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Yum! Brands, Inc. (YUM): This Fast Food Company Has Big Plans

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Yum! Brands, Inc. (NYSE:YUM) has chalked out an aggressive growth plan. The company, which owns popular chains like KFC, Pizza Hut, and Taco Bell, has been making investors nervous of late as it ran into a series of troubles in its biggest market, China. But now, things seem to be getting better in the Middle Kingdom and in the backdrop of improving overall outlook, Yum! has announced big global plans to fuel future growth.

KFC still aiming to grow in China

Despite the recent disruptions in Yum! Brands, Inc. (NYSE:YUM)’s China operations due to the chicken scandal and the bird flu scare, it is sticking with its plans of increasing the count of KFCs. The company will add 700 more KFC’s through the year to bring the chain’s store count to almost 5,000 in China.

Yum! Brands, Inc. (NYSE:YUM)Talking about China, investors may be relieved to know that the bird flu scare is ebbing. Although same store sales at KFC were still a negative 25% in May, it is an improvement over the 36% dip in April. The company is hopeful of getting back to positive numbers by the fourth quarter.

KFC is adding new markets

KFC will set up 15 stores in Mongolia over the next five years. Like it did in China, it intends to reap the first mover advantage by getting there before its peers. Also similar to China, it will determine its menu based on a mix of standard KFC fare and local preferences.

Mongolia is a good market to be in. World Bank predicts that the economy will grow 13% this year. It also helps that the Mongolian population has recently woken up to the benefits of white meat over red meat and popularity of chicken is growing.

Yum! Brands, Inc. (NYSE:YUM)’s next likely destination is Myanmar. After the end of its oppressive military regime, the country is presently the hot spot for western companies.

Taco Bell will double sales

For years, Taco Bell has been sidelined by the other two chains, KFC and Pizza Hut. But now, with the chain posting 6% positive comps in the first quarter, there is no doubt about the chain’s growing popularity.

Eyeing an opportunity, Yum! Brands, Inc. (NYSE:YUM) plans to double Taco Bell’s annual revenue to $14 billion by 2021. The plan involves store expansions and increasing sales per restaurant. It is significant that all of Yum!’s chains generate a consolidated revenue of $13.5 billion at present.

More Taco Bell stores

Taco Bell currently has around 5,700 locations in the U.S. It will add 2,300 more to bring the count to around 8,000. The plan is to deepen penetration in relatively untapped areas. So, approximately 1,000 stores will be set up in smaller towns, around 700 – 800 in suburban markets, and only 200 – 300 in big cities.

Taco Bell stores will target higher sales

The second and more challenging part of the growth plan is increasing sales per restaurant. Taco Bell is aiming $1.8 million annually per store from the present $1.3 million to be achieved through menu expansion and increasing share in more day parts.

The chain has already proved what it is capable of achieving through menu innovation. Doritos Locos Tacos generated $715 million in revenue within the first year of debuting and Cantina Bell is on track to generate $500 million in its first year.

In March, Taco Bell added the Cool Ranch flavor to the Doritos line and will add a third flavor, chili-lime Flamas Doritos later in the year. Meanwhile, Cantina Bell will see new additions like steak Quesadillas and Fajitas. The latter will be priced at $5.49, the highest price-point for the chain.

The chain is increasing penetration in afternoon snacks market and foraying into the breakfast segment. It has been promoting its ‘Happier Hour’ where loaded griller wraps and a choice of beverage are available at $1 each between 2 pm-5 pm. This seasonal offer is looking to increase the chain’s share in the afternoon segment, where it currently holds around 1.2% of the market.

On the breakfast front, the chain is testing in the West a menu comprising Crunchy Breakfast Wrap, cinnamon rolls, oatmeal, yogurt parfaits, and coffee. We may see a national launch next year.

Other focus areas

For the group as a whole, India would be a key market. Yum! Brands, Inc. (NYSE:YUM) intends to double its store count in the country from the current 590 and generate an additional $100 million in operating profits by 2015. The group will also focus on other markets like France, Germany, Russia, and across Africa

Two other QSR’s with ambitious growth plans

On the domestic turf, Dunkin’ Donuts, the flagship chain of Dunkin Brands Group Inc (NASDAQ:DNKN), has ambitious plans like Taco Bell. It is attempting to double its restaurant count in the US to 15,000 over the next 20 years. The chain will focus on the West Coast at present with California being a big target.

It is eyeing double digit long-term growth which will come from new stores and higher sales from the existing units. To fulfill the latter part of the plan, Dunkin Brands Group Inc (NASDAQ:DNKN)’ Donuts is remodeling its stores to attract more afternoon crowd and also strengthening its already strong position in breakfast with offerings like Glazed Donut Breakfast Sandwich.

Meanwhile, in China, which is KFC’s biggest playground, McDonald’s Corporation (NYSE:MCD) will add 300 outlets through 2013. This will bring its store count to around 2,000. Presently, Yum! Brands, Inc. (NYSE:YUM) has around 5.2% market share and McDonald’s around 2%.

McDonald’s Corporation (NYSE:MCD) has recently launched some rice-based menu options to drive sales and take market share from KFC, which has mastered the art of local cuisine. But the initial reviews have not been too promising. In May, Big Mac had reported negative comparative sales in China due to bird flu scare.

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