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Yum reveals growth strategies

Yum reveals growth strategies

Officials for Yum! Brands Inc. remained upbeat about the quick-service giant’s near- and long-term prospects for profit and new-unit expansion even as it had to manage through significant headwinds during the Sept. 8-ended third quarter.

Traffic slowed in China and a calendar shift cut into sales in the company’s emerging markets, but new-unit growth will accelerate in China and other regions as Yum remains confident in its business models and track record of profitability, executives said.

Improving margins and buoyant same-store sales in the United States for its Taco Bell, Pizza Hut and KFC brands also had Yum officials optimistic for continued profit growth.

Capitalizing on China

Despite traffic falling 1 percent in China in the third quarter, Yum still managed to grow same-store sales in that 4,000-unit market by 6 percent. Chief executive David Novak noted the division faced difficult comparisons from a year earlier of 19-percent same-store sales growth and 27-percent traffic growth.

While the Chinese economy is growing slower than the torrential pace of the past decade, Yum’s long-term outlook is not changing “one iota,” he said.

“The big news is old news, frankly: We’re able to capitalize on China more than any company in the world,” Novak said. “We’ll have our ups and downs, but I’ll always be glad to wake up every day and know we have the position we have in China.”

In fact, Yum said it is on pace to open more than 750 restaurants in China this year, marking the company’s second acceleration from its earlier guidance of 600 openings for 2012. At least 150 of those new restaurants would be Pizza Hut Casual Dining, which is about to make its first significant push into China’s interior.

“Given our new-unit development, we’ll be less reliant on same-store sales growth [in future years] to achieve our targets of 15-percent profit growth,” chief financial officer Pat Grismer said.

But Novak said Yum would not grow faster than its profitability or personnel would allow, citing the conservative tack Pizza Hut Casual Dining took in China several years ago as an example. Profitability had slowed at Pizza Hut, so rather than forge ahead into Tier-3 through Tier-5 cities, the brand halted expansion and turned toward menu development, adding new products and a value menu.

“The transactions and profits went through the roof, and then we expanded,” he said. “We’re confident we’re growing the business the right way. We went into this year with a projection of 600 openings. Why? Because you don’t grow faster than you need to. We’re not trying to be heroes; we’re trying to build a heroic business.”

Building momentum in the U.S.

Yum would look to continue the supply chain efficiencies and same-store sales leverage that led to a 4.6-percent improvement in restaurant-level margins in the third quarter, officials said. Third-quarter same-store sales rose 7 percent at Taco Bell, 6 percent at Pizza Hut and 4 percent at KFC, the company reported.

Yum president Rick Carucci called Taco Bell the catalyst of Yum’s resurgent performance in the United States this year, based in large part on the strength of its two big product introductions, Doritos Locos Tacos and Cantina Bell. Those products were 7 percent and 5 percent, respectively, of Taco Bell’s sales mix in the quarter.

Prepared Remarks:

Good morning and welcome to the First Quarter 2021 Yum! Brands Incorporated Earnings Conference Call. [Operator Instructions] Please note this event is being recorded.

I'd now like to turn the conference over to Gavin Felder, Chief Strategy Officer and Interim Head of Investor Relations. Please go ahead.

Gavin Felder -- Chief Strategy Officer and Interim Head of Investor Relations

Thanks, operator. Good morning, everyone, and thank you for joining us. On our call today are David Gibbs, our CEO Chris Turner, our Chief Financial Officer and Dave Russell, our Senior Vice President and Corporate Controller. Following remarks from David and Chris, we'll open the call to questions.

Before we get started, I would like to remind you that this conference call includes forward-looking statements. Forward-looking statements are subject to future events and uncertainties that cause our actual results to differ materially from those statements. We're going to do our best to provide our current thinking about the impact of the COVID-19 pandemic on our business, but obviously, this situation is completely unprecedented and evolving. So any forward-looking remarks should be considered in light of the uncertainty regarding the severity and duration of the pandemic and the variables that will be impacted as a result. All forward-looking statements are made only as of the date of this announcement and should be considered in conjunction with the cautionary statements in our earnings release and the risk factors included in our filings with the SEC.

In addition, please refer to our earnings releases and relevant sections of our filings with the SEC to find disclosures and reconciliations of non-GAAP financial measures that may be used on today's call.

Please note the following regarding our basis of presentation: all system sales results exclude the impact of foreign currency core operating profit growth figures exclude the impact of foreign currency and Special Items all two-year same-store sales growth figures are calculated using the geometric method. For more information on our reporting calendar for each market, please visit the Financial Reports section of our website.

We are broadcasting this conference call via our website. This call is also being recorded and will be available for playback. Please be advised that if you ask a question, it will be included in both our live conference and in any future use of the recording. We would like to make you aware of upcoming Yum! investor events and the following: disclosures pertaining to outstanding debt in our Restricted Group capital structure will be provided at the time of the Form 10-Q filing second quarter results will be released on July 29, 2021, with the conference call on the same day finally, we will be hosting a Virtual KFC Global Investor Day on Tuesday, May 25, 2021, available via webcast on our website. Stay tuned for more details.

Now, I'd like to turn the call over to Mr. David Gibbs.

David Gibbs -- Chief Executive Officer

Thank you, Gavin, and good morning, everyone. We've had a strong start to 2021 with solid same-store sales results on a two-year basis and a meaningful uplift in unit development. This performance is a testament to the incredible focus and dedication of our restaurant teams, franchisees and above-store leaders around the world who are rising above the challenges presented by the pandemic to unlock new areas of growth, such as digital and off-premise, while putting the needs of our customers and local communities first. I've always believed that our success will come from leaning into our core strength and building new capabilities that enhance our ability to grow and the way our business has navigated through COVID-19 has only reinforced this belief. This mindset is reflected in our Recipe for Growth and Good framework, which has successfully guarded our strategy and will continue to serve as our North Star.

Our Recipe highlights are unique strength as a Company, notably our iconic brands, our unmatched global scale, our diversified network of highly capable and well capitalized franchisees and our unparalleled culture and talent. Today, we'll discuss our Q1 performance through the lens of this framework and the growth drivers that underpin it. And we'll highlight the specific areas where we've introduced new capabilities as we look toward the future. I'll cover two growth drivers, namely Relevant, Easy and Distinctive brands or R.E.D. for short, and unrivaled culture and talent. Then Chris will share more details of our Q1 results, our unmatched operating capability and Bold Restaurant Development growth drivers and our strong liquidity and balance sheet position.

I'll start with a few first quarter highlights. In Q1, Yum! system sales grew 11%, driven by 9% same-store sales growth and the addition of 435 net new units during the quarter. Importantly, same-store sales grew 2% on a two-year basis, which includes the impact of nearly 900 or about 2% of our stores being temporarily closed due to COVID as of the end of Q1 2021. This was driven by strong sales performance in North America, the UK, Australia and Japan with some offset from COVID-related trading restrictions in parts of Asia and Europe. Notably, all four of our brands had a weekly per restaurant sales record in the US, at least once during the quarter and I'm very encouraged that on a two-year basis, our overall same-store sales in the US increased 10%. Importantly, each of our brands experienced positive two-year same-store sales growth on a global basis in open and operating stores during Q1. This is a great indicator for the strength and breadth of our recovery.

The key focus point for our teams was the continued acceleration of our digital and technology initiatives across the globe, all geared toward providing customers with new and seamless ways to access our brands. Delivery has been a significant part of the strategy and we now have over 39,000 restaurants offering delivery, representing a 16% increase year-over-year, driven by expanded aggregator partnerships and continued investment in our own branded channels. We had another record digital system sales quarter with over $5 billion, about a 45% increase over the prior year.

Now, let's talk about our four brands, starting with the KFC division, which accounts for approximately 48% of our divisional operating profit. Q1 system sales grew 11%, driven by 8% same-store sales growth and 4% unit growth. For the division, Q1 same-store sales were flat on a two-year basis, which includes the impact of about 1% of our stores being temporarily closed as of the end of Q1 2021. Globally, KFC's digital sales mix reached a record of 43% during the quarter, driven by the rapid expansion of delivery, click and collect and the introduction of new channel ordering options.

At KFC International, same-store sales grew 7% during the quarter. Same-store sales declined 2% on a two-year basis, which includes the impact of about 2% of our stores being temporarily closed as of the end of Q1 '21. We continue to see strength in the UK, Australia, Canada and Japan during the quarter and saw encouraging results in the Middle East, Mexico and Africa. Each of these markets performed well above their 2019 sales levels owing to their off-premise capabilities, digital strength and impressive product launches like the Share Box in Japan and the Chicken Nights promotion in Mexico.

Next, at KFC US, we continued to see positive same-store sales with 14% growth in Q1. Importantly, same-store sales grew 11% on a two-year basis, thanks to all the team's hard work in building additional sales channels and growing the core business while adding hyper-relevant product innovations, such as the new chicken sandwich. Our sandwich is performing at more than twice the volumes of our prior US sandwich launches and all initial indications are that it's highly incremental, customers are loving the product and coming back more frequently for it. In fact, as we've entered Q2, demand for the new sandwich has been so strong that coupled with general tightening in domestic chicken supply, our main challenge has been keeping up with that demand.

Moving on to Pizza Hut, which accounts for approximately 17% [Phonetic] of our divisional operating profit. The division reported Q1 system sales growth of 7% driven by 12% same-store sales growth and a 4% unit decline. Global Q1 same-store sales declined 1% on a two-year basis, which includes the impact of about 3% of our stores being temporarily closed as of the end of Q1 2021. Overall, Pizza Hut International same-store sales grew 8%. Same-store sales declined 7% on a two-year basis, which includes the impact of 3% of our stores being temporarily closed as of the end of Q1 2021. Importantly, the off-premise channel achieved 10% same-store sales growth for the quarter. Similar to KFC, our developed markets with high off-premise capabilities, digital strength and newsworthy products continued to perform well.

Pizza Hut US had another stellar quarter, delivering 23% same-store sales growth in the off-premise channel with 16% overall same-store sales growth. Overall same-store sales grew 8% on a two-year basis, which includes the impact of 3% of our stores being temporarily closed as of the end of Q1 2021 and was driven by a combination of compelling value with a $10 taste maker offer and category-leading innovation with the launch of the unique Detroit-style pizza and the reboot of our iconic Stuffed Crust Pizza.

As for Taco Bell, which accounts for approximately 36% of our divisional operating profit, Q1 system sales grew 11%, driven by a 9% same-store sales growth and 1% unit growth. For the division, Q1 same-store sales grew 10% on a two-year basis. The quarter kicked off with the return of Nacho Fries, this time offered in the $5 Nacho Fries Box. We also introduced our first digital-led product launch with the $5 Build Your Own Cravings Box available exclusively on the Taco Bell app or web, which drove a meaningful increase in loyalty membership during the quarter.

And finally, our newest brand, the Habit Burger Grill, delivered 13% same store sales growth and 6% unit growth during the quarter. Q1 same-store sales grew 3% on a two-year basis, which includes the impact of about 2% of our stores that were temporarily closed as of the end of Q1 2021. We introduced our new Patty Melt and our sales growth was aided by reduced government restrictions and government stimulus. Encouragingly, digital sales continue to mix above 40% even as dining rooms reopened and we saw a steady improvement in the dine-in channel throughout the quarter.

On to the Recipe for Growth, starting with R.E.D. brands. Having four brands across more than 50,000 restaurants provides us with an enviable platform to understand how consumers are behaving in every corner of the world and to use that understanding to capture future growth in our sales overnight and our brands over time. In some cases, this means strengthening our ability to grow sales at a faster pace and bringing in strong diverse tech talent. It's with this in mind that we were excited to close on two strategic acquisitions during the quarter, being Kvantum Inc. and Tictuk Technologies. Kvantum is a true innovator in marketing optimization with a proven track record of adding significant value in enabling data-driven decisions to drive return on advertising dollars and sales increases. We have seen material improvements in both marketing spend efficiencies and same-store sales growth in our Pizza Hut UK off-premise and Pizza Hut Taiwan businesses as a result of leveraging their tool kit. And at the end of last year, both Taco Bell US and KFC US engaged Kvantum's services on marketing calendar and mix optimization.

Tictuk presents an exciting opportunity to expand access by providing frictionless ordering through text, social media and other conversational channels in literally just a few clicks. We've deployed their platform in approximately 900 KFC, Pizza Hut and Taco Bell restaurants across 35 countries outside of the US and have been thrilled with the agility and customer obsession of the Tictuk team. In fact, we have several examples of customers completing orders on the Tictuk platform in under 10 seconds, a truly seamless experience. Beyond improving capabilities, what excites me most about these acquisitions is the high-quality culturally aligned teams we've brought into our global organization. This is a perfect segue to our unrivaled culture and talent growth driver.

Given the environment we've been operating in, we've had to find new ways to connect with the people across our vast global business. One way we've done this is through virtual market visits where we virtually walk through a restaurant and connect with team members. The leadership team and I attended four virtual market visits during the quarter in Pizza Hut Japan, KFC Asia, Taco Bell US in Times Square, and KFC Africa. We each left those meetings energized and proud of how our brands are represented around the world and the incredible people that make it all happen.

Here, I also want to highlight two key actions we are taking to bring our Recipe for Growth and Good to life. On the equity and inclusion front in US, we are taking tangible actions to represent the diverse communities where we operate by increasing Black and Latinx employees and leaders in our corporate and restaurant management roles. As part of this effort, we're proud to partner with OneTen, a coalition of leading companies coming together to upskill, hire and advance 1 million black individuals in America over the next 10 years. These actions advance our global unlocking opportunity initiative in the US and we're looking forward to working alongside the community of companies in OneTen, as well as our franchisees to advance equity and opportunity.

Finally, as part of our broader strategy to address climate change, earlier this week, we announced our pledge to achieve net zero greenhouse gas emissions by 2050 with a science-based target to reduce emissions by nearly 50% across our supply chain and restaurants by 2030 in partnership with our franchisees, suppliers and producers. This is an incredibly important issue to us, our customers and to other stakeholders, and I'm proud of our continued progress in this space.

To wrap up, I'm encouraged by the momentum in our business as we execute our Recipe for Growth and Good to set ourselves up for the next chapter of growth. Although COVID continues to impact many geographies and make our overall path to recovery uneven, I believe that with our iconic brands, world-class talent, inclusive culture and healthy franchise system, we are poised to enter a post-COVID world even stronger.

With that, Chris, over to you.

Chris Turner -- Chief Financial Officer

Thank you, David, and good morning, everyone. Today, I'll discuss our first quarter results, our unmatched operating capability and bold restaurant development growth drivers and our strong liquidity and balance sheet position.

To begin, let's discuss Q1. As David mentioned, overall Yum! system sales grew 11%, driven by 9% same-store sales growth and 1% unit growth. On a two-year basis, same-store sales grew 2%, which includes the negative impact of about 2% of our stores being temporarily closed due to COVID as of the end of Q1 2021. EPS, excluding Special Items, was $1.07, representing a 67% increase compared to ex Special EPS of

Call participants:

Gavin Felder -- Chief Strategy Officer and Interim Head of Investor Relations

David Gibbs -- Chief Executive Officer

Chris Turner -- Chief Financial Officer

David Palmer -- Evercore ISI -- Analyst

John Glass -- Morgan Stanley -- Analyst

Dennis Geiger -- UBS -- Analyst

David Tarantino -- Robert W. Baird & Co. -- Analyst

John Ivankoe -- J.P. Morgan -- Analyst

Jon Tower -- Wells Fargo Securities -- Analyst

Brian Bittner -- Oppenheimer & Co. -- Analyst

Sara Senatore -- Sanford C. Bernstein & Co. -- Analyst

.64 in Q1 2020.

Core operating profit grew 33% in the first quarter. This performance is attributable to a stellar same-store sales growth in several developed markets at KFC, the combination of strong sales and restaurant margin growth at Taco Bell and a year-over-year benefit associated with reserves for franchisee accounts receivable.

I'll now provide some additional color on several items. Starting with Taco Bell, we had another impressive quarter of profitability where Company restaurant margins were 24.1%, representing a 1.7% increase over prior year. As we've mentioned on previous earnings calls, we expect these margins to return closer to historical levels later this year as check averages normalize, dining room patronage increases and we adjust staffing levels at our restaurants as a result.

During Q1, we continued to see recoveries of amounts past due at KFC International and Pizza Hut US. These recoveries resulted in a $6 million net benefit to operating profit related to bad debt during the quarter, representing a $34 million year-over-year tailwind to operating profit growth as we lapped $28 million of expense in Q1 2020. While we ended 2020 with $12 million of full-year bad debt expense, we had large quarterly swings last year due to COVID. As such, we expect year-over-year operating profit growth to continue to be impacted as we lapped bad debt expense of $13 million in Q2 and bad debt recovery of $21 million and $8 million in Q3 and Q4, respectively. While difficult to forecast, at this point, we don't expect bad debt to significantly impact our year-over-year operating profit growth on a full-year basis.

Most importantly, our franchisees are generally on solid financial ground despite the uncertainties caused by COVID. We recently completed the restructuring of our largest Pizza Hut US franchisee, NPC, that resulted in Flynn Restaurant Group joining the Pizza Hut family. We believe our franchisees are well positioned to partner with us as we look to accelerate out of COVID.

General and administrative expenses were $206 million. We still anticipate the timing of full-year 2021 G&A to be back-end weighted as it has been historically. And we estimate that our consolidated G&A expenses will be slightly less than $1 billion for the full-year 2021. Our commitment to be an efficient growth Company that leverages fixed costs and utilizes our unique scale remains unchanged and we expect our G&A ratio to move back toward our historical target as sustained growth resumes.

Interest expense was approximately $131 million, an increase of 11%, compared to Q1 2020, driven by write-offs of historical debt issuance costs and other one-time financing costs associated with the Q1 refinancing.

Capital expenditures, net of refranchising proceeds were $25 million for the quarter. As we mentioned on our last earnings call, we believe roughly $250 million in annual gross capex appropriately balances the inherent needs of the business with opportunities to invest in technology initiatives and strategic development of equity stores. We still anticipate at least $50 million in annual proceeds from refranchising, which will fund the strategic equity store investments. As a reminder, for 2021, we may be slightly higher than the $250 million gross capex amount to catch up spend on repair, maintenance and remodels delayed owing to COVID, as well as selective strategic development in the US, primarily for the Habit Burger Grill, for which refranchising proceeds may not be fully realized this year.

Now, on to our unmatched operating capability growth driver. With so much of our sales now going through off-premise channels, our operations teams have been laser-focused on delivering a fast, enjoyable experience for customers. As a result, KFC US improved their drive-thru speed by nearly 15 seconds in the quarter over last year. And Taco Bell US delivered their fastest average drive-thru speed in eight years, while serving a staggering 17 million more cars compared to the same quarter last year. Importantly, one-third of these additional cars served were digital orders, which typically carry a higher check value, not to mention an optimized customer experience.

Additionally, we continue to make tangible progress on scaling our in-house built technology platform. During the quarter, we deployed the pickup and delivery ordering solution across all KFC US restaurants, including the launch of our first-ever custom-built KFC app. Early signs are highly encouraging and this gives us confidence as we look to further optimize and scale the platform.

Now, moving on to Bold Restaurant Development. During the first quarter, we opened 660 restaurants and closed 225, resulting in 435 net new units. Most notably, KFC delivered 4% unit growth with strength in China, India, Russia and Thailand. At Pizza Hut, we were pleased to add 71 net new units, reflecting a positive trajectory following the COVID-related dislocations and closures of last year. We still have more work to do and there will be choppiness related to the uncertainty of COVID and our continuing transition to a more modern estate, but we are encouraged by strong unit economics in many markets and our resilient global franchise base.

We are also proud to announce that shortly after the quarter ended, we opened our first-ever Taco Bell in Malaysia. Not only was this the 31st international market Taco Bell has entered, but it was the first market entry where all training and launch programs were conducted virtually. A real breakthrough by the amazing Taco Bell Asia team. Overall, we are pleased with the momentum at the end of 2020 and into the early part of 2021 and this increases our confidence that we can return to 4% annual unit growth sooner rather than later. In 2021, we're optimistic that we will accomplish at least 3% unit growth.

Now, for an update on our balance sheet and liquidity position, as well as our latest thoughts on capital structure and priorities for capital allocation. First, we ended Q1 with cash and cash equivalents of approximately $560 million, excluding restricted cash. Consolidated net leverage was 4.9 times, which returns us to our target of approximately 5 times. Second, we repurchased 2.6 million shares, totaling $275 million at an average price per share of $106.

Third, we executed a series of transactions that added resiliency to our business while balancing liquidity, flexibility and cost. During the quarter, we amended and extended our credit facility and refinanced our term loans. We also priced a new Yum! Brands, Inc., holding company bond, which closed on April 1, subsequent to quarter end. Proceeds from this new bond, which carries a coupon of 4.625% and matures in 2032 will be used to repay $1.05 billion of 5.25% Restricted Group notes due in 2026, which we intend to retire later in the second quarter. All combined, the transactions were leverage-neutral and importantly, allowed us to boost liquidity, lower interest going forward and extend maturities. As always, we'll continue to look for opportunities to further optimize our capital structure depending on market and business conditions.

Lastly, our capital priorities remain unchanged, invest in the business, maintain a healthy balance sheet, pay a competitive dividend and return the remaining excess cash flows to shareholders via repurchases.

With that, operator, we are ready to take any questions.

Yum ramps up transformation with new tech deals. How will they impact marketing?

Broader trends in the QSR category and changing media consumption habits could herald a bigger focus on performance marketing, experts suggest.

Changes are afoot at Yum Brands as the owner of KFC, Taco Bell and Pizza Hut hits the gas on a transformation strategy that has grown more pressing due to needs driven by the coronavirus pandemic.

Last quarter, the company made two acquisitions — the artificial intelligence (AI) unit of performance marketing firm Kvantum and conversational commerce developer Tictuk Technologies — that speak to an eagerness to center more business on e-commerce and data and analytics. Those deals, combined with recent leadership turnover, suggest the restaurant giant could reinvent aspects of its marketing in line with a new digital-first vision. Digital sales across Yum's portfolio reached a record $17 billion in 2020, about a 45% year-on-year increase.

"The key focus point for our teams was the continued acceleration of our digital and technology initiatives across the globe, all geared toward providing customers with new and seamless ways to access our brands," Yum chief executive David Gibbs told investors on a call discussing first-quarter results last month. "In some cases, this means strengthening our ability to grow sales at a faster pace and bringing in strong diverse tech talent."

While executives are clearly excited to integrate Tictuk and Kvantum as part of Yum's multiyear Recipe for Growth blueprint, other areas of business are experiencing volatility. In April, KFC lost U.S. marketing chief Andrea Zahumensky, who helped extend a creative revitalization of the fried chicken chain , and is actively seeking a replacement. Pizza Hut, a frequent laggard at the company prior to COVID-19, saw CMO George Felix depart for Tinder just weeks earlier amid an overhaul of the unit's marketing team. Lindsay Morgan, previously director of brand communications, is now CMO.

It's still too early to gauge the full impact of Yum's recent M&A maneuvers and leadership departures on its marketing. But experts pointed to larger trends in the quick-service category and changing media consumption habits — including the adoption of digital and mobile ordering and acceleration of cord-cutting — that paint a future where companies like Yum could direct more resources to performance marketing versus splashier brand-building ploys. The Kvantum deal, for instance, is intended to help Yum make smarter and more efficient decisions around media planning, fast-tracking a data-driven marketing strategy .

When asked for comment on how the Kvantum and Tictuk acquisitions could impact marketing teams and media spend, a spokesperson directed Marketing Dive to the earnings call transcript.

"All the trends are clearly pivoting toward internet- and smartphone-based media. That's where the money's going and that's what consumers are using," said Robert Kwortnik, associate professor of services marketing at Cornell's SC Johnson College of Business. "The big brand-based, upper-funnel campaigns, it's not like they go away . but if the shift in digital eyeballs is moving toward the app-based media, then performance marketing makes a heck of a lot more sense."

Transformation taking shape

Prior to the pandemic, Yum made a key hire, bringing over Walmart CIO Clay Johnson as chief digital and technology officer helping to oversee its transformation. And in 2018, Pizza Hut acquired the online ordering software platform QuikOrder. A more concentrated push into tech could be viewed as a long time coming.

"Honestly, I'm surprised it didn't happen a little sooner," Kwortnik said. "Yum has always been pretty on the forefront of consumer insights. They use consumer insights effectively, not just for product development, but also in thinking about how they go to market, especially with their advertising messages."

Domino's, one of Pizza Hut's top rivals, stands as a leader in the category thanks to early bets on internal digital and mobile ordering capabilities. Domino's for years has promoted itself as a tech company that happens to sell pizza , but similar modes of thinking have grown common as restaurants contend with COVID-19 restrictions that have driven up demand for contactless sales channels and store concepts that come with safety protocols baked in.

"Domino's remains the gold standard for digital innovation and experience in the restaurants industry," Chelsea Gross, a director analyst at Gartner, said in emailed comments. "While Yum Brands continues to chase Domino's in regards to digital experience, I would argue that Yum would be more successful in developing both their owned, direct delivery as well as their partner delivery services with the recent acquisitions."

On the data and analytics front, Yum plans to use Kvantum's machine learning and econometric modeling solutions to measure campaign effectiveness across owned, paid and earned media channels. On the Q1 call with investors, Gibbs said Yum is already seeing "material improvements" in marketing spending efficiency and same-store sales in markets testing the solution, including Pizza Hut's U.K. and Taiwan divisions. KFC and Taco Bell started using some of Kvantum's offerings in the U.S. at the end of last year.

Tictuk works on integrations for social media and messaging channels, such as WhatsApp, Facebook Messenger, SMS and email, that allow consumers to interact with brands and take actions like placing an order. Tictuk's platform was previously available at about 900 KFC, Taco Bell and Pizza Hut locations outside of the U.S., but Yum plans to scale the offering globally to seize on climbing interest in mobile and digital.

"Those acquisitions are definitely accelerators . If they move the needle there, it will likely build confidence to continue to invest and maybe even acquire more skills."

Neither the Kvantum or Tictuk deal are massive: The companies together account for roughly 40 employees, according to their LinkedIn pages.

"[We're] buying these companies in order to improve our capability and provide services to our franchisees at the lowest possible costs that are really unique proprietary capabilities that we would have. They're not designed to drive a profit for Yum," Chief Financial Officer Chris Turner told analysts. "We think we've really got a great model here when we do these smaller acquisitions, but we can scale them across the world."

Yet, the deals still underpin where Yum is turning its focus as it builds a growth engine beyond the pandemic — one that could include additional M&A, experts suggested.

"Those acquisitions are definitely accelerators," said David Novak, senior partner at brand transformation consultancy Prophet. "It's a pocket of very focused skills that will add value, in the very least, to show where they can go next. If they move the needle there, it will likely build confidence to continue to invest and maybe even acquire more skills."

Striking a balance

While the Kvantum and Tictuk deals may not be the type to break the bank, integration may prove a challenge. McDonald's in 2019 bought the AI firm Dynamic Yield for more than $300 million to support its digital transformation. A Wall Street Journal report from February indicated Dynamic Yield's offerings have frustrated franchisees while failing to realize some bottom-line goals. McDonald's is reportedly mulling selling off parts of the enterprise, the Journal said. That might serve as a cautionary tale for Yum and its marketing teams.

"Friction between traditional marketing teams and new, digital acquisitions is common," Gartner's Gross said. "Digital transformation should support, not contradict, marketing team goals."

Recent CMO departures at Yum are a separate issue, but similarly spell changes for its marketing. Under Zahumensky's tenure, KFC became known for its outlandish creative plays, like an anime dating sim and Lifetime original short film starring brand mascot Colonel Sanders.

"[If] the shift in digital eyeballs is moving toward the app-based media, then performance marketing makes a heck of a lot more sense."

Associate professor, SC Johnson College of Business

Off-the-wall brand-building activations will remain a part of the playbook, experts said, but their share of the marketing mix could change.

"It could get down to, for a CMO, where their wheelhouse is — if they're more out of the advertising and creative space where that's their expertise versus the tech insights space, which is inarguably a different skill set," Kwortnik said.

Kvantum's specialty in AI at the same time heralds more automation for Yum's marketing as the industry at large moves toward a more programmatic mindset. The company is trying to balance that shift with human-led insights. The Kvantum unit will be paired closely with Collider Lab, a consumer insights and marketing strategy consultancy Yum purchased in 2015.

"You still need traditional consumer insight, whether it's focus-grouped stuff or survey-based," Kwortnik said. "If you can bundle and bring some of that intelligence in-house, I think that's a pretty worthwhile investment for a big brand.

"There is this risk of chasing the shiny new thing . especially [with] AI," he added.

What's next

Beyond helping to scale up tech infrastructure, Yum's new assets could be applied in a number of other areas over the long term. Loyalty has become a bigger priority for Taco Bell and Pizza Hut, with the former launching a new program last year.

"There aren't that many companies that have that level of scale across a couple of different specialty categories like they do."

The broader retail category also might serve as an indicator of where Yum is heading. Kroger, the grocer that acquired the majority of data analysis firm DunhumbyUSA in 2015 , has steadily been building out a retail media network to service other advertisers. As the death of the cookie makes first-party data more valuable, other brands, including Walmart and Target, are doubling down on their own bets in digital advertising.

Restaurants wield data in specialized segments like time of day and foot traffic patterns that are valuable to outside brands. It's not out of the question that media networks could be in the cards for a company like Yum, according to Novak, even though restaurants do not currently have as significant a presence in that space.

"They probably could put something together that competes with where Target's going," Novak said. "There aren't that many companies that have that level of scale across a couple of different specialty categories like they do."

Nearer term, differentiating on convenience and speed will be even more critical for the QSR sector with a post-pandemic reopening starting to take shape. The health crisis reset expectations for restaurants, and many consumers — particularly younger cohorts — may hold onto the digital and mobile habits they adopted due to the pandemic. Engaging people on those channels will require a different mindset, including when it comes to marketing.

"They get sticky to an app that they like and become familiar with. If you're not prominently distributing through that delivery app, it's just another channel," Kwortnik said. "That's more of a push [marketing] strategy: Not just getting people to come to the brick-and-mortar stores, but finding a way to push the market through these other channels that, really, QSRs never had to rely on before."

Tracy Skeans Promoted to Chief Operating Officer at Yum! Brands

Louisville, KY, February 2, 2021 – Yum! Brands, Inc. (NYSE: YUM) today announced the promotion of Tracy Skeans to Chief Operating Officer. Skeans, who has been with the Company for 20 years, has served as Chief Transformation and People Officer since 2016. Skeans’ promotion to COO formalizes the expanded role she is already playing to drive cross-brand collaboration on operational execution, people capability and customer experience imperatives that will fuel same-store sales and net-new unit growth. Skeans will retain her current responsibilities as Chief People Officer and continue reporting to Yum! Brands Chief Executive Officer David Gibbs.

“Tracy and I share a people-first vision and passion for elevating the customer and employee experience, which makes her the perfect choice for Chief Operating Officer in our next phase of growth,” said Gibbs. “Tracy has been an invaluable strategic partner to me and our global leadership team as we have navigated through some of the most pivotal milestones in our history, including our transformation to a pure play franchisor in 2019 and more recently the COVID-19 pandemic. Her breadth of experience and strong track record of results through people and executional excellence give the Yum! Brands Board of Directors and me great confidence that she will help us deliver strong performance across our brands and global franchise system in this fast-changing environment.”

“Yum!’s future growth and social impact rely on our ability to collaborate and execute strategies and ideas at scale across our iconic brands and global franchisee base,” said Skeans. “I’m excited to take on this expanded role partnering with David and our global leadership team, as we continue to invest in our people and customer experience, alongside critical areas that will drive future growth and improve franchise unit economics – including technology, innovation and restaurant development.”

Yum! Brands CEO David Gibbs will continue leading the Company’s overarching strategies and maintain his focus on driving global growth and sales and profitability at all Yum! franchise businesses worldwide. In addition to Skeans, Yum! Brands’ functional and brand division leaders will continue reporting to Gibbs, and brand restaurant operations will continue to report to each brand respectively.

Skeans has an impressive tenure of business leadership since joining the Company in 2000, and has expertise driving results at the powerful intersection of talent, culture, finance and strategy. Under her leadership as Chief Transformation and People Officer, in 2020 Yum! integrated The Habit Burger Grill and Heartstyles, a team member leadership development program designed to transform the employee and customer experience, and championed the Company’s Unlocking Opportunity Initiative. Throughout the COVID-19 pandemic, Skeans’ cross-functional and operations leadership was critical in mobilizing Yum! and its brands to protect the health, safety and engagement of corporate and restaurant teams. In 2016, Skeans played a central leadership role in the Yum China spinoff and Yum! Brands’ multi-year transformation strategy to accelerate the Company’s growth by moving to a heavily franchised and more profitable business model – a strategy that was successfully completed in 2019.

Prior to that, she served as President of Pizza Hut International, which at the time was a business of more than 5,900 restaurants across more than 85 countries. In 2013, as Chief People Officer, Pizza Hut, Skeans was one of the key architects of the strategy and structure to separate Yum! Restaurants International into the global brand divisions of KFC and Pizza Hut. Before leading HR, Skeans spent the first half of her career in Finance roles including strategic planning, asset development and accounting at Pizza Hut. In addition to her role at Yum!, Skeans serves on the board of directors for the Brown-Forman Corporation and the Women’s Foodservice Forum.

About Yum! Brands, Inc.
Yum! Brands, Inc., based in Louisville, Kentucky, has over 50,000 restaurants in more than 150 countries and territories, making it a leader in global retail development primarily operating the Company’s brands – KFC, Pizza Hut and Taco Bell – global leaders of the chicken, pizza and Mexican-style food categories. The Company’s family of brands also includes The Habit Burger Grill, a fast-casual restaurant concept specializing in made-to-order chargrilled burgers, sandwiches and more. Yum! Brands was included on the 2021 Bloomberg Gender-Equality Index and in 2020, Yum! Brands was named to the Dow Jones Sustainability Index North America and was ranked among the top 100 Best Corporate Citizens by 3BL Media

Release Notice

The releases contained on this page may contain dated information. Readers are cautioned that the releases on this page are maintained here solely for the purposes of providing historical background about Yum! Brands, its business and product offerings. As the releases may contain dated information, they should not be relied upon as providing accurate or current information. Yum! Brands disclaims any intention or obligation to update or revise any of the information contained in any of the releases on this page, whether as a result of new information, future events or otherwise.

KFC’s Explosive Growth in China

Homogenization has made it easy for fast-food joints to circle the globe, spitting out carbon copies of themselves, their burgers, and their fries along the way. But in the most populous country in the world, a fast-food giant stepped off the conveyor belt and found unprecedented success by being different, not by being the same.

In the Harvard Business School case "Yum! China," professor David E. Bell and Agribusiness Program director and senior researcher Mary Shelman examine how Yum! Brands, the parent company of KFC and Pizza Hut, outperformed McDonald's and became the largest restaurant company in mainland China.

The case describes how Yum! China succeeded and expanded by staying local on many levels. It keeps close ties to the Chinese government, hires local management, sources food from within the country, and changes the menu to suit Chinese tastes and style of eating.

A Matter Of Scale

One key issue the case examines is "how to implement the rollout of a fast-food chain involving so many stores across such a vast—and regionally different—country," says Bell, who teaches the case in the School's annual Agribusiness Seminar.

Both KFC and Pizza Hut restaurants in China differ markedly in many ways from their Western counterparts. And while Pizza Hut has done very well for itself with nearly 500 restaurants in 120 cities (as of December 2010), KFC's performance has been finger-lickin' incredible. Since the first piece of fried chicken (available in dark meat only, to the disappointment of many an American tourist) was served at a Beijing KFC in 1987, the number of KFCs in China has grown to over 3,000, in 650 cities, with one new restaurant opened a day.

"If I could have written any case in the world, this would have been the one I would have picked," says Shelman, a Kentucky native with more than a passing interest in Colonel Sanders. "Not only is this the story of a successful entry into China by a Western company, this case provides a glimpse of how quickly Chinese diets are changing as incomes improve. Because China is so big this has a huge impact on the rest of the global food system. What happens in China, what Chinese people eat, impacts what you and I pay for food."

What happened in China with Yum! Brands, and with KFC in particular, had a lot to do with China division chairman and CEO Sam Su. "He really flexed the model," says Shelman. This was in part due to KFC being owned by PepsiCo when it first came to China. PepsiCo was not a fast-food company, so Su was given more managerial freedom.

Along with being lucky, Su is smart, driven, and visionary—a classic entrepreneur. But he's also humble. "There's no room for ego," Su explained in the case. "China doesn't have the same culture of individualism that is present in the United States."

Su's strategy was that KFC "would not be seen as a foreign presence but as part of the local community… Our opportunity was to take the best ideas from the US fast-food model and adapt them to serve the needs of the Chinese consumer."

Initially this involved hiring the right people. For Su this meant Chinese managers who read and spoke the language, who understood the restaurant business and the Chinese consumer, but who also had experience in the Western way of doing business. "It was a foot in both worlds," Shelman says. "They knew firsthand the Western model but they also understood the challenges of operating in this Chinese, very traditional, very evolving market."

The people Su brought on board were also close in a way Shelman found surprising when she spent time with them when researching the case.

"There was huge camaraderie evident in the way that the top management team interacted with each other … they bantered back and forth and poked fun at each other," Shelman says. "They'd be walking down the hall jostling, pushing, laughing. This is a group that has worked together a long time—unusual in a country where experienced management talent is at a premium ."

It turns out that unusual employee interactions, at least in comparison with Western business decorum, are the norm at Yum! Brands, something Shelman experienced when she accompanied then-COO Mark Chu to one of KFC's Shanghai locations. "You walk into a restaurant and not only do [the employees] recognize him, but they love him as well."

And so the employer-employee relationship has more a feel of family. "In the United States, if you don't show up at work, what happens? You get fired," says Shelman. "In China, where many of the company's 250,000 employees are college students working their first job, it's like, 'Oh we understand that sometimes you feel like skipping class. If you decide to skip work—please call in and let us know, so we can make sure your job is covered.'"

Trained labor, it turns out, is a very valuable asset even in a land of 1.3 billion-plus people.

"Chu's acceptance and appreciation for these young employees is exceptional for Western companies to see," says Shelman. Younger employees, for example, are encouraged to socialize over company-provided video games on their breaks. This practice serves several purposes: It eases the minds of parents anxious about sending their children out into the world, provides crucial social skills for young adults who grew up in single-child households, creates lifelong Yum! Brands customers, and develops a culture of customer service in a country where there was none.

The restaurant management program is similarly focused. "You're a college graduate," says Shelman. "You're recruited for that position. You're very carefully developed to be able to do all these different jobs in the restaurant. And it's perceived as something that you would do your entire life."

Along with training and retaining quality employees, another key factor in KFC's success was Su's early decision to downsize his own career. Originally hired to cover the northern Asia-Pacific region, he departed from the usual managerial growth path of taking on larger geographic assignments and instead argued that he should focus exclusively on China. Early on, he decided that Yum! should develop a national footprint—supported by a company-owned distribution system since third-party suppliers didn't exist—instead of growing in geographic chunks through franchising.

Su sourced products from within China whenever possible. This was no easy feat early on as the supply chain for chicken, for example, included multiple vendors providing a handful of birds each. Food safety is a big concern for Chinese consumers, and it was Su's decision to build the supply chain from the ground to help ensure quality. "We work with our suppliers to build their capabilities. We stress the importance of knowledge transfer, and even arrange for them to go overseas to learn," Su said in the case.

The Chinese Way

"One of the lessons I take away from this case is that to do China, you have to do China," says Shelman. "It's a large, complex, and dynamic market that deserves single-minded attention." That attitude extends from the boardroom of Yum! Brands to the menus in KFC restaurants. A small number of items would be familiar to Western visitors—mashed potatoes, corn on the cob, fried bone-in chicken—but most would not. The Chinese KFC menu may include fried dough sticks, egg tarts (which Shelman raves are "to die for"), shrimp burgers, and soymilk drinks, as well as foods tailored to the tastes of specific regions within China.

The large selection of menu items is meant to appeal to the Chinese style of eating, in which groups of people share several dishes. But it's also part of the "New Fast Food" initiative Su developed in 2005 in response to concerns about the role of fast-food restaurants in the obesity epidemic—concerns that he shares and takes responsibility for. "We have been too greedy, too shortsighted," Su said, referring to the traditional high- volume, low-choice fast-food model.

Su believes that offering a wider variety of foods will help patrons make healthier choices. The KFCs in China have also limited the amount of money saved on combo meals, and have completely eliminated supersized items. Exercise is actively promoted inside the chain as of 2010 the youth programs and competition it sponsored had over 260,000 participants in 438 cities.

KFC succeeded in China both because it was not McDonald's and because in many ways it decided it wouldn't be KFC either—which brings up another key question. "With the benefit of 20/20 hindsight…how do you avoid the mistakes of the American fast-food model?" asks Bell. "Put another way, if McDonald's and KFC were to start over in the United States knowing what they know now, how would their model differ?"

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Why Domino's Spent Millions to Fix Its Pizza

There is a great entrepreneurial story behind Domino's Pizza (NYSE:DPZ) . The company was founded in 1960 by two brothers who borrowed $900 to pay for their first store and used a Volkswagen Beetle to deliver their first pizzas. Today there are more than nine thousand stores around the world, with more than four thousand of them located abroad. Since 2008, Domino's Pizza has experienced massive international store growth, beating the growth rate of competitors Yum! Brands (NYSE:YUM) -- which owns Pizza Hut -- and Papa John's Pizza (NASDAQ:PZZA) .

However, Domino's future in 2010 looked quite bleak. Strong competition, harsh criticism over the taste of its pizzas, and low consumer satisfaction levels were playing against the company's revenue. That's when management decided to adopt a surprising market strategy: admit that its product was awful. The company spent millions in creating a new pizza from the crust up, expanding its menu offering, and advertising the process. The results have been amazing.

Between 2000 and 2013, America's customer satisfaction index score for Domino's Pizza increased from 69% to 81%. More importantly, the company's revenue has also improved significantly. How exactly did Domino's Pizza manage to turnaround its business, though, and what are the company's plans to keep delivering growth revenue in the future?

Source: Domino's Pizza Investor Relations.

A massive business transformation
Domino's amazing turnaround was a result of extensive efforts to improve the company's processes and menu offerings by introducing new recipes, using mobile technology to attract new customers, and improving supply chain management. As a result, the company not only improved its top line performance but also became the fourth largest e-tailer in the U.S.

Domino's main competitive advantage has always been the ability to deliver pizza quickly. In order to implement fast service, however, the company had to rely heavily on frozen, pre-made ingredients. This allowed employees to assemble pizza in record times, but it also had a negative effect on quality. Because of poor quality control, most customers started to recognized Pizza Hut as the best-tasting pizza and relied on Domino's only for quick delivery.

The first task for J.Patrick Doyle, who became the CEO of Domino's in 2010, was to change the company's core pizza recipe. Domino's tested dozens of cheeses and sauces before determining the final ingredients of its new pizza. It carried out blind taste tests with 1,800 random pizza consumers, coming out on top and beating both Pizza Hut and Papa John's by a wide margin.

To market its new pizza, the company implemented an honest marketing campaign that apologized for its old pizzas. To attract new customers, the company developed mobile apps with great user experience, allowing customers to design their own pizzas. To protect its core competence, management began revamping the company's online tracking system to minimize delivery time. The results were astonishing: at the end of the first quarter of 2010, the company posted a 14.3% increase in revenue. Furthermore, since these changes were implemented the company's stock has risen a whopping 400%.

It's all about competitive advantages
Domino's Pizza strategy worked because it focused on building new competitive advantages without losing old ones like its fast delivery service. This strategy allowed the company to deliver great results despite increasing competition.

Notice that the world's third-largest pizza company, Papa John's, is trying to capture market share from Domino's and Pizza Hut by differentiating its pizza with natural ingredients and by offering diversity in its topping options. With 80% of its locations in North America, the company has plenty of growth opportunities available in emerging markets where it is planning aggressive expansion. This expansion is being facilitated by reducing the investment needed to open a franchise restaurant to roughly $200,000.

On the other hand, Yum! Brands recently experienced a tough quarter due to poor sales in China. The company's top line performance and customer confidence were particularly affected by a breakout of avian flu and bad publicity on poultry issues.

My Foolish take
Although the environment remains competitive, Domino's long-term focus on building competitive advantages has allowed the company to develop an economic moat. It not only offers an interesting value proposition, but also has plenty of growth opportunities available since its presence in international markets is still very limited. This is especially the case if compared with Yum! Brands.

Tony Lowings Promoted to KFC Division CEO, Effective January 1, 2019

LOUISVILLE, Ky.--( BUSINESS WIRE )--Yum! Brands, Inc. (NYSE: YUM) today announced the promotion of Tony Lowings, 60, to KFC Division Chief Executive Officer, reporting to Yum! Brands Chief Executive Officer, Greg Creed, effective January 1, 2019. Lowings, a 24-year veteran of the Company, who currently serves as KFC Division President and Chief Operating Officer, will succeed Roger Eaton who is retiring at the end of 2018.

In this new role, Lowings will assume global responsibility for driving the brand strategy and performance of KFC. KFC is the world’s most popular chicken restaurant brand with more than $24 billion in global system sales and more than 21,000 restaurants in over 130 countries and territories as of year-end 2017. General Managers of KFC around the world (including KFC U.S.) as well as leaders of KFC’s global functions, will report to Lowings effective January 1.

“ Tony Lowings is an outstanding leader with deep knowledge of our business and a strong track record of growing KFC’s presence and strengthening the brand’s competitive position with our franchise partners in markets around the world,” said Creed. “ As a proven and highly respected strategic brand builder, high impact operations leader and people grower, Tony is the perfect person to continue elevating KFC into a distinctive, relevant and easy global brand that people trust and champion. I’m extremely confident Tony and his management team will establish a seamless transition and continue to successfully execute KFC’s long-term global growth strategies in partnership with our franchisees.”

Lowings has held a variety of leadership positions at Yum! Brands across finance, operations and general management in several international business units. Prior to becoming President and COO of KFC Division earlier this year, Lowings was Managing Director of Asia-Pacific, a high-growth region for the brand representing 23 markets and comprising more than 50 percent of all KFC Division restaurants. During this time, Lowings provided coaching and support to the KFC business units in India, Thailand, Australia, New Zealand and the Asia franchise business unit. He previously served as Managing Director of KFC SOPAC (Australia and New Zealand) where he was instrumental in growing the business and establishing KFC as one of the region’s most distinctive and unique brands. Lowings’ career at the Company includes roles as Chief Operations Officer of Yum! Restaurants International, Managing Director of Latin America and the Caribbean for KFC, Pizza Hut and Taco Bell and General Manager of KFC and Pizza Hut in Australia and New Zealand.

“ I’m thrilled and incredibly privileged to continue working with our committed KFC leaders and amazing franchise partners to further strengthen and accelerate the development of our powerhouse global brand,” Lowings said. “ KFC is an iconic, well-loved brand with millions of fans and I couldn’t be more excited about its future.”

Roger Eaton has been with Yum! Brands and KFC for more than 20 years, leading the KFC brand globally since 2014. Throughout his successful career with the Company, he has held a number of leadership positions including Chief Operations Officer of Yum! Brands, Chief Executive Officer of KFC U.S., Chief Operating and Development Officer of Yum! Brands and Senior Vice President/Managing Director of Yum! Restaurants International South Pacific (SOPAC), among others.

“ I want to thank Roger Eaton, a dear colleague and friend to many, for his tremendous service, dedication and significant contributions to our business over the past two decades,” said Creed. “ Roger’s imprint on our culture, people and the KFC brand is vast and his legacy is lasting. While we will miss Roger, he’s earned this next phase of life and we wish him well as he spends time with his wife Debbie and children Pierce and Georgie.”

KFC, a subsidiary of Yum! Brands, Inc. (NYSE: YUM.), is a global chicken restaurant brand with a rich, decades-long history of success and innovation. It all started with one cook, Colonel Harland Sanders, who created a finger lickin’ good recipe more than 75 years ago, a list of secret herbs and spices scratched out on the back of the door to his kitchen. Today KFC still follows Colonel Sanders’ formula for success, with real cooks breading and freshly preparing delicious chicken by hand in more than 21,000 restaurants in over 130 countries and territories around the world.

Yum! Brands, Inc., based in Louisville, Kentucky, has over 45,000 restaurants in more than 140 countries and territories and is one of the Aon Hewitt Top Companies for Leaders in North America. In 2018, Yum! Brands was recognized as part of the inaugural Bloomberg Gender-Equality Index, named to the Dow Jones Sustainability North America Index and ranked among the top 100 Best Corporate Citizens by Corporate Responsibility Magazine. The company’s restaurant brands – KFC, Pizza Hut and Taco Bell – are global leaders of the chicken, pizza and Mexican-style food categories. Worldwide, the Yum! Brands system opens over seven new restaurants per day on average, making it a leader in global retail development.


was a truly historic year for Yum!. We successfully completed our three-year transformation and delivered on all of our bold commitments. Plus, we surpassed two milestones that are a testament to Yum!’s incredible scale as we eclipsed $50 billion in system sales and marked the opening of our 50,000th restaurant. None of this would have been possible without our unrivaled culture and talent and over 2,000 franchisees who run 98% of our restaurants globally and employ more than 1.5 million restaurant team members. Because of our journey to become more focused, franchised and efficient, we are well-positioned to accelerate growth and improve franchise unit economics over the long term.

Our new Recipe for Growth and Good will Unlock our Potential and reflects the importance of collaboration as we continue to build the world’s most loved, trusted and fastest-growing brands.

Our Recipe for Growth, using our four key growth drivers, is the foundation upon which our sustainable, long-term results are being built. These growth capabilities, outlined below, are the key drivers of samestore sales and net-new unit growth and serve as our guiding principles in all business decisions.

  1. Unrivaled Culture and Talent. We will leverage culture and people capability to fuel brand performance and franchisee success.
  2. Unmatched Franchise Operating Capability. We will recruit and equip the best restaurant operators in the world to deliver great customer experiences.
  3. Relevant, Easy and Distinctive Brands. We will innovate and elevate iconic restaurant brands people trust and champion.
  4. Bold Restaurant Development. We will drive market and franchise unit expansion with strong economics and value.

Our Recipe for Good is focused on leading with socially responsible and sustainable stewardship of our food, planet and people.

  1. Food: Serve delicious food people trust.
  2. Planet: Grow sustainably.
  3. People: Unlock potential in people and communities.

I firmly believe our culture is a competitive advantage for Yum! With culture as the driving force behind our results, I’m pleased to share the following highlights from 2019:

  • Our worldwide system sales grew 9%, led by 10% growth at KFC, 9% at Taco Bell and 8% at Pizza Hut.
  • Our same-store sales grew 3%, led by 5% growth at Taco Bell and followed by 4% at KFC with Pizza Hut even for the year.
  • We achieved net-new unit growth of 4%, including 2,040 net-new units, which represents a 70% increase versus 2016 when we began our transformation. We opened, on average, 9 gross restaurants per day in 2019.
  • We ended the year with over 50,000 global restaurants in approximately 287 brand-country combinations.
  • We are 98% franchised, with 913 company units as of the end of 2019.
  • Our core operating profit grew 12%.
  • We returned $1.3 billion of capital to shareholders through share repurchases and dividends.
  • KFC is &ldquoAlways Original&rdquo. KFC continued to bolster its brand positioning and beloved core menu items with innovative new products. We remain dedicated to making the brand R.E.D. &ndash relevant, easy and distinctive &ndash by investing in innovation, technology and enhanced asset formats. KFC now delivers from 15,000-plus restaurants across more than 90 countries.
  • Pizza Hut continued its commitment to ensure that every customer has a Hot, Fast and Reliable experience around the world by making improvements in food quality, speed of service and loyalty programs as well as upgrading its technology for online ordering and delivery.
  • Taco Bell truly is a Category of One for Everyone. 2019 was the brand’s eighth consecutive year of positive same-store sales growth, a testament to the strength of the leadership team and its partnerships with franchisees. In addition to a relentless commitment to value and innovation for which Taco Bell is known, I am particularly excited that 2019 marked the completion of the nationwide kiosk rollout to nearly 6,500 restaurants and that Taco Bell delivery is available in over 5,100 restaurants across the U.S. through our strategic partnership with Grubhub.

In closing, 2019 marked the successful conclusion of our massive transformation, and we began 2020 with the exciting news that we are adding The Habit Burger Grill to the Yum! family. This deal should enable us to offer an exciting new investment opportunity to our existing franchisees and expand an award-winning, trend-forward brand through the power of Yum!’s unmatched scale.

That said, the COVID-19 (coronavirus) pandemic continues to rapidly evolve, and our No. 1 priority is the health and safety of our employees, franchisees and customers. We are closely monitoring the situation and the ever-changing intelligence from public health, travel and national security authorities in countries where we operate to ensure we protect our people, customers and brands. With our franchisees, we have industry-leading action plans, standards and policies in the restaurants to prevent and limit the spread of COVID-19. As the world’s largest restaurant company, our customers span ages, backgrounds and borders, and we remain committed to serving them in a way that protects their health and safety. Times like these are a reminder that we are all globally connected and each have a role to play in helping others. At Yum!, we are committed to doing just that.

Global Citizenship & Sustainability Strategy

Yum! Brands is committed to delivering on our promises to our most important stakeholders &mdash enhancing the customer experience, improving restaurant and franchise profitability, increasing employee engagement and rewarding investors and shareholders.

Our Citizenship & Sustainability priorities will concentrate on advancing progress and results in the most critical parts of our business: feeding people and being transparent about what&rsquos in our food, choosing responsible suppliers, operating our restaurants efficiently, hiring and developing the best talent in an inclusive workplace, and giving back to our communities.

As a globally franchised business, Yum! views franchisees as essential partners in the execution of our Citizenship & Sustainability priorities concerning our food, planet and people.

As a global restaurant company, we are well-positioned to address numerous United Nations Sustainable Development Goals, such as Zero Hunger, Decent Work and Economic Growth, Responsible Consumption and Production, and Climate Action.

Watch the video: What Makes PurpleZ Unique in Growth Strategy Solutions? (December 2021).