of the 21st century.”

Weiwei Chen, chief financial officer for Yum China, said the company has a lot of room to grow in the Chinese market — particularly in smaller cities.

The consumer class in China is currently about 300 million people, she said. By 2020, that number should double. Increased consumer spending power and strong, recognizable brands, Chen said, would make for a powerful combination in 2013 and beyond.

In China, specific changes, such as adding rice as a prominent side dish at KFC and signing NBA player Jeremy Lin as a spokesman, have spurred major progress for Yum, said Angela Loh, chief concept officer at Yum China. Expansion of Pizza Hut Dine In, a casual-dining restaurant that offers steak, specialty drinks, desserts and pizza, was also a big part of what contributed to Yum China’s growth last year.

The business in China has scaled rapidly, she said. In 2003, Yum’s sales in China were about $1 billion. In 2012, they exceeded $8 billion, and they’re expected to grow.

Yum also highlighted its plan to grow its number of locations during 2013. Yum Restaurants International (YRI), which encompasses Yum’s locations outside the U.S., China and India, plans to add 950 new units next year. Yum India, which currently has 240 KFC locations, is expected to have more than 500 KFC locations by 2015.

New moves in the U.S.

In the U.S., Taco Bell is expected to have net unit growth of 60 during 2013, while Pizza Hut is expected to have net unit growth of 120 restaurants. The company also plans to expand into different dayparts with new breakfast offerings at Taco Bell and KFC.

Broadly, Novak sited menu and value innovations, such as the Pizza Hut Big Dinner Box, which started in Australia and spread through Korea, Kuwait and the U.S., as reasons Yum had done well in 2012.

In the U.S., Taco Bell saw big changes in 2012, including the introduction of the Doritos Locos Tacos, the Cantina Bell menu and a new advertising campaign, said Greg Creed, the brand’s chief executive. Those changes will continue to expand in 2013, he said, with the addition of more Doritos Locos flavors — Cool Ranch and Flamas — and the introduction of a fajita version of the more upscale Cantina line.

“The good news is that Doritos Locos Tacos has driven frequency among our male group,” he said, while the Cantina Bell menu has driven sales among lapsed customers and women. More than 300 million Doritos Locos Tacos have been sold since they were introduced in March.

Creed also noted that the company had dropped its “Think Outside The Bun” campaign and switched to “Live Más,” signaling that customers could get more, or más, out of Taco Bell, he said.

Taco Bell recently instituted a new franchisee agreement, which includes a 25-year contract option. In exchange, Creed said, the company gets all of the franchisees’ marketing dollars. Taco Bell will then reinvest that money on the corporate level.

The brand also introduced a new restaurant style that is $230,000 cheaper to build than Taco Bell’s last store model. The new stores now cost about $830,000 to build.

Yum operates or franchises more than 38,000 restaurants in more than 120 countries.

Contact Erin Dostal at [email protected].
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