Yum! Brands Inc., the parent of KFC, Pizza Hut and Taco Bell, said expansion abroad and profit growth in the United States would enable the company to maintain the earnings momentum it achieved in fiscal 2011.
Yum’s strategy for adding more than 600 restaurants in its fast-growing China division and more than 900 locations in Yum Restaurants International, or YRI, requires that it make major investments in those markets, while also reducing ownership in its three brands’ domestic systems and spurring innovation, the company said.
“Our philosophy is pretty simple: reduce corporate ownership in highly penetrated markets, and increase exposure in underpenetrated markets,” said chief financial officer Rick Carucci.
Carucci and chief executive David Novak outlined several strategies for building up Yum’s international system and rebuilding sales domestically in 2012 during the company’s fourth-quarter earnings call with investors.
Bullish on China’s prospects
Coming off a fiscal year in which same-store sales at its three major brands in China grew considerably — up 19 percent at KFC and Pizza Hut Home Service and 17 percent at Pizza Hut Casual Dining — Yum is looking to bolster that system even further through the growth of its East Dawning concept and newly acquired Little Sheep chain, Novak and Carucci said.
“What we’re talking about now in our development engine is having KFC be the leader in Western QSRs and Pizza Hut as the leader in Western casual dining in China,” Novak said. “We’re obviously also going to develop Pizza Hut Home Service, East Dawning and Little Sheep, so our goal is to keep this engine primed and pumped.”
Carucci said the Chinese government’s rapid pace of infrastructure development is creating new opportunities for Yum, especially in emerging city clusters and transportation hubs.
Percentage increases in food and labor inflation in China are both expected to be double digits in 2012, which means that Yum likely would have to raise menu prices on top of the 7-percent increase it implemented over the course of 2011, Carucci said.
Novak expressed confidence that inflation in China, while significant, would moderate in the second half of 2012 and allow Yum to rehabilitate profit margins in that country back toward its goal of 20 percent.