Yum! Brands - Pizza Hut, and Kfc

Yum! Brands, Pizza Hut, and KFC

Yum! Brands, Inc., was the world's largest fast-food company in 2004 operating more than 33,000 KFC, Pizza Hut, Taco Bell, Long John Silver's, and A&W restaurants worldwide. It was the market leader in the chicken, pizza, Mexican, and seafood segments of the U.S. fast food industry and operated more than 12,000 restaurants outside the United States. KFC and Pizza Hut combined for more than 96% of the company's international restaurant base and managed restaurants in 116 countries.

Problems/Opportunities:

1. Should Yum! Brands continue growth in China where they have been the fastest growing quick service restaurant, or focus on correcting the issues in the United States where sales are slowing relating to a smaller market share?

2. Should Yum! Brands penetrate other new growth markets before competitors such as France or Germany or stay focused in China where there is an established brand recognition and rapid expansion?

3. Should Yum Brands maintain their current nutritional values which are poor, or increase the number of health conscious menu options?

Relevant Facts:

1. Only two of Yum Brand's five brands were U.S. market leaders in 2003, Pizza Hut and KFC.

2. Pizza Hut had approximately 5 billion in sales with a -1.3% growth rate.

3. KFC had approximately 4.9 billion in sales with a 2.8% growth rate.

4. Taco Bell had approximately 5.3 billion in sales with a 2.8% growth rate.

5. Long John Silver's and A&W had 777 million and 200 million in sales respectively.

6. Costs of chicken increased dramatically from 2001 to 2003 from $1.20 per pound to $2.50 per pound.

7. Long John Silver's was the only Yum! Brand not on the world's 35 largest fast food chains in 2004.

8. KFC has more success in Asia and Latin America where chicken is a traditional dish.

9. 57.1% of KFC restaurants are internationally based as of 2004.

10. Mexican countries were already accustomed to the fast food concept.

Recommendations:

Yum! Brands should employ different strategies in its Unites States Division, International Division, and China Division in order to improve performance and continue expansion. First, as a general strategy, Yum! Brands should continue to focus on its Chinese and international markets. Although Yum! Brands could attempt to capture a larger market share in the United States, it seems that the United States fast food industry is already well established and difficult to penetrate. Not only has McDonald's been able to maintain the largest share of the fast food market for years, but the industry itself is already oversaturated with thousands of different other brands.

Focusing on the United States division, Yum! Brands should make efforts to sustain its position as the second leading brand in the United States market. It should focus on continuing to build its brand reputation. Domestic sales have been declining in recent years, possibly due to the current economic situation. Yum! Brands is bouncing back from the recession fairy quickly. To maintain and increase its revenue, it is vital that the company focuses on sustaining its position in the fast food industry rather than driving aggressive growth. Investing in fast expansion in the domestic market may actually hurt Yum! Brands. In terms of geographic location, there would not be a benefit to increasing the number of restaurants in any given area of the United States as most Americans already have a McDonalds, KFC, Pizza Hut, or Taco Bell within a few miles radius of their residence.

In the China market, Yum! Brands should employ a different strategy. The company should strive to maintain dominance in China as the number one, largest and fastest growing fast food brand in the country. Compared to the United States, where Taco Bell is the leading brand, KFC and Pizza Hut are the branches that have been thriving in China. Yum! Brands also have a first mover advantage as it was the first corporation to introduce quick service, pizza, pizza delivery, and casual dining to China. It must maintain its competitive advantage by continuing to grow at a rapid rate. It seems they have already kept this in mind by pursuing nonstop expansion. Because China has a huge population, the potential for building a strong customer base is substantial. By introducing a new brand that sells traditional Chinese cuisine, Yum! Brands can capture the older generation of Chinese consumers.

Although the company's strategy in the United States has shifted towards targeting an older crowd and the working population, consumer tastes in China may be had to alter from traditional Chinese cuisine. Therefore, Yum! Brands will have more success by focusing on a new generation of consumers. KFC and Pizza Hut need to establish a strong reputation with the younger population, which has greater exposure to and knowledge of Western culture. This will help the company to build up its brand reputation and recognition in China. A solid brand reputation will allow Yum! Brands to continue to push forward with rapid expansion and development. Yum! Brands are able to maintain control over its Chinese restaurant units by limiting the number of franchised stores. The number of franchises has actually decreased in the past few years, possibly so that the company can better control its brand impression in