Why Yum! Brands’ unit growth in 3Q14 is important

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Oct. 24 2014, Updated 12:00 p.m. ET

Unit growth

Unit growth is another important revenue driver. Restaurants that are growing quickly, especially in markets that don’t have a widespread presence like Yum! Brands, can reap a first mover advantage. For example, Kentucky Fried Chicken (or KFC) entered China in 1987. According to Milward Brown, KFC was the most powerful foreign brand in China in 2013. McDonald’s (MCD) entered China in 1990.

YUM Units Added in 3Q14 2014-10-14

Adding more restaurants worldwide

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Yum! Brands (YUM) opened 55 KFC units, 55 Pizza Hut units, and 35 Taco Bell units in the U.S. and International division. In the China division, Yum! Brands added 16 new KFC units, 37 Pizza Hut dining units, and 11 Pizza Hut delivery units. In the India division, Yum! Brands added 18 new Pizza Hut delivery units and four KFC units. It’s important to note that the U.S.  and International division doesn’t include the markets in China and India.

As of 3Q14, there were ~4,500 KFC restaurants. This was more than double the number of McDonald’s (MCD) restaurants. MCD had ~2,000 units as of April 2014, according to the China Retail News.

The Pizza Hut dining concept is a full service, sit in, and casual dining restaurant. The Pizza Hut delivery concept only offers carryout. Pizza Hut faces competition from other big brands like Domino’s Pizza (DPZ), Papa John’s (PZZA), and several other local pizza shops in the U.S.

McDonald’s and Yum! Brands are both a part of the Consumer Discretionary Select Sector SPDR (XLY).

The company maintained that it will open 700 restaurants overall in 2014. It will open the same number of restaurants in 2015 in China. It also plans to open 650 new KFC restaurants and 450 new Pizza Hut restaurants outside of the U.S.—excluding China and India. In the next part of the series, we’ll look at management’s initiatives for Yum! Brands.

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