LOUISVILLE Ky. Yum! Brands Inc. has targeted 2009 as the year for its U.S. business to finally run on all cylinders. —After years of relying on overseas sales and profit to drive corporate performance,
With added menu items at KFC, Taco Bell and Pizza Hut, systemwide cost savings, and continued refranchising, the quick-service giant said this month that next year its U.S. same-store sales would grow by 3 percent and operating profit would increase by 15 percent. To achieve those projections, Yum is relying on KFC’s new grilled chicken and national value menu, Taco Bell’s more healthful Fresco menu and a new dinner taco kit, and new additions to Pizza Hut’s now $500-million Tuscani Pastas line. The company also said expenses would be cut by $60 million, providing the bulk of the profit improvement, and Yum would refranchise at least 500 corporate restaurants. —After years of relying on overseas sales and profit to drive corporate performance,
“We are transforming our U.S. business,” David Novak, Yum’s chairman and chief executive, said at an investment conference in New York. “We have big visions for these brands.” —After years of relying on overseas sales and profit to drive corporate performance,
Yum’s U.S. division posted a 15.5-percent drop in operating profit for the third quarter ended Sept. 6. The company predicted that its annual domestic profit would fall about 8 percent because of increased commodity costs and the depressed economic environment. Some analysts predict it could fall even more. —After years of relying on overseas sales and profit to drive corporate performance,
U.S. operations have suffered recently with KFC underperforming in 2008 and Taco Bell enduring both an E. coli outbreak at certain units in 2007 and a televised rat infestation in a New York City co-branded unit the same year. —After years of relying on overseas sales and profit to drive corporate performance,
Analyst response to Yum’s confidence that its U.S. business would rebound in 2009 was mixed. Some said quick-service chains are recession-resistant and should be performing at the level of segment leader McDonald’s, mainly because consumers continue to trade down to lower-priced options. Others took a more wait-and-see approach with Yum, especially as the company’s U.S. turnaround plans rely so heavily on KFC, a brand that has struggled of late, and which has tried—and failed—in the past to drive sales through nonfried-chicken products. —After years of relying on overseas sales and profit to drive corporate performance,
“Such [U.S.] growth is in-line with [Yum’s] long-term target, though it has not been achieved over the past five years,” Jeff Bernstein of Barclays Capital said in a research note. “For 2009, [Yum] is heavily dependent on a KFC rebound, which we believe may be presumptuous.” —After years of relying on overseas sales and profit to drive corporate performance,
KFC has been a drag on Yum’s U.S. performance in the recent past. Domestic same-store sales growth of 4 percent during the September-ended quarter was led by positive results at Taco Bell and Pizza Hut, but offset by a decline of 4 percent at KFC. The chicken chain also posted an operating loss, while Taco Bell and Pizza Hut hit profit targets, Yum said. —After years of relying on overseas sales and profit to drive corporate performance,
At KFC, the grilled-chicken platform is scheduled for systemwide introduction in the second quarter of next year, after the longest product test in company history. Yum first announced it was testing its Kentucky Grilled Chicken in March after developing the item during the past four years. —After years of relying on overseas sales and profit to drive corporate performance,
“This product will be a major transformational product for us,” Novak said. “It’s a whole new KFC.” —After years of relying on overseas sales and profit to drive corporate performance,
Also new at KFC next year will be the chain’s first national value menu. Featuring nine items for between 99 cents and $1.99 each, the value menu was tested in three markets. Yum did not reveal a time frame for the national introduction of the menu, which includes 99-cent KFC Snackers, a toasted wrap for $1.49, and snack boxes of popcorn chicken or three hot wings for $1.99. Various quick-service chains, including McDonald’s, Burger King and Wendy’s, have found success with value menus that feature items typically priced near the $1 mark. —After years of relying on overseas sales and profit to drive corporate performance,
KFC has tried in the past to move away from its fried-chicken roots. It pulled the Colonel’s Rotisserie Gold line in 1996, three years after $100 million was spent on introductory promotions. The Rotisserie Gold products were then replaced by Tender Roast items that survive today in a sandwich, a Twister wrap or as a salad topping. —After years of relying on overseas sales and profit to drive corporate performance,
This latest attempt at nonfried chicken will be sustainable, Novak said, as both marketing tactics and operational techniques have been completely vetted. In addition, Yum has spent $30 million to help franchisees pay for the new ovens needed for the product. While KFC is marketing the new product as grilled, the chicken is actually roasted in an automated, high-temperature convection oven, which uses a patented nonstick “grill plate” to stripe the chicken with grill markings. —After years of relying on overseas sales and profit to drive corporate performance,
KFC’s buckets can be filled with both fried and grilled chicken. —After years of relying on overseas sales and profit to drive corporate performance,
“We have been slow in addressing…that people want to avoid fried foods and that they are looking for better value,” Novak said. “That has been fixed.” —After years of relying on overseas sales and profit to drive corporate performance,
Menu changes at both Pizza Hut and Taco Bell also are in store. Pizza Hut’s successful Tuscani Pastas, which tally about $500 million in sales now, will be expanded to include a family-style lasagna offering. Pizza Hut’s co-branded WingStreet chicken wing concept also will be large enough in 2009 to start national advertising, helping drive Pizza Hut away from its pizza-centric heritage toward a brand that offers pizza, pasta and wings, Yum officials said. —After years of relying on overseas sales and profit to drive corporate performance,
At Taco Bell, additional flavors under the Frutista Freeze line will be added, including cream-based dessert beverages, and a Fiesta Meal take-home taco kit that is aimed at increasing dinner traffic. Details, including a price point on the dinner offering, were not disclosed. The brand also will add items to its Why Pay More value menu, which offers items for between 79 cents and 99 cents. Taco Bell also will be testing a Fresco menu with nine items that tally 9 grams of fat or fewer. —After years of relying on overseas sales and profit to drive corporate performance,
Should U.S. operations not improve as planned, Yum receives at least 40 percent of operating profit from its overseas operations, which it said would continue to grow. Plans call for profit growth of between 15 percent and 20 percent in China, based on the opening of at least 500 new units and same-store sales growth of about 5 percent. —After years of relying on overseas sales and profit to drive corporate performance,
In other international markets, unit growth is expected to hit 4 percent and same-store sales should increase between 3 percent and 5 percent to drive a 10-percent profit improvement. Overall, Yum said 2009 earnings per share would grow by at least 10 percent from 2008, also aided by reduced spending on commodities, which hit the company hard this year. Commodity spending should drop to about $60 million in 2009 from $120 million in 2008, which Yum said was unexpected and nearly four times the normal rate. —After years of relying on overseas sales and profit to drive corporate performance,
“We won’t be burned twice in a row,” chief financial officer Rick Carucci said. —After years of relying on overseas sales and profit to drive corporate performance,
Worldwide, Yum operates or franchises more than 35,000 restaurants, including about 17,825 in the United States. —After years of relying on overseas sales and profit to drive corporate performance,
