YUM! Brands made a power move in fast food’s delivery wars Thursday. The parent company of Taco Bell, KFC, and Pizza Hut announced an expansive U.S. partnership with third-party giant GrubHub, a move CEO Greg Creed said “would rapidly expand KFC and Taco Bell’s ability to offer online ordering,” in all existing GrubHub markets, “with many more to come.” Currently, GrubHub offers delivery capabilities to some 1,300 markets, which provides some intel into how massive this initiative will be in time.
Nearly half of YUM!’s 45,000 restaurants already offer pickup and delivery via online ordering.
“Making it easy to access all of our brands is important, and the partnership with GrubHub is a key component to making our brands distinctive, relevant, and easy,” Creed said in a conference call Thursday morning.
To further this commitment, YUM! is purchasing $200 million of common GrubHub stock in an effort to provide the company with “additional liquidity to accelerate expansion of its industry-leading U.S. delivery network, drive more orders to YUM! restaurants, and further enhance the ordering and delivery experience for diners, restaurants, and drivers.”
Put simply: YUM! is playing an intimate role in this process. More so, GrubHub is expanding its board of directors from nine to 10 members and adding Pizza Hut U.S. president Artie Starrs.
“We are excited for this unique partnership, which includes having a seat on the GrubHub board of directors, and aligns with YUM!’s long-term strategies to make our three brands easier for customers to access,” David Gibbs, YUM!’s president and chief financial officer, said in the call.
YUM! said GrubHub will be its only national partner providing support for KFC and Taco Bell’s branded online delivery channels. GrubHub and the legacy brands will also join forces for marketing initiatives, the company said.
KFC, Taco Bell, and GrubHub will begin by working with franchisees to test and roll out online ordering for pickup and delivery to “thousands” of participating U.S. restaurants in current GrubHub markets.
“GrubHub was founded to help small business owners and restaurant entrepreneurs grow, and we look forward to supporting YUM!’s local operators by driving greater sales and profit growth through access to our 14 million active diners,” said Matt Maloney, chief executive officer of GrubHub, in a statement.
The deal has the potential to be a game-changer for both companies. YUM!’s growth rate is hard to rival globally at this point. In 2017, YUM! opened more than 2,600 gross units, which measures out to about seven restaurants every single day, or one new restaurant every three hours or so.
YUM!’s delivery news came with its fourth-quarter and fiscal 2017 financial report. The company reported net income of $436 million, or $1.26 per share, up from $303 million, or 83 cents per share, in the prior-year period. This beat Wall Street’s estimate of 80 cents and sales of $1.59 billion. Global same-store sales increased 2 percent in the fourth quarter, with a 3 percent lift at KFC, 1 percent rise at Pizza Hut, and 2 percent growth at Taco Bell.
This was the first full year of YUM!’s transformation to a “more focused, more franchised, and more efficient company that generated more growth,” Creed said. YUM! refranchised 896 restaurants in the quarter, including 685 KFCs, 144 Pizza Huts, and 67 Taco Bells, for pre-tax proceeds of $1.1 billion. YUM! is now 97 percent franchised with a goal of 98 percent by the end of 2018 well in sight, Gibbs said.
As YUM! hinted in December, Taco Bell is tracking toward a digital-driven future.
Creed said self-serve kiosks are coming to all U.S. restaurants by the end of 2019. Order-ahead for pickup, either in-store or curbside, is also on the books for the entire U.S. system. Taco Bell opened 134 restaurants in the fourth quarter, 314 for the fiscal year, including 77 international units, to bring its total to 6,849.
“We understand the importance of technology,” Creed said. “And now there is great potential when we make it easier to order Taco Bell.”
Taco Bell’s same-store sales were up 4 percent for fiscal 2017, year-over-year. Creed said Taco Bell’s international growth is just scraping the surface. In 2017, Taco Bell entered five new countries and reached more than 400 international units. Canada’s comps rose 11 percent for the year. Taco Bell opened 20 units in 15 months in Brazil, and signed development agreements in Brazil and Spain to open 200 restaurants over the next decade, in each country.
Jim Badum, the executive vice president of client partnership at Ansira, says the delivery option should fit into Taco Bell's offerings perfectly.
"Consumers want convenience and bringing food to the consumer where they want it when they want it is the ultimate experience and a part of the value equation," he says. "Who looks forward to going into a Taco Bell or, KFC or for that matter, sitting in the drive through? No one. I’d rather the border run to me than running for the border.”
"This is all about convenience which is a key component to the overall value equation," he adds. "Again, no one wants to go to Taco Bell or KFC business, but lots of consumers crave their food.”
Pizza Hut also continued its recent surge, with much of its progress coming on the heels of several innovations.
The pizza chain reported same-store sales growth of 1 percent in the quarter and was flat for the year. Perhaps more notable, its U.S. comps hiked 2 percent in the fourth quarter. Pizza Hut had posted five consecutive quarters of declining sales before turning positive in the third quarter. Back-to-back growth quarters is something Creed said is a direct reflection of YUM!’s $130 million plan to reinvigorate Pizza Hut.
Creed said the chain rolled out 145,000 new pouches made with 3M Thinsulate Insulation thermal technology designed to deliver pizza 15 degrees hotter.
Pizza Hut also hired 14,000 delivery drivers in 2017 and there are now more than 24,000 new car toppers on the road.
“The reliable experience is enhanced with key digital features implemented during the fourth quarter to our mobile and online platforms, which significantly enhance the user experience,” Creed said.
The Hut Rewards program was launched in August and Creed said, “We’re confident our investment in loyalty will pay off in the long run.” The company recently announced a partnership with Toyota to delivery pizza via driverless vehicles as well.
Pizza Hut opened 340 new international restaurants in the quarter and 826 units in 77 countries, including 592 restaurants in emerging markets.
If there was one down figure, it involved KFC. The chicken chain, due to increased innovation and value competition in its segment, Creed said, reported same-store sales U.S. declines of 1 percent in the fourth quarter. Internationally, the chain showed robust 5 percent growth in international emerging markets and 3 percent in developed markets. For the year, KFC’s comps were up 1 percent in the U.S., marking four straight years of positive same-store sales.
The chain opened 539 new international restaurants in the quarter and 1,247 in 84 countries for the year, including 1,042 in emerging markets.
“While disappointed in our [KFC] results for the quarter, we are bullish on 2018 with marketing plans around both value and innovation.”
Creed pointed to the recent release of Smokey Mountain BBQ flavor to build off Nashville Hot and Georgia Gold, and said the add is “an exciting and easy way to bring new flavors to existing products.”
In addition, KFC plans to remodel another 600 stores in 2018, resulting in nearly 40 percent of the base being updated by year end.
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