The restaurant industry is experiencing a slowdown. People have stopped dining out as regularly as they would in the past. One of the main reasons is that eating in restaurants is costlier than grabbing a bite in a fast food outlet. Although the restaurant industry is seeing decelerated growth, which is expected to get worse in the current year, fast food outlets are enjoying higher acceptance by people.
The rising popularity of fast food outlets is attributable to several things. First, the increase in the young population is a big driving force. Second, increasing urbanization and change in tastes, preferences and lifestyle of people is aiding growth. Another driving factor is the fact that more and more people are working in offices now. And as result of this, they have less time for cooking and managing similar household work. Fast food has become their favorite, particularly as it is more affordable on a regular basis. There are numerous fast food companies that stand to gain from this.
Here’s a fast food giant I’d like to discuss which could sparkle your portfolio, provided it complies with its own strategies. Yum! Brands (YUM, Financial) is undertaking some business strategies and food quality and safety measures to overcome current challenges and report future growth.
Solid Growth Path
The American giant operates nearly 40,000 outlets globally through KFC, Pizza Hut and Taco Bell brands. It is present in about 130 countries with largest presence in China, which is one of its four segments as well, others being YUM! Restaurants International, YUM! United States and YUM! Restaurants India.
The company has been seeing troubled times in its major market, China, since December 2012 as it got entwined in the poultry supply issue and bird flu. But it’s taken major steps to ensure quality food and regain confidence in its largest market. There are three key areas that the company is working on.
First, it wants to regain a strong hold and emerge as a lead brand in China, which accounts for an enormous portion of the company’s operating revenue and sales. Yum realizes that China has incredible potential from which the company could benefit massively. The emerging nation has a population of 1.4 billion with rising affluence and office-going class. There are other Westerners including McDonald’s (MCD, Financial) or Starbucks (SBUX, Financial), but none have been able to capture the market as well as Yum. The company has somehow managed to satisfy Chinese taste buds better.
Second, the company has undertaken several campaigns and initiatives to ensure the quality of its offerings. It’s taken rigorous steps to improve its supply chain. The company also plans to go for international expansion in places like India, Russia, Africa, France and Germany to reduce dependency on one nation while increasing footprints elsewhere. This absolutely doesn’t mean that Yum is reducing its focus on its current markets. Last year it opened more than 1,200 outlets across the globe. Yum means business, and it’s significantly pouring in millions in innovation and marketing techniques.
Parting Thoughts
Despite softer sales and revenues due to temporary setbacks, the company has managed to maintain strong cash flows. There would always be challenges and opportunities, but the key to success for any company lies in the way it handles both its accomplishments and setbacks. Yum is a very good example of a balanced company that’s working hard to recover its momentum while creating new avenues. I believe it’s a good bet for a long-term investor.
