Investments in digital initiatives are paying off for Yum! Brands. CEO David Gibbs said during the company’s Q1 earnings call that it grew its digital business by $1 billion over the past year. Its digital mix now exceeds 45 percent globally and represents around $7 billion in sales.
Year-over-year digital sales at Taco Bell increased 60 percent in the quarter, leading to an eight-point improvement in digital mix, after the fast-food giant added delivery as a service through its mobile app. Pizza Hut last year started working with third-party delivery providers to offset staffing challenges. While the labor situation has improved since then, the company continues to deepen partnerships with the three major food aggregators to bolster fulfillment during peak times.
“We view aggregator marketplaces as an additional channel to provide customers greater access to our brand, while also attracting an incremental customer,” Gibbs said during the company’s Q1 earnings call.
The Habit Burger Grill also is expanding partnerships with third-party delivery providers. U.S. system sales for the burger chain grew 8 percent in Q1 with flat same-store sales growth.
Additionally, Taco Bell is driving digital adoption with store designs that cater to on-the-go guests, like the Go Mobile concept, which was designed specifically for customers ordering ahead. Thanks in part to the ongoing digital momentum, Taco Bell’s domestic comps grew 9 percent in Q1, with U.S. system sales increasing 11 percent. Gibbs attributed the topline strength to a “consistent growth formula” that combines digital initiatives and value offerings with “buzz occasions.”
Adding delivery as a service at Taco Bell and deepening partnerships with third-party delivery providers are just some of the ways Yum! Is bolstering its digital ecosystem. Tictuk, a conversational commerce platform acquired by the company in 2021, recently completed its largest market deployment for chat ordering to date. With the technology, customers are now able to order KFC across 1,000 stores in South Africa using WhatsApp. CFO Chris Turner said early results in the market show the new ordering channel is sticky, with more than 40 percent of users placing multiple orders within the first 90 days after launch.
Dragontail, a platform that automates kitchen flow and driver dispatch processes, was launched in over 1,000 additional restaurants in Q1. Pizza Hut’s domestic system led the charge by doubling the number of stores that are equipped with the technology. Around 400 KFC stores in Canada launched the platform, too.
“Restaurants that implement Dragontail consistently see improvements in product quality and customer satisfaction scores as the order sequencing algorithm and driver dispatch capabilities ensure products arrive hot and fresh,” Turner said.
Yum! also is rolling out recommended ordering to more locations. The artificial intelligence module, which recommends how much product a store should order each week, is now live in over 3,600 KFC and Taco Bell restaurants throughout the U.S. Along with reducing the time restaurant managers spend ordering product and improving forecasts, the technology has cut down on the number of off-cycle orders and cross-store transfers at Taco Bell by 70 percent.
While Taco Bell continues to attract price-sensitive guests with its Value Cravings Menu, it also is seeing strength in higher-priced menu items, like the new Crispy Melt Taco and Grilled Cheese Burrito.
“Strong demand for the Grilled Cheese Burrito is a fantastic example that proves Taco Bell can win in the big burrito category and participate in higher price points,” Gibbs said.
Opportunities also exist for Taco Bell to participate in higher price points with options that are geared toward family meals, he added.
“At the beginning of the pandemic, you saw Taco Bell rolling out family meal options, because that became the preferred way that people were accessing our brands,” Gibbs said. “They’re continuing to lean in on ways they can capture more of the family-sharing occasion.”
On the flip side of that coin, KFC and Pizza Hut typically skew toward family sharing but are finding success with new items that are designed with the individual meal occasion in mind. Same-store sales at KFC U.S. grew 2 percent in the quarter on the heels of the launch of new $5 wraps.
“The strongest sales that they saw in a customer segment in Q1 were with the lowest-income consumers,” Gibbs said.
Along with the $5 wraps, KFC is targeting new audiences and new category use occasions with the introduction of new boneless offerings, including the return of the DoubleDown Sandwich and the “much anticipated” national launch of chicken nuggets early in Q2.
Pizza Hut also has a conscious strategy for targeting individual meal occasions with Menu Melts. Strong demand for the handheld items drove positive transaction growth and helped Pizza Hut U.S. deliver an 8 percent increase in same-store sales in the U.S.
Following the successful launch of Melts in the U.S., Pizza Hut launched the product in 10 additional markets including the U.K., Canada, and several markets in Latin America.
“Our markets not only shared consumer insights and product innovation at unprecedented speed, but the operations team also used augmented reality to expedite training of our international team members through our intelligent coaching app,” Gibbs said.
On the development front, Turner said 2023 is shaping up to be another record-breaking year in line with 2021 and 2022. Yum! last year opened 4,560 gross new units, the equivalent of one new restaurant every two hours, beating the previous record it set in 2021, when it opened 4,180 gross new units.
“We are pleased to see inflationary pressures, staffing challenges, and supply chain disruptions abate in the U.S. as we return to a more normalized operating environment,” Turner said, noting that the company is seeing similar trends in many international markets. “We’re encouraged by trends in commodity inflation and labor availability, as both bode well for the health of our franchise system, which is the foundation of our industry-leading development engine.”
KFC opened 385 gross new restaurants in 47 countries and grew its global footprint to 28,003 units. Pizza Hut opened 271 gross new restaurants in 31 countries and ended the quarter with 19,046 units. Taco Bell grew its global footprint to 8,276 stores with the addition of 79 gross new restaurants in 16 countries. The Habit Burger Grill opened 11 new stores, including 10 in the U.S., and ended the quarter with 358 total units.
Around 90 percent of Yum!’s development is outside of the U.S., and 60 percent of that global development is driven by 15 publicly-traded franchisees.
“If you go look at the financial factors on those franchisees, you see that they’ve got, on average, less than one turn of leverage,” Turner said. “The two largest have significant cash on hand with no debt. The financial health, in general, of our 3C franchisee base around the globe is very strong and we think gives us a competitive advantage in this environment to continue to strengthen development, whereas competitors whose franchise systems aren’t as strong, we think will be at a disadvantage.”
Drilling into the U.S., Taco Bell accounts for the vast majority of the company’s stateside development. It opened 33 stores in the quarter. When factoring in closures, Taco Bell netted 18 stores and grew its total footprint to 7,216 restaurants. KFC’s domestic system saw seven openings and 12 closures for a net decline of five stores, ending the quarter with 3,913 total restaurants. Pizza Hut had 40 openings and 56 closures for a net decline of 17 restaurants. It ended the quarter with 6,544 units in the U.S.