Yum! Brand Company Overview Yum!

YUM! Brand

Company overview

Yum! Brands was created in 1997 as a spin off of Pepsi Co, which at that time owned Pizza Hut, KFC and Taco Bell. The company is based in Kentucky and acquired 4 more restaurant brands since its creation: A&W All American Food, Long John Silver's, WingStreet (U.S.) and East Downing (China).

The company that was ranked 262 by Fortune 500 in 2007 operates a chain of over 34,000 restaurants in more than 100 countries. Its key growth strategies are focused on international expansion to drive a global dynamic business. The number of employees was over 53,000 in the end of 2006 and the revenues over $9.5 billion. Yum! Brands is the largest restaurant chain in the world in terms of system restaurants (Clarke et.al., 2006).

The wide variety of product portfolio and international expansion strategy turned Yum! Brands into a successful fast growing business. The company offers an enormous investing potential as the outlook for financial performance is very optimistic.

Distribution and products

The sales regional breakdown is divided into three parts: U.S. (homeland), international (all countries other than U.S. And China) and China.

Yum! Brands offers a wide range of products to its customers as an alternative to home cooking. These product fall into the fast food category and include among others: pizza, burgers, Mexican food and seafood. The management is permanently looking for ways to prepare the food in a healthier way, which is essential given the fast food category. Thus, according to David Novak, the company's chief executive, the following steps are to reduce the trans fat from the meet products and sodium from all products (NY Times, 2007).

Taco Bell is selling Mexican style food and was ranked the 5th largest within the burger restaurant concept. Pizza Hut is the worldwide leader for pizza products and it's one of the most successful brands in the company's expansion in China. Long John Silver's is leader in the seafood market and the brand is important as in this specific market, the company doesn't seem to have competitors. KFC is the best selling brand in the company and the best selling chicken product in the market. This brand is particularly important for the company's international expansion strategy as the customer awareness is very high.

Financial performance

The company is listed at the New York Stock Exchange (NYSE) with the Yum! symbol, despite its original name being Tricon Global Restaurants Inc.

Source: BusinessWeek, accessed 11/27/07

2.6 million and the dividends were $0.6/share.

The financial ratios are optimistic showing reflecting a very good performance:

Ratio Value Industry comparison

Return on assets 13.18%

Return on capital 22.66%

Return on equity 66.18%

Quick ratio x0.4

EBITDA margin 18.09%

The stock prices registered a positive evolution over the last 5 years. Basically the % growth exceeded 200% during these years and the growth was above the main stock exchanges' indicators - S&P, Nasdaq and Dow (see fig. 3).

FIG. 3 - STOCK PRICES NOV. 2003 - NOV. 2007

Source: Yahoo! Finance, accessed 11/26/07

Competition

The U.S. fast food market is mature and its growth is rather small. Many companies in this industry are no longer trying to expand the number of restaurant, but rather focus on other growth strategies, such as international expansion or product innovation. The last strategy is very suitable for the home market. The eating habit trends point to a change in the average American towards a healthier lifestyle. Yum! has a weakness point in this area as its products are not perceived as healthy. McDonalds has developed a number of products for the customers interested in a healthier died, such as salads. Other competitors, such as Wendy managed to prepare the same products with less 10 grams of fat in it. The healthy lifestyle trend opened the way to more competitors which sell quick-service healthy products, such as: Panera Bread, Subway and Quizno's.

The consumer habits change from one generation to another. The trend in the last generations is not only towards healthier products, but also for gourmet products at the expense of fast food. This is one of the reason why quick restaurants such as Panera Bread, Subway and Buffalo Wild Wings gained popularity lately. Consequently, as their popularity increased, these restaurant chains managed to produce food products of higher quality at marginally higher prices. This type of restaurants represents a threat for Yum! Brands given the current consumer habits and their success in the market.

The industry prospects are in favour of restaurant industry. Thus, according to the National Restaurant Association, consumers will spend over 53% of the budget allocated to food on food prepared away from home by 2010, an increase of over 4% from 1999.

The industry is populated by a small number of large chains that manage to achieve high economies of scale and deliver cheap products to customers. Yum! Brands is part of this restricted club and the membership is a major competitive advantage. Additionally, the large size of the group enables it to develop cost-effective operating systems (e.g. superior supply chain management solutions) that create a true price advantage over competition.