China Hearts Colonel Sanders

Yum! Brands (owners of Kentucky Fried Chicken, Pizza Hut and Taco Bell) is the most American of korporate food giants this side of a Big Mac. Which makes it interesting that Yum! now makes more dollars in China than the USA.

The spread in quarter three last year: 41.5 percent of Yum! sales came in the Asian giant versus 33.9 from the United States, and the spread in profits was greater, 46.3 vs. 29.1 percent.

The money in China is overwhelmingly KFC: of the 3,664 restaurants they own in the country, 83 percent are the Sanders brand. The rest are Pizza Huts, as Taco Bell was a flop that left the nation in 2008. But perhaps the chicken craze will lead to a reintroduction of Mexican food in China by combining the brands. Mexican food, like pizza, is not a hard sell when given the chance...

Colonel Sanders: China's favorite import
Paul R. La Monica
January 19, 2011
http://money.cnn.com/2011/01/19/news/companies/thebuzz/index.htm

The fast-food giant eating up the world

http://www.independent.co.uk/news/business/analysis-and-features/the-fastfood-giant-eating-up-the-world-2025955.html

The fast-food giant eating up the world
Thanks to its success in China, Yum!, the owner of KFC, is bigger than McDonald's – and it's still growing.
Stephen Foley
Wednesday, 14 July 2010

The Colonel's army is on the march. Vast swathes of China have fallen under his dominion, and he is making inroads in India and Russia. It is one of the great American conquests of our time: the Kentucky Fried Chickenification of the middle classes in the world's emerging economies. And it all means that KFC's parent company, Yum! Brands, which also owns Pizza Hut and the Mexican food outlet Taco Bell, has earned the exclamation mark on which it insists.

With 37,000 restaurants in 110 countries, Yum! even eclipses that more famous icon of American colonisation, McDonald's, to rank as the world's largest restaurant chain in terms of numbers of outlets. For Yum! the task is to forge onward in this virgin territory, but also to shore up its gains against the hungry McDonald's and other fast-food giants, all the while trying to keep the home fires burning back in the US, where sales are challenging because consumers are watching their wallets and their waistlines. The 23 years since Yum! opened its first KFC in China near Beijing's Tiananmen Square provide a masterclass in overseas expansion. Its success to date has tempted a hundred imitations and whose progress in the future will be one of the most closely watched stories in corporate America.

"Yum!'s is an amazing story about how they conquered China so much earlier than their main rivals," says RJ Hottovy, an analyst at Morningstar. "Part of the reason is that they built up their supply chain and their distribution system quickly, and that is giving them a real competitive advantage. When you are setting up restaurants in new territories it is often difficult to procure packaging and to develop good relationships with suppliers, but Yum! now has a nice little edge."

China has become so important to Yum! that it now splits its sales there into a separate division ranking equal to its US market. Last year, 33 per cent of its operating profits came from China, nudging the 38 per cent from the US, and it sees much greater potential still. Adding in Pizza Hut, which is pitched as a mid-market family dining experience in China, there will be 475 new Yum! outlets in there this year, on top of the record 509 added last year.

There are almost three times as many KFCs now in mainland China than there are McDonald's restaurants, which opened its doors there just three years later, in 1990. Mr Hottovy says competition is hotting up, however. "At the time that Yum! was accelerating in China, McDonald's was working on a turnaround in the US, but since that has been completed, it has turned its attention to international expansion in a big way and is planning to double its presence in China, so the competition for Yum is going to be increasing," he said.

"McDonald's, with its well-known brand, its advertising and its scale, will be a major player. But there is room for both. This is all about the rise of the middle-income consumer in China that is fuelling the growth, the story that we hear so much about."

All of the Yum! brands are storied American companies. KFC was founded by Harland Sanders in 1952, when he was already an established Kentucky businessman and had earned the title "Kentucky Colonel" for his services to the state. Pizza Hut traces its history back almost as far, and the younger Taco Bell, whose growth has mirrored the growth of the Mexican community and the popularity of its cuisine, was founded in 1962. The three chains were pulled together by Pepsi, the drinks-maker, which ran a restaurant division until 1997, when it decided to spin off the lot.

The growth trajectory in China has not been without its setbacks, including a dip in sales at existing restaurants there in 2005, but David Novak, the former Pepsi executive who has been Yum! chief executive since 2000, boasts that the company's infrastructure in China will not only carry it through but allow it to best its rivals. "China is predicted to be the fastest-growing major economy in the world," he said in the company's latest annual report. "In fact, it is expected to grow its middle class from around 300 million today to 500 million people in 2020. Like I've said in the past, we will no doubt have some bumpy years, but I wouldn't trade our long-term position in China with any consumer company in the world."

It is worth remembering that what Yum! is doing has never been done before. Who really knows what the Chinese appetite for Western-style fast food really will turn out to be? Both KFC and Pizza Hut have adapted their menus to local tastes, and their advertising, too. But, continuing with its second-quarter results last night, the focus is shifting to other expansion opportunities in China and beyond. The company is trialling a new Chinese food chain, called East Dawning, so that it can use its formidable distribution infrastructure for a more diverse range of brands and cuisines – just in case.

And then there are the other emerging markets. Yum has more than 70 KFCs in India, as well as 160 Pizza Huts, and it just opened its first Taco Bell in the country in March. It promises to hit 1,000 outlets in total by 2015, employing 50,000 people and raking in $100m in operating profit. Meanwhile, Mr Novak is hoping to engineer a dramatic expansion of Taco Bell, too. "Two global brands – and one on the way," he is fond of saying.

Taco Bell, with its menu of Mexican staples, from burritos and nachos to tacos, brought in just 3 per cent of its sales from outside the US in 2008, but that low figure was not for want of trying. The chain has attempted launches across the world on several occasions since the Eighties, but never gained popular acceptance. It is only now sticking a toe back into the European market, with a return to the UK via a first outlet in the Lakeside shopping centre, which opened two weeks ago.

In the US, the focus is on sprucing up the menus across the Yum! outlets, and that means making them healthier. At KFC, less chicken is being fried (hence a preference for using the initials) and more is being grilled. At Pizza Hut, putting chicken wings on a wider menu has helped reverse a slide in revenues, while Taco Bell is pushing salads. More important perhaps to the company's financial health is a move to switch the US business from being owned and operated directly by Yum! from its headquarters at 1,900 Colonel Sanders Lane in Louisville, Kentucky, to being run by franchisees. The revenue from licence fees is lower, but at least it is stable and the margins are higher.

In short, the stagnation of its US business does not mean that an American corporation is doomed to stagnate itself, if it can seize opportunities around the world. Yum! is on course to boost earnings by 10 per cent this year, despite falling like-for-like sales in the US. It has peppered its missives to investors with fighting talk, promising to "dramatically improve" its US brands and "aggressive international expansion", with 1,400 new outlets in 2010. It doesn't plan to lose that exclamation mark, and wants to live up to its description of itself: "The defining global company that feeds the world."

Yum! Brands in numbers

509 new restaurants opened in China in 2009
2,950 branches of Kentucky Fried Chicken in China
1,100 branches of McDonald's in China
21 East Dawning Chinese food outlets
$19bn Yum! market capitalisation
440% share price rise since 2000
2% operating profit from China in 1998
33% operating profit from China in 2009
$9.4bn annual sales
1958 First branch of Pizza Hut opens in Kansas
1952 Colonel Harland D Sanders opens first KFC in Utah
11 herbs and spices in KFC's "finger-lickin' flavour"
1962 Glen Bell opens first branch of Taco Bell in California
1 number of Taco Bell stores in the UK
300 million pounds of cheese used by Pizza Hut each year

87,500 Size in square feet of the KFC "face from space" advertisement built in the Nevada desert and showing Colonel Sanders

New pizza recipe did wonders for Domino's sales

http://www.usatoday.com/money/industries/food/2010-05-05-dominos05_ST_N.htm

New pizza recipe did wonders for Domino's sales
5-5-2010
Domino's new reformulated pizza included changes to every element of its core pizza: New crust, new sauce, new cheese.
By Bruce Horovitz, USA TODAY

Just four months after a desperate Domino's (DPZ) tossed its much-mocked pizza recipe out the window and rolled out a spicy new one, the chain reported on Tuesday what CEO J. Patrick Doyle calls a "historic" leap in sales at locations open at least one year.

That gain of 14.3%, Doyle says, ranks as one of the largest quarterly same-store sales jumps ever recorded by a major fast-food chain. Even more impressive, the turnaround is taking place at a time when the $22 billion pizza-delivery business — quashed by the recession and vastly improved frozen-pizza technologies — fell 3%, researcher Technomic estimates.

Domino's was painfully aware of its old pizza recipe's bottom-of-the-barrel reputation. It even ran a self-flogging ad campaign earlier this year in which it let a consumer rant about its former crust tasting like cardboard and its sauce tasting like ketchup.

Domino's instant turnaround is almost without precedent in the fast-food industry, says Christopher Muller, hospitality professor at Orlando's University of Central Florida. "No one in the industry thought it was going to be this successful," Muller says. "This changes the pizza landscape."

Rolling out all-new crust, sauce and cheese, Muller says, "was like the world poker championship. Domino's put everything on the table."

The move was made in the midst of a CEO change, as well. Doyle was named CEO in January, just days after the new recipe began to roll out. He says the recipe was a needed move. "It proves that if you do the right thing, then look people in the eye and tell them the truth about what you've done, they'll respond."

Jeremy White, editor of trade magazine Pizza Today, agrees: "Domino's is really kicking it right now."

But not all is perfect. Domino's stock rose more than 70% over the past year, but it took a hit Tuesday, closing down $2.04 at $14.02, a drop of 12.7%. Some had expected Domino's numbers to be even stronger after the massive amount it spent promoting the new recipe and the discounting it has offered over the past quarter.

Meanwhile, Papa John's, which likes to brag about being the pizza taste leader — and whose domestic same-store sales fell 0.4% in the first quarter — is unimpressed with Domino's gains. "It's not surprising that they drove trial on a new product," says spokesman Chris Sternberg.

But Doyle believes it's much more than trial. "Not only did folks try the pizza — they're coming back," he says.

Doyle concedes, however, this kind of same-store sales results can't continue forever. "If we did this every quarter for seven years, we'd be bigger than U.S gross domestic product."

PIZZA SALES RANKINGS

Top five pizza chains in sales volume for 2009:

Company U.S. sales
Pizza Hut $5.0 billion
Domino's Pizza* $3.0 billion
Papa John's $2.1 billion
Little Caesars* $1.1 billion
Papa Murphy's Take 'N' Bake Pizza $0.6 billion

* = estimate; Sources: Technomic, company reports

Restaurants on the Ropes

http://finance.yahoo.com/news/Restaurants-on-the-usnews-15511482.html

Restaurants on the Ropes
Rick Newman
Friday June 12, 2009

When Americans get stressed out, one thing they do is eat. But apparently not enough.

The dismal economy has punished retailers, with companies like Circuit City and Linens 'n Things going extinct and dozens of others losing money. Now it's hitting their cousins in the restaurant industry, too. The Bennigan's and Steak & Ale chains were early casualties, going belly up last summer. This year, with Americans cutting back on spending, sales at restaurants could fall by 10 percent or more. Analysts don't expect widespread closures, but some chains are likely to close unprofitable outlets, cut back on service, and look for other ways to reduce costs.

As in retail, companies that help people save money will weather the storm better than others. Chains like McDonald's, Pizza Hut, and Olive Garden, which offer ample portions at value prices, should do OK and maybe even pick up market share. It helps if they've been run conservatively, with low borrowing costs and cash held for a rainy day.

Other eateries are in a pickle. Fancy restaurants that had long waits a few years ago are now begging for customers and offering sales. Midpriced casual dining outlets are losing customers to cheaper fast-food joints. Even some dollar-menu franchises are suffering if they're overdependent on mall traffic or clustered in regions where the economy is weakest. A key factor is debt: With sales down everywhere, many companies that borrowed heavily to remodel, expand, or buy other franchises now find that interest payments gobble up a nerve-wracking amount of cash flow.

Since debt is such an important menu item, we scoured data from ratings agency Standard & Poor's to gauge which well-known restaurants are facing tough challenges. The following list represents companies that meet two criteria: They have a credit rating of B or lower, and S&P assigns them a negative outlook. Landing on this list doesn't mean the company is likely to declare bankruptcy or close its doors. But these firms are vulnerable to deteriorating economic and financial conditions. And the negative outlook means there's a chance S&P could downgrade the company's rating over the next six to 24 months. Here's our watch list:

Perkins Restaurant and Bakery. Company accountants could probably use some of the comfort food on the menu at this diner-style franchise, which has about 500 locations, mostly in the Midwest. Like other restaurants, Perkins has been able to cut food costs since they soared in 2007. But revenue has fallen, and the parent firm lost $9.7 million in the first quarter. S&P says the firm's liquidity position is "tenuous." With market share of just 8 percent, Perkins is more vulnerable to a lousy economy that competitors like Denny's (22 percent market share) and IHOP (19 percent). Perkins also owns the Marie Callender's Restaurant and Bakery chain, which suffers from similar financial burdens. Plus, Marie Callender is based in hard-hit California, which has been hammered by the housing bust.

A company spokesperson says Perkins has cut expenses by $7.3 million to help shore up its finances, delayed some remodeling, and called a halt to expansion.

El Torito. Slumping sales and steep debt are an unappetizing combo, especially in California, where this chain is based. The parent firm, Real Mex Restaurants, has bought time by extending a key credit line until next January. But S&P has questioned whether the company, owned by a group of private-equity firms, will have the cash flow to comply with loan terms over the next two years. Real Mex also owns Chevy's, the Acapulco chain, the more upscale El Torito Grill, and several other eateries. All are facing the same woes.

Real Mex says that cost-cutting has helped sustain earnings, and it recently hired a new CEO to help turn things around. The company also announced plans recently to issue new debt that would help cover a major payment due to lenders next year. If that offering is successful, it would indicate investors' confidence in the chain.

Sbarro. Many of this pizza chain's 1,070 outlets are in malls, where traffic is down and spenders are stingy. That contributed to a $5.7 million loss in the first quarter, more than double the red ink from a year ago. Interest payments on debt gobble up much of the company's cash flow, leaving little margin for error. The company is especially vulnerable to any rises in food or commodity costs and to competition that could force prices down. With about 40 percent of sales coming during the Christmas season, the company will need strong December results at a time of high unemployment and weak spending. A Sbarro executive declined to comment on the company's financial prospects.

Captain D's Seafood Kitchen. This chain's thrifty appeal--"sit-down food at fast-food prices"--hits the right note during lean times. And aggressive cost-cutting has helped offset falling sales. But debt is still too high, compared with the company's earnings. Parent company Sagittarius Brands got some relief last year from lenders who agreed to relax certain financial requirements. But the old terms go back into effect in 2010, and S&P doesn't think the firm, which operates nearly 600 restaurants across the south, will be able to meet them. A breach could trigger higher borrowing costs or give lenders the right to call in their loans. The California-based Del Tacos chain, which Sagittarius bought in 2006, is under similar pressure. The company didn't respond to calls seeking comment.

Krispy Kreme. The famed doughnut chain got too chubby over the last 15 years, and it's been closing unprofitable stores to help reverse several years of steep losses. Revenue has plunged since 2005, but cutbacks helped the company turn a $1.9 million profit in the latest quarter. Lenders have provided a breather by easing some of their requirements over the last two years. The temporary reprieve expires in 2011. By then, the company hopes that streamlining, profitable new overseas stores, and other measures will have strengthened its finances.

Spokesman Brian Little points out that Krispy Kreme has cut its debt by nearly 40 percent and has a $21 million cash cushion. The recession, he adds, isn't as daunting to Krispy Kreme as to other food chains: "We sell an affordable indulgence consumers will purchase when they can't afford to treat themselves or their families to other luxuries."

Mastro's. These elegant steakhouses may be among the nation's best, but they're also clustered in Arizona and southern California, where housing woes have char-broiled the economy. With just 7 outlets (including two Ocean Club restaurants), Mastro's lacks the scale and geographic diversity of bigger chains like Morton's and McCormick & Schmick's. Sales have fallen along with customers' net worth and corporate expense budgets, and Mastro's cash flow is likely to get worse before the double-cut porterhouse ($68.50) comes back into style.

To cope, Mastro's is scaling back expansion plans, and may only open four new restaurants by 2012, fewer than half its original target. "Returns to investors will be impaired," says CEO Tom Heymann, "but doing this will improve our cash flow and still allow us to grow and meet our commitments to the banks." And refrain from adding burgers and hot dogs to the menu.