YUM Brands: How the "Beijing Boost" Will Ignite This Stock
Tony Daltorio, Investment U Research
A few months ago, Yum Brands (NYSE: YUM) opened its first Taco Bell restaurant in India.
That seemingly small victory highlights a fascinating fact…
Despite McDonald's (NYSE: MCD) untouchable dominance in the United States, Yum Brands – which owns the KFC, Pizza Hut, Taco Bell, Long John Silver's and A&W brands – has the biggest and fastest-growing, global fast food empire, especially in developing countries.
And it's that very emerging markets empire that will translate into delicious profits for the company and its shareholders.
Emerging Markets are YUM
Last year, Yum opened 1,470 new restaurants outside the U.S. This gave it a total of 37,000 restaurants in 110 countries. Importantly, almost 35% of those opened last year were in China.
The company is particularly proud of its inroads in places like China and India. Its CGO, Rick Carucci, recently boasted that Yum has twice the number of restaurants in emerging markets as McDonalds.
That focus is key to the company's corporate strategy. It plans to lighten up its presence in the U.S. and Europe, concentrating instead on building its presence in places with fast-growing middle classes. That includes Brazil, Russia, Indonesia, Vietnam, China and India.
Yum's management clearly sees where its bread is buttered.
In the 5-year period ending 2009, Yum Brands added about 4,000 new net units in such countries. And in doing so, it registered a compound annual growth rate of 12%. This is in stark contrast to the 1% compound annual growth rate of its international operations.
China is definitely Yum's biggest success story. The company remains comfortably ahead of McDonald's as the nation's largest restaurant group.
China already has a middle class of about 300 million people, though that number is expected to exceed 500 million in the next decade. That works' very well for Yum, which derived 34% of its 2009 revenues from China. And it hopes to raise that number too. Yum has already estimated that the country can support at least 20,000 of its restaurants.
The company's success in China has a solid foundation, thanks to three main factors: KFC, Pizza Hut and increasingly local investments.
Yum Does KFC Right
KFC is the fastest-growing restaurant chain in China today. It opened 500 new outlets just last year and plans to meet that same goal this year.
KFC is Yum Brands' channel to reach the country's mainstream consumers, offering a combination of foreign flavor with localized tastes at reasonable prices. Management puts local people in charge of the restaurants… people empowered to make critical decisions. That includes handpicking menu items, tailored to local tastes that they know will sell.
This is one key way in how Yum has differentiated itself from McDonald's. The Golden Arches has remained a distinctly American brand since it entered the Chinese market in 1990. And it's been fairly successful with the 1,137 locations it's established there.
KFC – which entered the Chinese market in 1987 – has positioned itself as an American brand as well. But it's done that with local Chinese characteristics. This has allowed it to expand aggressively so that it operates almost…
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- Fast-Food Culture Grows in China
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- Fast Food and Fast Money in Emerging Markets
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