Why Yum! Brands’ restaurants have grown globally

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Entering the emerging markets

With only two restaurants per million people in emerging markets, the company plans to open new locations in certain countries. Growing restaurant units is the first step to capturing customers in a market. Yum! Brands (YUM) is aggressively growing its units in China.

Unit growth

In the above chart, we see that in the U.S., Pizza Hut and Taco Bell had an average unit growth of ~1% over five years. Kentucky Fried Chicken’s (or KFC) units declined at an average rate of ~3% over the same period. In China, KFC’s units grew at an average of 13% over five years. Pizza Hut’s units grew at an average of 19%.

India’s units also had double digit growth. KFC grew 29% and Pizza Hut grew 18% year-over-year (or YoY) by the end of 2013. The company recently started opening Taco Bell units in India. India only had five Taco Bell units at the end of 2013.

These markets have been a lucrative opportunity for restaurant companies in an exchange-traded fund (or ETF)—like the Consumer Discretionary Select Sector SPDR (XLY).

For example, McDonald’s (MCD) had a flat average unit growth in the U.S. over five years ending in 2013. It had ~8% average unit growth over the same period in the Asia Pacific, Middle East, and Africa (or APMEA) region. The region includes China and India.

In 2013, Burger King (BKW) announced that it established a joint venture in India to enter the market. Starbucks (SBUX) entered the Indian market in 2012.

Are these markets big enough to make a dent into the company’s accounts? We’ll discuss this in the next part of the series.

Visit the Market Realist Restaurants page to learn more.

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