Food inflation and slowing spend on discretionary items have been a key concern for all the fast food retailers. This has led to shrinkage in margins and slowing top line growth. However, the companies are paving its way by increasing their list of offerings, providing more variety and introducing healthier items. This has brought some kind of a relief for some of these companies.
An apt example here is that of Yum! Brands (YUM), which reported its second quarter numbers. Although the results were mixed, it brought some good news by the company. Let us check how.
Into the quarter
Driven by growth in most of the segments, revenue jumped 10% to $3.2 billion, over last year. The company managed to register growth despite problems, such as rising input prices, lower consumer spending and avian flu, which affected sales in China last year. Also, chicken prices are on the rise.
In fact, one of the primary drivers this quarter was China. Revenue from this segment rose 21% over last year, driven by 104 new outlets in the region and same-store sales growth of 15%. In order to overcome the hurdles of lower demand in the last year, the food retailer started a new marketing campaign and revamped its food menu. Not only China but also India registered growth during the quarter. Revenue from India surged 18% over the prior year.
Even KFC and Taco Bell registered higher sales during the quarter. Same-store sales grew by 2% in both the segments, which resulted in a 5% sales increase in the KFC segment and a 3% climb in the Taco Bell segment. The secret of success for both the segments was new products launched. New chicken items in the menu drove sales at KFC higher. Similarly, a new breakfast menu introduced at Taco Bell brought more customers.
However, it is not the only one to add the breakfast menu. Even peer McDonald’s (MCD) had introduced the same earlier. In fact, it now leads the breakfast industry and makes $1 million in revenue every morning.
Although the aforementioned segment did extremely well, there are some which partially offset the increase in top line. Pizza Hut was one of them. Sales at Pizza Hut declined 1% over last year as same store sales decreased by 3%. Revenue from this segment is being hampered mainly because of refranchising of pizza hut locations.
Further, Yum! Brands’ sales in the U.S. were also hurt during the quarter. This was mainly due to weakness in consumer spending and severe weather conditions which kept customers home. However, the company plans to overcome that with its new breakfast items and the warmer weather which should attract more customers. Also, it is planning to promote Power Platform in order to lure health-conscious customers.
The fast food retailer plans to bring in more items to its menu, which is expected to drive revenue higher. In fact, it will be rolling out its new Power Cantina menu this month, which is high in protein and is meant for health conscious people.
Further, it plans to expand its footprint by adding new stores. For instance, it plans to open 700 new stores in China and more than 1,000 stores in other regions. The company will also be adding 100 new stores in India this year.
Although Pizza Hut witnessed lower sales during the quarter, Yum! Brands’ other segments look increasingly interesting. Growing sales in the international market, geographic expansion and product innovation are among the few strengths of the company. Also, initiatives taken for the U.S. segment should also be fruitful. Hence, this company’s future is all set to shine out.