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Yum! Brands: Tacos, Chicken, Pizza & Burgers – Recipe For Global Growth

Insight by

Chris Turner, CFO, Yum! Brands, spoke with Andrew Charles, Restaurants Analyst at our 7th Annual Future of the Consumer Conference.

On this episode, they discuss Yum’s franchisee selection criteria, proprietary digital infrastructure, and relentless pursuit of improving ROIC to fuel the portfolio’s development engine.

Press play to listen to the podcast.

Transcript

Speaker 1:

Welcome to TD Cowen Insights, a space that brings leading thinkers together to share insights and ideas shaping the world around us. Join us as we converse with the top minds who are influencing our global sectors.

Andrew Charles:

I’m Andrew Charles. I’m TD Cowen’s Restaurant Analyst, and I’m pleased to be joined today by Yum! Brands, which is the parent company of KFC, Taco Bell, Pizza Hut, and The Habit Burger. With a portfolio of nearly 56,000 restaurants that is 98% franchise and spans 300 different brand country combinations. I’m pleased to be joined by CFO, Chris Turner. Chris, thanks so much for joining us today.

Chris Turner:

Thanks so much, Andrew. It’s great to be here with you.

Andrew Charles:

Chris, I got to start out. You have four great brands. What’s your go-to order when you go and visit The Habit, Taco Bell, Pizza Hut and KFC?

Chris Turner:

Oh, wow. The Habit, char burger with a vanilla milkshake. Taco Bell, I just got the enchirito the other day. It’s great to have it back. Pizza Hut would be a thin crust pepperoni pizza with jalapeno and the KFC, biryani chicken in India is my favorite KFC product around the globe.

Andrew Charles:

Three for three on what we tried so far, but you got me beat on the biryani chicken, it gives me something to look forward to, so I appreciate that. And one last question on this too, is pineapple a pizza topping or not?

Chris Turner:

I think it is.

Andrew Charles:

It’s my go-to at Pizza Hut, so I think it is too.

Chris Turner:

Great.

Andrew Charles:

So want to talk a little bit more about Yum! Curious what makes Yum! unique in your view in the restaurant space and what’s fueling your growth as succeeding in the industry?

Chris Turner:

Well look, if you step back and think about Yum! in totality, I think we have an incredible business that’s pretty darn unique in the space. We’re the world’s largest restaurant company, as you mentioned in terms of unit count, north of 55,000 units, four iconic brands, more than a million and a half team members who bring our brands to life around the globe each and every day. An incredibly global business, more than 155 countries and 1500 amazing franchisees who are doing incredible work running our restaurants around the globe. They’re awesome partners.

But I think at the core is our strategy. So if you think about our purpose and our vision is to build the world’s most loved, trusted, and fastest growing restaurant brands through our recipe for good growth. And we’re very purposeful about having those two elements together, gives us a framework for sustainable responsible growth, how we manage risk, but that word growth is there at our heart. Despite being the world’s largest restaurant company, we are a growth company. That combination is what inspires our people day in and day out.

Andrew Charles:

I just think that with 300 different brand country combinations, the best practices and collaboration you guys have really affords you some special opportunities for that growth as well.

Chris Turner:

Yeah, collaboration is so critical. I’ll talk about one of the most distinctive things about Yum! When you talk about collaboration, you talk about our people. I used to be a consultant, I worked with a bunch of different retail companies, amazing companies. But being a global retail or restaurant company is something that’s really hard. There haven’t been very many companies that have done this on a truly global scale. Part of what has been key to Yum’s success and our brand success is we are pretty decentralized and that’s what allowed us to grow so rapidly in so many markets around the globe. We didn’t go in with a massive playbook that said, here’s exactly how you run each of our brands. We went in with a few guardrails. In KFC, you’re going to use The Colonel, you’re going to have 11 herbs and spices. You’re going to have a great culture for our team members. You’re going to have great food safety standards, you’re going to have 11 herbs and spices.

And we then said, a very entrepreneurial GM, “Go take that and bring it to life in the market.” And in that environment, that’s what allowed us to be so fast-growing in so many markets. But it’s not command and control. So we have to have people who are very collaborative, who know how to build relationships, build trust, influence others, because that’s the way you make things happen in our system and it’s the way you make things happen with our franchise partners.

Andrew Charles:

In addition to culture, I want to talk a little bit more about digital, which I think is a bit unique for you guys as well, just given the ecosystem that you’ve built. And so how does Yum! differentiate with its digital centric strategy that accounts for nearly 50% of sales across the portfolio? And curious as well around what inning are we in with digital and the biggest opportunities to come there?

Chris Turner:

Well, the digital story I think is a tremendous one. I think it’s another thing that differentiates us. So this is one where we made a purposeful shift in our strategy a few years back because we truly believe that digital will define how restaurant companies operate and interact with customers in the future.

Of course, there’ll be things that always must be true. You’ve always got to have craveable food, you’ve always got to have great experience in the restaurant, you got to have friendly people. But digital is that new element that we think is necessary. We shifted our strategy to reflect that and it is differentiated.

So first we are leveraging our scale. So in technology, you got a lot of fixed cost investments. We’ve got the largest restaurant footprint in the world. We can bring technology to life more efficiently if we are owning more of that technology in house because of those fixed cost economics and leveraging our scale. Also by owning the technology, we can be faster, we can be more nimble to bring new developments into the system.

We can have better capabilities over time by owning those in-house. We’ve got a great set of teams that we’ve put together, amazing leadership team for our technology both at the center at Yum! and in our brands. And we’ve added a number of acquisitions. We frame all of our capabilities and technologies around the word “easy,” bringing easy to life. And those capabilities are grouped into easy experiences for our customers, easy operations for our franchisees and for our team members and easy insights leveraging the data that are created from all of the assets across our platform.

Andrew Charles:

Very good. I want to keep in the technology theme. At the December 2022 investor meeting, Yum! discussed robotics and automation as an initiative on the strategic roadmap. How do you envision that being deployed at Yum!? And really which brands do you think could benefit the most from robotics automation and AI?

Chris Turner:

The robotics front, if you think more broadly the leading edge technologies that will change the way restaurants operate, they all tie back to that easy strategy. Of course, the overarching goal of that is to drive profitable growth for our franchisees. Doing that by better serving our customers, better serving our team members, better serving our franchisees. So when you think about things like automation and AI, they’re all in service of those objectives.

We started the Yum! Innovation Team and built Yum! Red Labs just a couple of years ago and they’re doing some incredible work in each of our brands. Testing and piloting leading edge technologies that both make the jobs in our restaurants easier for our team members, makes it easier for them to provide a great experience to our customers. We’ve got things that are in test out there. We’re using AI and we’ve got it at scale in a few areas.

So one of our acquisitions was Dragontail, which is in our easy operations platform. It really changes how the restaurant operates. Dragontail knows where our delivery drivers are and the times when they will come back to the restaurant. It does a great job assigning orders to those and then helping the kitchen know which orders to process and to prepare in what order and when to do that so that the food is coming out at its freshest and hottest right as the delivery driver arrives at the restaurant. It really leads to a great customer experience on the back end.

So that’s one example of how AI is coming to life. Of course we’re testing, thinking about evaluating more advanced forms of AI as well on the generative side. Of course there’s still a lot to be sorted out about the right kind of data security and protections and privacy. So there’s still a lot of work to be done on that front, but we want to be at the leading edge.

Andrew Charles:

Absolutely. Chris, you’re starting to make me hungry too with those answers. So keeping with that, certainly you’ve got four strong scalable brands and maybe if I just pivot away for a second away from the technology acquisitions that you guys have been active with in building that digital ecosystem. If you were to add a fifth restaurant brand, how would you think about the characteristics and attributes for that brand?

Chris Turner:

I think they would fit with the broader characteristics that define Yum! today. And of course I go back to that recipe for good growth and the elements there. On the good side, we focus on people, food and planet. On the growth side, we think about unrivaled culture and talent, bold restaurant development, unmatched operating capability and having relevant, easy distinctive brands.

So anything that we add to the portfolio would fit with that overarching strategy. That means that it would first be grounded in a growth opportunity. So we would have to be uniquely positioned to help unlock growth in that brand. Second, there’d have to be strong business fundamentals in that brand. The unit economics would need to be strong, good operating capability, a red brand. Third, they would have to be able to benefit from the scale in our system. We’d have to have a path to doing that. And then I’d say fourth of course, there has to be a compelling shareholder value creation opportunity in terms of the kind of deal that we could create.

Andrew Charles:

At the investor day you discussed having the opportunity for additional a hundred thousand restaurants around the world. What are the commonalities for where those stores will be added and how they are positioned with expanded access points for customer convenience?

Chris Turner:

Well, you’re hitting on bold restaurant development, which I think is another one of those capabilities that’s really distinctive at Yum! and is hard for any competitor to replicate. And we’ve proven it over the last two years.

As you know, the last two years we’ve opened on a growth basis 8,600 new restaurants for two years straight. That’s a new restaurant opening every two hours, which is just an incredible accomplishment by our teams and our franchisees. And that’s underpinned by having strong unit economics, what we call 3C franchise partners. They are capable, they run great restaurants, they’re well capitalized and they are committed. And our franchise partners, they’re awesome growth-minded leaders. And because of the unit economics that we have, because of how compelling our iconic brands are, they are building restaurants at this incredible place in markets around the globe. And then third, I’d say we’ve got the best development teams in the business and then we are increasingly using more and more analytic capabilities to help us identify the right locations for those restaurants.

So that’s what underpins it. But we have tremendous white space opportunity as you mentioned. We think there can be another 100,000 restaurants in our four brands around the globe, and then we actually have line of sight to a massive number of those through those analytical capabilities that I mentioned earlier.

Now, where would they be? What would the commonalities be? We see opportunities in virtually every market around the globe. You think about the US where we have approximately 17,000 restaurants with 330 million people, you might say, “Gosh, you guys are pretty well penetrated here.” We still think there’s massive upside in the US.

Taco Bell, we’re talking about an opportunity to potentially double the number of Taco Bells in the US over the long run. Then you go to a market like India with a billion people, we’re just north of 2000 restaurants there. You’ve got a really fast-growing consumer population in India. So you just start doing the math on that you see that there’s massive opportunity.

And I could go country by country around the globe and give you the same sort of white space opportunities. So we think this is very broad based in terms of the types of restaurants that we would build. They’re going to be right for the future consumer, which is increasingly becoming off-premise, digital and our restaurant prototypes will reflect that increasingly over time.

Andrew Charles:

So Chris, I got to ask you 155 different countries and growing. What’s either been the most unique or the most fun or the most interesting place that you visited with Yum!?

Chris Turner:

Last year with travel picking up post Covid, it was a great year of travel for me to get out and meet our team members and meet our franchise partners in a number of markets. I got to go to India and spend time with our teams at Devyani, Sapphire and with the Burman family, which is leading up Taco Bell. Those are our three largest franchise partners there, all amazing operators.

I was in the Middle East with Americana. They have an incredible team that’s driving tremendous growth in that region right now. I was in Turkey with Ilkem Sahin, who is just an amazing growth oriented leader. Built over 300 restaurants since joining our system just a short time ago, really inspirational team. And they’re really breaking new ground in how do we develop units in that really important region.

And then of course I’ve been around the US and met with a number of our incredible franchisees here, Greg Flynn and Flynn Restaurant Group, they are big operators in our Pizza Hut and Taco Bell system. Mike Culp, our largest KFC franchisee in the US. And then of course I was back in one of my favorite places in the US, I’m from Arkansas originally, and I was back in Fayetteville, Arkansas, and I spent time with Tina Reagan, who’s the CEO of KMAC, which is one of our largest Taco Bell franchisees in the US.

She has an incredible story. She started working in the restaurant when she was in high school and she is now the CEO of this roughly billion dollar organization in KMAC. Tremendous partner. But you just see all of these inspiring stories of how franchisees are bringing the brands to life and inspiring our team members day in and day out. All of those were exciting visits.

Andrew Charles:

Yah. And inspirational was the word that came to my head as well and keeping that spirit of in inspiration. In the past, you’ve discussed the importance of culture and talent and driving results. Can you talk a bit about how your culture and talent is a differentiator and competitive advantage as we come out of the pandemic?

Chris Turner:

So one of the real advantages of Yum! and why we believe the power of Yum! having these four brands together in one organization is so important and creates a power above and beyond just the sum total of the brands, is talent. So if you were to actually look at our recipe for good and growth, in both elements the component that we highlight is people.

So under our recipe for good, the good side, people is elevated. That’s where we think about unlocking opportunity. So how do we unlock opportunity for people in our system? How do we unlock opportunity for people in our communities? Of course, we’ve put a hundred million dollar investment against that during the height of the pandemic. We’ve already made tremendous progress against many of those initiatives that started under that program.

Then if you go over to the growth side, unrivaled talent and culture is the element that is prioritized there. So this is really a people focused company and that talent component comes to life because of the opportunities that Yum! can provide having four brands. You think about our leaders, Mark King out at Taco Bell, Aaron Powell who joined us externally is leading the Pizza Hut brand. Sabir Sami who has spent many years leading within the KFC system. All of them are at Yum! in part because of the opportunities that our multi-brand environment can provide.

Andrew Charles:

That’s great. And we transitioned from franchisor to franchisee. Your team has done a great job with franchisee selection. Would you talk a little bit about your 3C focus and how this is positioned Yum! differently than competitors?

Chris Turner:

Yeah, so earlier I mentioned a number of those amazing franchisees around the globe. We have 1500 franchisees and we define what a good franchisee in our system is around this 3C framework. And the elements there, I mentioned earlier but I’ll repeat them, first, they need to be highly capable. They have to run great restaurants. But that’s not enough. In some of our competitor systems, that is enough.

Second thing is they have to be well capitalized. And of course our franchisees on average are larger than franchisees in other systems and they are tremendously well capitalized in general around the globe. And then third, they have to be willing to put that capital to work to drive growth. And we call that being committed. So we want franchisees who want to be developers building new units and taking on new opportunities. And in general, we’ve got, I think by far the most 3C franchisees of any restaurant company around the globe.

And what that does for us is it provides not only tremendous growth, that’s core to why we were able to open 8,600 new units over the last couple of years, but it also provides tremendous resilience. So if you think about any sort of macroeconomic environment, our franchisees thrive because of their infrastructure and their sophistication.

Take Yum! China as an example. So Joey Watt, the CEO of Yum! China, our largest partner, in the depths of Covid, which had a tremendous impact in China as you know, significant same-store sales impacts, Joey and her team opened 3000 new units in our brands over the last three years. And no one else was really able to do that. They had a distinctive set of capabilities and they said we’re going to go take advantage of this opportunity in the market to expand the platform. And so as we come out of Covid in China, our overall business is much larger as a result of that.

Andrew Charles:

Chris, thank you so much for your time today. It really was a pleasure and just your passion for Yum! You so clearly exude it. So Chris, thank you so much and hope to catch up at the end soon.

Chris Turner:

Thanks so much, Andrew, I appreciate it.

Speaker 1:

Thanks for joining us. Stay tuned for the next episode of TD Cowen Insights.


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