More About Yum Brands (YUM)
Category: Yum Brands (YUM)
Last updated: 23 June 2020 Stock price of Yum Brands: $87.82 On this page we will look to provide more information and interesting details not often covered by mainstream financial websites of Yum Brands, the owner and franchiser of fast food and take out brands such as KFC, Pizza Hut and Taco Bell with over 51 000 outlets and sales of over $5 billion during their 2019 fiscal year.
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- YUM has over 50,000 restaurants in more than 150 countries and territories primarily operating under the three concepts of KFC, Pizza Hut and Taco Bell "
About Yum Brands (YUM)
YUM has over 50,000 restaurants in more than 150 countries and territories primarily operating under the three concepts of KFC, Pizza Hut and Taco Bell (the “Concepts”). These three concepts are global leaders of the chicken, pizza and Mexican-style food categories, respectively. At December 31, 2019, 98% of our units are operated by independent franchisees or licensees under the terms of franchise or license agreements. The terms “franchise” or “franchisee” within this Form 10-K are meant to describe third parties that operate units under either franchise or license agreements. Following is a summary of our Concepts’ operations and a brief description of each Concept as of and for the year ended December 31, 2019:
Number of Units % of international units Number of countries and territories % Franchised System sales (in $ millions)
KFC Division: 24,104 83% 144 99% $27,900
Pizza Hut Division: 18,703 61% 113 99% $12,900
Taco Bell Division: 7,363 8% 30 94% $11,784
YUM Total: 50,170 64% 152 98% $52,584
Number of Units % of international units Number of countries and territories % Franchised System sales (in $ millions)
KFC Division: 24,104 83% 144 99% $27,900
Pizza Hut Division: 18,703 61% 113 99% $12,900
Taco Bell Division: 7,363 8% 30 94% $11,784
YUM Total: 50,170 64% 152 98% $52,584
Quick facts about Yum Brands (YUM)
- Yum Brands is listed on the NYSE under share code ticker: YUM
- Yum Brands market capital: $26.4 billion (as at 22 June 2020)
- Number of employees of Yum Brands: 34 000
- Revenues in 2019: $559 billion
- Earnings per share in 2019: $3.55
- Shares in issue: 364 million
- Dividends paid during 2019: $1.68
- Cash on balance sheet: $292 million
Number of outlets per major restaurant brand:
- KFC: 24 104
- Pizza Hut: 18 703
- Taco Bell: 7 3 63
Overview of Yum's major brands
KFC
• KFC was founded in Corbin, Kentucky by Colonel Harland D. Sanders, an early developer of the quick service food business and a pioneer of the restaurant franchise concept. The Colonel perfected his secret blend of 11 herbs and spices for Kentucky Fried Chicken in 1939 and signed up his first franchisee in 1952. KFC restaurants across the world offer fried and non-fried chicken products such as sandwiches, chicken strips, chicken-on-the-bone and other chicken products marketed under a variety of names.
Pizza Hut
• The first Pizza Hut restaurant was opened in 1958 in Wichita, Kansas, and within a year, the first franchise unit was opened. Today, Pizza Hut is the largest restaurant chain in the world specializing in the sale of ready-to-eat pizza products. Pizza Hut operates in the delivery, carryout and casual dining segments around the world.
Taco Bell
• The first Taco Bell restaurant was opened in 1962 by Glen Bell in Downey, California, and in 1964, the first Taco Bell franchise was sold. Taco Bell specializes in Mexican-style food products, including various types of tacos, burritos, quesadillas, salads, nachos and other related items.
• KFC was founded in Corbin, Kentucky by Colonel Harland D. Sanders, an early developer of the quick service food business and a pioneer of the restaurant franchise concept. The Colonel perfected his secret blend of 11 herbs and spices for Kentucky Fried Chicken in 1939 and signed up his first franchisee in 1952. KFC restaurants across the world offer fried and non-fried chicken products such as sandwiches, chicken strips, chicken-on-the-bone and other chicken products marketed under a variety of names.
Pizza Hut
• The first Pizza Hut restaurant was opened in 1958 in Wichita, Kansas, and within a year, the first franchise unit was opened. Today, Pizza Hut is the largest restaurant chain in the world specializing in the sale of ready-to-eat pizza products. Pizza Hut operates in the delivery, carryout and casual dining segments around the world.
Taco Bell
• The first Taco Bell restaurant was opened in 1962 by Glen Bell in Downey, California, and in 1964, the first Taco Bell franchise was sold. Taco Bell specializes in Mexican-style food products, including various types of tacos, burritos, quesadillas, salads, nachos and other related items.
Business strategy of Yum Brands
Through our Recipe for Growth and Good we intend to unlock the growth potential of our Concepts and YUM, drive increased collaboration across our Concepts and geographies and consistently deliver better customer experiences, improved economics and higher rates of growth. Key enablers include accelerated use of technology and better leverage of our systemwide scale. Our Recipe for Growth is based on four key drivers: • Unrivaled Culture and Talent: Leverage our culture and people capability to fuel brand performance and franchise success • Unmatched Operating Capability: Recruit and equip the best restaurant operators in the world to deliver great customer experiences • Relevant, Easy and Distinctive Brands: Innovate and elevate iconic restaurant brands people trust and champion • Bold Restaurant Development: Drive market and franchise expansion with strong economics and value Our Recipe for Good reflects our global citizenship and sustainability strategy and practices, while reinforcing our public commitment to drive socially responsible growth, risk management and sustainable stewardship of our food, planet and people
Franchise Agreements of Yum Brands
The franchise programs of the Company are designed to promote consistency and quality, and the Company is selective in granting franchises. The Company is focused on partnering with franchisees who have the commitment, capability and capitalization to grow our Concepts. Franchisees can range in size from individuals owning just one restaurant to large publicly-traded companies. The Company utilizes both store-level franchise and master franchise programs to grow its businesses. Of our over 49,000 franchised units at December 31, 2019, approximately 30% operate under our master franchise programs, including over 8,800 units in mainland China. The remainder of our franchise units operate under store-level franchise agreements. Under both types of franchise programs, franchisees supply capital by purchasing or leasing the land, building, equipment, signs, seating, inventories and supplies and, over the longer term, by reinvesting in the business. In certain historical refranchising transactions the Company may have retained ownership of land and building and continues to lease them to the franchisee. Store-level franchise agreements typically require payment to the Company of certain upfront fees such as initial fees paid upon opening of a store, fees paid to renew the term of the franchise agreement and fees paid in the event the franchise agreement is transferred to another franchisee. Franchisees also pay monthly continuing fees based on a percentage of their restaurants’ sales (typically 4% - 6%) and are required to spend a certain amount to advertise and promote the brand.
Under master franchise arrangements, the Company enters into agreements that allow master franchisees to operate restaurants as well as sub-franchise restaurants within certain geographic territories. Master franchisees are typically responsible for overseeing development within their territories and performing certain other administrative duties with regard to the oversight of sub-franchisees. In exchange, master franchisees retain a certain percentage of fees payable by the sub-franchisees under their franchise agreements and typically pay lower fees for the restaurants they operate. Our largest master franchisee, Yum China, pays the Company a continuing fee of 3% on system sales of our Concepts in mainland China. The Company seeks to maintain strong and open relationships with its franchisees and their representatives. To this end, the Company invests a significant amount of time working with the franchisee community and their representative organizations on key aspects of the business, including products, equipment, operational improvements and standards and management techniques
Under master franchise arrangements, the Company enters into agreements that allow master franchisees to operate restaurants as well as sub-franchise restaurants within certain geographic territories. Master franchisees are typically responsible for overseeing development within their territories and performing certain other administrative duties with regard to the oversight of sub-franchisees. In exchange, master franchisees retain a certain percentage of fees payable by the sub-franchisees under their franchise agreements and typically pay lower fees for the restaurants they operate. Our largest master franchisee, Yum China, pays the Company a continuing fee of 3% on system sales of our Concepts in mainland China. The Company seeks to maintain strong and open relationships with its franchisees and their representatives. To this end, the Company invests a significant amount of time working with the franchisee community and their representative organizations on key aspects of the business, including products, equipment, operational improvements and standards and management techniques
Restaurant operations of Yum Brands
Through its Concepts, YUM develops, operates and franchises a worldwide system of both traditional and non-traditional Quick Service Restaurants (“QSR”). Traditional units can feature dine-in, carryout, drive-thru and delivery services. Non-traditional units include express units and kiosks that have a more limited menu, usually generate lower sales volumes and operate in non-traditional locations like malls, airports, gasoline service stations, train stations, subways, convenience stores, stadiums, amusement parks and colleges, where a full-scale traditional outlet would not be practical or efficient.
Most restaurants in each Concept offer consumers the ability to dine in and/or carryout food. In addition, Taco Bell and KFC offer a drivethru option in many stores. Pizza Hut offers a drive-thru option on a much more limited basis. Pizza Hut typically offers delivery service, while, on a more limited but expanding basis, KFC and Taco Bell allow for consumers to have the Concepts’ food delivered either through store-level or third-party delivery services. Restaurant management structure varies by Concept and unit size. Generally, each restaurant is led by a restaurant general manager (“RGM”), together with one or more assistant managers, depending on the operating complexity and sales volume of the restaurant. Each Concept issues detailed manuals, which may then be customized to meet local regulations and customs.
These manuals set forth standards and requirements for all aspects of restaurant operations, including food safety and quality, food handling and product preparation procedures, equipment maintenance, facility standards and accounting control procedures. The restaurant management teams are responsible for the day-to-day operation of each unit and for ensuring compliance with operating standards. CHAMPS – which stands for Cleanliness, Hospitality, Accuracy, Maintenance, Product Quality and Speed of Service – is our proprietary systemwide program for training, measuring and rewarding employee performance against key customer measures. CHAMPS is intended to align the operating processes of our entire system around one core set of standards. RGMs’ efforts, including CHAMPS performance measures, are monitored by Area Coaches, where sufficient scale allows. Area Coaches typically work with approximately six to twelve restaurants.
Most restaurants in each Concept offer consumers the ability to dine in and/or carryout food. In addition, Taco Bell and KFC offer a drivethru option in many stores. Pizza Hut offers a drive-thru option on a much more limited basis. Pizza Hut typically offers delivery service, while, on a more limited but expanding basis, KFC and Taco Bell allow for consumers to have the Concepts’ food delivered either through store-level or third-party delivery services. Restaurant management structure varies by Concept and unit size. Generally, each restaurant is led by a restaurant general manager (“RGM”), together with one or more assistant managers, depending on the operating complexity and sales volume of the restaurant. Each Concept issues detailed manuals, which may then be customized to meet local regulations and customs.
These manuals set forth standards and requirements for all aspects of restaurant operations, including food safety and quality, food handling and product preparation procedures, equipment maintenance, facility standards and accounting control procedures. The restaurant management teams are responsible for the day-to-day operation of each unit and for ensuring compliance with operating standards. CHAMPS – which stands for Cleanliness, Hospitality, Accuracy, Maintenance, Product Quality and Speed of Service – is our proprietary systemwide program for training, measuring and rewarding employee performance against key customer measures. CHAMPS is intended to align the operating processes of our entire system around one core set of standards. RGMs’ efforts, including CHAMPS performance measures, are monitored by Area Coaches, where sufficient scale allows. Area Coaches typically work with approximately six to twelve restaurants.
Employees of Yum Brands
As of year end 2019, the Company and its subsidiaries employed approximately 34,000 persons. The Company believes that it provides working conditions and compensation that compare favorably with those of its principal competitors. The majority of employees are paid on an hourly basis. Some employees are subject to labor council relationships that vary due to the diverse countries in which the Company operates. The Company and its Concepts consider employee relations to be good
Trademarks and Patents of Yum Brands
The Company and its Concepts own numerous registered trademarks and service marks. The Company believes that many of these marks, including its Kentucky Fried Chicken®, KFC®, Pizza Hut® and Taco Bell® marks, have significant value and are materially important to its business. The Company’s policy is to pursue registration of its important marks whenever feasible and to oppose vigorously any infringement of its marks. The use of certain of these marks by franchisees has been authorized in our franchise agreements. Under current law and with proper use, the Company’s rights in its marks can generally last indefinitely. The Company also has certain patents on restaurant equipment which, while valuable, are not currently considered material to its business
Competition of Yum Brands
The retail food industry, in which our Concepts compete, is made up of supermarkets, supercenters, warehouse stores, convenience stores, coffee shops, snack bars, delicatessens and restaurants (including those in the QSR segment), and is intensely competitive with respect to price and quality of food products, new product development, digital engagement, advertising levels and promotional initiatives, customer service reputation, restaurant location and attractiveness and maintenance of properties. Competition has also increased from and been enabled by delivery aggregators and other food delivery services in recent years, particularly in urbanized areas. The retail food industry is often affected by changes in consumer tastes; national, regional or local economic conditions; currency fluctuations; demographic trends; traffic patterns; the type, number and location of competing food retailers and products; and disposable purchasing power.
Within the retail food industry, each of our Concepts competes with international, national and regional chains as well as locally-owned establishments, not only for customers, but also for management and hourly personnel, suitable real estate sites and qualified franchisees. Given the various types and vast number of competitors, our Concepts do not constitute a significant portion of the retail food industry in terms of number of system units or system sales, either on a worldwide or individual country basis.
Within the retail food industry, each of our Concepts competes with international, national and regional chains as well as locally-owned establishments, not only for customers, but also for management and hourly personnel, suitable real estate sites and qualified franchisees. Given the various types and vast number of competitors, our Concepts do not constitute a significant portion of the retail food industry in terms of number of system units or system sales, either on a worldwide or individual country basis.
Seasonality of Yum Brands earnings
The material seasonal impact in our operations is increased net sales and earnings during the winter holiday season.
Yum Brands (NYSE: YUM) stock performance
This graph compares the cumulative total return of our Common Stock to the cumulative total return of the S&P 500 Index and the S&P 500 Consumer Discretionary Sector Index, a peer group that includes YUM, for the period from December 31, 2014 to December 31, 2019. The graph assumes that the value of the investment in our Common Stock and each index was $100 at December 31, 2014 and that all cash dividends were reinvested.
Our last Yum Brands (YUM) stock valuation (30 April 2020)
So what do we value Yum! Brands stock at after the release of their 3rd quarter 2019 earnings release. Based on Yum brands' latest earnings report and the earnings guidance provided our stock valuation models provides a target price (full value price) from Yum! brands at $78.40 a share (down slightly from our last Yum Brands Valuation). We therefore believe the stock of Yum Brands is overvalued.
We usually suggest that long term and fundamental investors get in at least 10% below our target (full value) price which in this case is $78.40. Therefore we believe a good entry point into Yum brands' stock is at $70.60 or below. We expect the stock of Yum brands' to pull back from current levels to levels closer to our target price (full value price) in coming weeks and moths as we believe it is overvalued at this point in time.
Since the stock of Yum Brands is trading at well above our target (full value) price and our suggested entry price we rate Yum Brands as a sell
We usually suggest that long term and fundamental investors get in at least 10% below our target (full value) price which in this case is $78.40. Therefore we believe a good entry point into Yum brands' stock is at $70.60 or below. We expect the stock of Yum brands' to pull back from current levels to levels closer to our target price (full value price) in coming weeks and moths as we believe it is overvalued at this point in time.
Since the stock of Yum Brands is trading at well above our target (full value) price and our suggested entry price we rate Yum Brands as a sell