How much bigger can the world’s largest restaurant company by unit count get? Apparently, much, much bigger.
Yum Brands CEO David Gibbs presented at Bernstein’s 39th annual Strategic Decisions Conference Thursday, outlining the company’s growth potential, which he said was “in its infancy.” That’s quite a statement coming from the leader of a company that counts over 55,000 restaurants across four brands in 155-plus countries and territories around the world.
But hear him out. Gibbs said Yum is “unique” in that its massive scale creates a virtuous cycle – more stores mean more consumers which means more sales. More sales mean more marketing dollars to woo more consumers. And so forth.
“It’s one positive cycle that just keeps repeating itself,” Gibbs said. Couple that with the advantages scale creates in an uncertain environment and it perhaps becomes a bit more clear why Yum raised its long-term growth algorithm even after record-setting expansion in 2021 and 2022.
“An advantage we have as being the largest restaurant company in the world is it becomes more of an asset for us as the environment changes,” Gibbs said. That enormous scale, for instance, allowed the company to maintain much of its supply chain while others struggled, and to acquire technology companies to integrate those systems at an affordable rate for franchisees. Gibbs notes, by the way, that “growth” means both unit count and unit economics, an important detail in Yum’s story.
“The great thing about development is it’s really hard. We’re at a pace of development that would be hard for our competition to replicate, but we spent years getting the blocks in place to get there. It starts with unit economics. If our franchisees are happy with their returns, they’ll keep building,” he said.
If Gibbs is writing this story, we’re in early chapters with that current 55,000-unit count. He said the company has the potential to build “another 100,000” units.
“We know we’ve only scratched the surface on growth level. We’ve got a lot more that we can do,” he said.
Yum, he adds, is trying to change the narrative about this potential. Gibbs said there are too many questions about how the company will keep up its current development pace, for instance.
“Nobody is trying to duplicate what we did the previous year. We’re always trying to take things up a level and if you look at the fundamentals, I think we can,” he said, adding that there is significant potential in markets like Africa, India, and China.
“And by the way, in the U.S., there is also tons of upside when you think about the number of Taco Bells or KFCs we have relative to McDonald’s. We’re growing, but we can grow faster,” he said, adding that KFC, for instance, could double or triple its domestic presence from its current nearly-4,000 locations. McDonald’s has about 13,700 U.S. restaurants, for context.
How does Yum continue achieving that virtuous cycle in the U.S., specifically? Gibbs said there is a lot of potential for Taco Bell’s breakfast and lunch dayparts, while Pizza Hut’s individual meal occasions and KFC’s extension of handhelds like sandwiches and nuggets are resonating with swiftly changing consumer preferences. Staying connected to consumers and their changing pace, “all sets up nicely for the continued acceleration of growth,” he said.
It's worth noting that Yum’s ambitious algorithm may not only come from just building new restaurants in markets with a lot of white space, but also from additional acquisitions similar to the company’s deal to add The Habit Burger Grill in 2020.
“Five years from now, we’ll have a lot more restaurants because we’re going to build a lot more. We’ll probably also have another acquisition or two along the lines of what we did with The Habit,” Gibbs said. “All of these advantages we have with our scale, we’re learning and applying them and bringing out synergies and creating more growth opportunities for franchisees who want to stay within the Yum system but are looking for more brands to franchise.”
Contact Alicia Kelso at [email protected]
