Why Yum! Brands has specific initiatives for its divisions



China division

In the earlier parts in this series, we learned that Yum! Brands’ same-store sales in China dropped because of a scandal related to a meat supplier. In response, Yum! Brands’ (YUM) management dropped OSI as its meat supplier, globally. Also, management enforced higher standards for suppliers. For example, it required suppliers to install closed circuit cameras. There’s also a whistle blower program. The program encourages employees to report violations.

Yum! Brands also introduced breakfast at Pizza Hut restaurants in China. It has been expanding in more cities. We learned that McDonald’s (MCD) is offering breakfast to attract more customers during non-peak lunch and dinner hours. It’s increasing revenues by leveraging existing assets.

YUM Bfst 2014-10-20

The company has focused more on lower tier cities (Tier 3 to Tier 6) for unit growth and better unit economics in China.

Initiatives for the remaining divisions

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  • For the second largest division, Kentucky Fried Chicken (or KFC), management’s unit growth strategy in emerging markets over the long run hasn’t changed.
  • For the Pizza Hut division, management is focused on driving digital initiatives. According the company, digital initiatives were over 40%. This was an increase of over 5% from 2Q14. Keep in mind, Domino’s (DPZ) digital orders accounted for more than 40% in 3Q14.
  • For Taco Bell, the company continues to focus on breakfast. According to management, breakfast “sustained 6% of the daypart mix.”
  • Finally, for the India division, unit growth is still the main growth strategy.

Yum! Brands is also a part of the Consumer Discretionary Select Sector SPDR (XLY). XLY includes restaurants like McDonald’s (MCD) and Chipotle Mexican Grill (CMG). Exchange-traded funds (or ETFs), like XLY, allow investors to gain access to the industry. This broadens their restaurant portfolio.

In the next part of the series, we’ll discuss management’s guidance.


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