Industry News | February 8, 2012

China Continues to Be Major Engine for Yum Growth

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With more than half of Yum! Brands' profits now derived from stores in 73 emerging countries outside the U.S., Yum CEO David Novak said the company sees global growth as one of its biggest opportunities in 2012.

Novak said that China in particular is “the best restaurant growth opportunity of the 21st Century."

Speaking to investors yesterday during the company's fourth-quarter earnings call, Novak said Yum opened a record-breaking 656 new restaurants in China in 2011, helping usher in 19 percent same-store sales growth. The company's KFC brand has 3,701 restaurants in more than 700 Chinese cities, and continues to expand into new cities, he said.

Richard T. Carucci, CFO of Yum, said 622 of last year’s new China stores were in emerging markets, with more than 90 percent operated by franchisees. "The biggest tailwind" in the region is China's blossoming consumer class, he said, noting that 90 percent of the quick serve's China store operators have a college education.

"In every one of our KFCs [in China], we have two assistants ready to open up new stores," Carucci said. He also noted that new-unit returns on investment in China "are the best in our business, with cash paybacks within three years.”

"We have the best retail management base in China. This is a huge competitive advantage as we go forward," Novak said, predicting the global firm would snatch up "the nation's flagship locations," leaping ahead of other quick-serve competitors.

Carucci said the firm has benefitted from China's sizable investment in transportation and housing infrastructure. "The other piece that has increased our numbers in 2011 was really Pizza Hut development," he said. "Although the brand struggled in China's third-tier cites" initially, he said, the company expects to hit its target of launching 600 new Pizza Huts in China in 2012.

Novak also touted the company's expertise in developing human capital in Asian markets. "If Proctor & Gamble is the king of marketing in the U.S., we see ourselves as the leader in operating talent in China," he said.

Novak said Yum is also making progress in other international markets. He said the global quick-serve company now has nearly 4,000 international restaurants with grilled ovens, which he says allow operators to expand the menu with "innovative non-fried products."

Yum Restaurants International opened a total of 905 new stores in 2011, including 101 in India, said Tim Jerzyk, senior vice president of Investor Relations for Yum.

It's a far different story on the U.S. side, with profits down 12 percent from 2010, Carucci said. While same-store sales shot up 19 percent in China, they declined 1 percent in the U.S. in 2011. "We had a solid year at Pizza Hut, but weak sales and profit results at Taco Bell and KFC," Carucci said. Still, he expects U.S. operations to return to profitability in 2012.

Novak said the company plans to “reinvigorate” business in the U.S. this year. "We had positive net unit growth at Taco Bell and Pizza Hut in 2011, and we expect this trend to continue," he said.

Taco Bell's late-night strategy, which Novak said proved successful, will be extended into the breakfast daypart with its FirstMeal menu test. "We'll be opening for breakfast at about 8 a.m. and gradually moving that earlier as we gain traction," he said. The company also plans a March national launch of its Doritos Locos Taco, which it tested late last year, he said.

Yum will continue its refranchising program, reducing the percentage of company-owned KFC stores to 5 percent by the end of 2012, while Taco Bell store ownership will decrease from 23 percent to around 15 percent over the next two years, Carucci said.

By Jan Fletcher

News and information presented in this release has not been corroborated by QSR, Food News Media, or Journalistic, Inc.