Financial Analysis Report (FAR)
YUM! Brands, Inc.
The fast food and quick service restaurant industry consisted of about 945,000 restaurants representing approximately $552 billion in annual sales. The industry is highly fragmented, with the top 50 companies holding about 25% of industry sales and is intensely competitive with respect to food quality, price, service, convenience, location and concept (Hoovers 2009). The major companies of the industry include McDonald’s, Burger King, Subway, Domino’s Pizza, Dairy Queen and the Yum Brands restaurant companies. Quick service restaurants are 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 (Yum! Brands website, 2009). The profitability of individual companies within the industry depends on efficient operations, effective marketing and ingenious business strategy (Hoovers 2009). Knowing the way the industry fluctuates, in January 1997 PepsiCo announced its decision to spin-off its restaurant businesses to shareholders as an independent public company. Effective October 6, 1997, PepsiCo disposed of its restaurant businesses by distributing all of the outstanding shares of Common Stock of TRICON Global restaurants to its shareholders. Then on May 16, 2002, the Company changed its name from TRICON Global Restaurants, Inc. to YUM! Brands, Inc (Yum! Brands website, 2009) Yum! Brands, Inc., based in Louisville, Ky., is the world's largest restaurant company in terms of system restaurants with more than 36,000 restaurants in over 110 countries and territories. In terms of overall industry performance, Yum! Brands, Inc. is second only to McDonald’s restaurant. The Company’s Common Stock trades under the symbol YUM and is listed on the New York Stock Exchange (“NYSE”). They were ranked #239 on the Fortune 500 List, with revenues in excess of $11 billion in 2008. I believe the reason for this outstanding performance can be attributed to the multi-branding strategy the company has adopted. A multi-brand strategy involves the marketing of two or more similar and usually competing products by the same parent company that typically involves different brands. Four of their restaurant brands: KFC, Pizza Hut, Taco Bell and Long John Silver's are the global leaders of the chicken, pizza, Mexican-style food and quick-service seafood categories. Yum consists of three operating segments: U.S. (KFC-U.S., Pizza Hut-U.S., Taco Bell-U.S., LJS/A&W-U.S.), International (Yum! Restaurants International) and China Division (includes mainland China, Thailand and KFC Taiwan). In 2008, Yum opened more than four new restaurants each day of the year, outside of the United States, making them the largest retail developer in the world. (Yum! Brands website, 2009) The U.S. segment consists of five individual operating brands. A brief description of each company is listed below: 1. Kentucky Fried Chicken (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 is based in Louisville, Kentucky. As of year end 2008, KFC was the leader in the U.S. chicken QSR segment among companies featuring chicken-on-the-bone as their primary product offering, with a 44 percent market share in that segment, which is more than three times that of its closest national competitor.
2. 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...
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