Yum Brands reported Q1 results Wednesday morning, including positive domestic same-store sales results for KFC, Taco Bell and Pizza Hut. KFC’s sales were up 2%, while Taco Bell was up 9% and Pizza Hut jumped 8%. The Habit Burger Grill’s same-store sales were flat on the quarter.
The company’s development engine also continued to churn, with 746 gross units opened during the quarter and “lots of white space remaining,” according to CFO Chris Turner. But perhaps the boldest headlines from the company’s first quarter were its continued digital acceleration and menu innovation. Yum’s digital mix is now at 45% globally and represents nearly $7 billion, which is a $1 billion increase versus last year. Taco Bell specifically experienced an 8-point improvement in its digital mix after launching delivery as a service through its mobile app, for instance.
“Our long-term aspiration is to get to 100% of transactions that are digitally enabled. I’m not sure how long it will take to get there, and it will take a lot of hard work, but in the long run, I think that’s where we should be,” Turner said in an interview following the company’s earnings call.
The company has plenty of motivation to press the gas here – Turner said digital transactions create deeper relationships with guests, better experiences with both guests and team members, and more value for franchisees and shareholders.
“We like everything about digital sales. It’s a win on all fronts,” he said.
Notably, the company’s digital focus extends beyond the sales piece. Its rollout of Tictuk’s chat ordering capabilities grew to over 1,000 stores in South Africa with early results showing the channel is “sticky.” As such, Yum executives are optimistic about the platform.
“A lot of [Tictuk’s] early start was in small international markets where you had low cellular bandwidth – you couldn’t have heavy traffic on your app or website. But the insight we’ve seen is even in larger markets, a set of consumers finds it to be easier to order and we want to be everywhere customers are, so we started to test it in the U.S. and we’ll see how those tests go,” Turner said. “I think plenty of customers will find it to be an easy way to order.”
And, Yum’s integration of the Dragontail platform in several markets, including over 1,000 U.S. Pizza Huts, has driven improvements in product quality and customer satisfaction scores.
Yum is also deploying “recommended ordering,” which is an artificial intelligence module that recommends how much product a restaurant manager should order each week. The system is live in about 3,600 KFC and Taco Bell stores in the U.S. and has so far reduced off cycle and transfer orders at Taco Bell by 70%, executives said. These integrations are improving operations, and Turner said the company will continue to implement such tools.
On menu innovation, KFC U.S. executives have made it clear that they’re targeting younger consumers and doing so through launches such as wraps and nuggets. Executives also noted on the call that the two for $5 wraps deal drove “significant growth” with lower income consumers.
“KFC is a tremendous global brand and most markets have a large chicken-off-the-bone business with tenders, nuggets and sandwiches. It’s taken the U.S. a little longer to find the right formula and I feel like we’re finding it,” Turner said.
Taco Bell found traction on the quarter with the crispy melt taco and grilled cheese burrito introductions, demonstrating the brand’s ability to balance premium and value offerings. Turner noted that staffing levels are “close to 2019 levels,” which has also allowed Taco Bell to drive growth in its late-night business.
“This is a daypart where many competitors haven’t been able to be open,” he said. “We have seen significant improvements in application rates and retention rates and our staffing levels are almost back to normal.”
Those staffing improvements have especially buoyed Pizza Hut, which struggled much of last year with delivery driver shortages in particular. Pizza Hut’s progress came from refining its internal hiring practices and working with third-party aggregators to both appear on marketplaces and augment deliveries during peak times through white label solutions. Pizza Hut’s robust quarterly sales were also driven in large part by its new melts and Big New Yorker pizza. The products generated positive transaction growth from both new and repeat customers, executives said.
“A number of our strategies are working at Pizza Hut,” Turner said. “The menu innovation machine is alive and well with the melts we introduced in Q4 that continued through Q1. It added a whole new price point to the menu. It’s resonating very well.”
Overall, inflationary, staffing and supply chain pressures are beginning to abate in the U.S. and Yum executives said the company is returning to a “more normalized operating environment.” As such, there is optimism despite lingering economic uncertainties and growing forecasts for a recession.
“We had a strong start to the year with Q1 and are off to another strong start in Q2. We see no change in our momentum,” CEO David Gibbs said on the call. “This environment is a healthy environment for us. We have all the tools in our arsenal to win in this kind of environment.”
Contact Alicia Kelso at [email protected]
