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Marketing Final Paper Essay

Yum! Brands is the world’s largest restaurant company with over 38,000 restaurants in over 110 countries and territories and more than 1 million associates. Yum Brands is also a leader within the Quick Service Restaurants (QSR) industry in China, with over 3,500 restaurants in the region (i.e., Taiwan, Mainland China, and Thailand), more than 1,800 of which are located in Mainland China.

Yum Brands operates in the Food Service Industry, which will never be replaced or outdated due to increasing technology or increased competition. Consumers will always need to consume from the Food Service Industry. Growth and consumption is guaranteed with increase of the world population and expansion to additional countries world wide.

In 2010, the company increased its net income by 10% from $824 million in 2009 to $1.16 billion in 2010. Yum Brands continues to show strong sales, profits, and growth.

Yum Brands is the worldwide leader in multi branding, which offers consumers more choice and convenience at one restaurant location from a combination of KFC, Taco Bell, Pizza Hut, A&W or Long John Silver’s brands.

Yum Brands also shows great Corporate Social Responsibility in the industry. Yum! Ranked #337 out of 500 on Newsweek’s 2010 Green Rankings U.S. list #62 on Corporate Social Responsibility Magazine’s 100 Best Corporate Citizens List of 2010, #33 in 2009.

Yum Brands has cemented their products with unique taste differentiation by making their chains the leaders in the industry. A&W is Root Beer and KFC is fried chicken. Yum Brands has demonstrated a strong business plan and corporate goals for competing in the global market.

Introduction

Yum Brands holds a strong position as the number 2 company in the Food Service Industry. The food Service Industry is a necessary industry that will not see great change due to innovation or a new competitor entering the market. The market is strong and consistent based off consumer needs. The fast food industry is cheap and cost effective, providing excellent services to consumers at the lowest possible prices.

Yum Brands is the world’s largest restaurant company with over 38,000 restaurants in more than 110 countries and territories and over 1 million employees. This shows the size of Yum Brands, a global presence that will continue to increase

Yum Brands has also displayed global business and marketing strategies. * Build leading brands across China in every significant category * Drive aggressive international expansion and build strong brands everywhere * Dramatically improve U.S. brand positions, consistency and returns * Drive industry-leading, long-term shareholder and franchisee value

David C Novak has been CEO of Yum Brands (YUM) for 6 years. Mr. Novak has been with the company for20 years. The 53 year old executive ranks 1 within Forbes rankings of highest paid restaurant CEO’s.

While most consumers are unaware of the parent corporation, Yum Brands is silently taking a more controlling share of the global food industry. Its well-known brands include Pizza Hut, KFC, Taco-Bell, Long John Silver’s and A&W Restaurants.

Yum Brands continue to show growth that will put it on par with the leader in the Food Service Industry, McDonalds? Despite having more locations than McDonalds, McDonalds annual revenue of $23.1 Billion dwarf Yum Brands at $11.3 Billion

Overview of Yum Brands

Yum! was created on October 7, 1997, as Tricon Global Restaurants, Inc. an independent company, as a result of a spin-outfrom PepsiCo, which owned and franchised the KFC, Pizza Hut, and Taco Bell brands worldwide. Because of the company’s previous relationship with Pepsi, Yum! Brands has a lifetime contract with PepsiCo, with notable exceptions being the contract of A&W Restaurants with Dr Pepper Snapple Group to be the exclusive restaurant provider of A&W Root Beer.

Yum Brands is the world’s largest restaurant company with over 37,000 restaurants in more than 110 countries and territories. There is probably a Yum restaurant near you. Its well-known brands include Pizza Hut, KFC, Taco-Bell, Long John Silver’s and A&W Restaurants. There are 14,001 stores internationally including 3,664 locations in China. Yum has 17,476 stores in the U.S. A total of 77% are owned by franchisees. The company implements practices and procedures to maintain a high level of service including Customer Mania Training and CHAMPS (which measures operational basics like Cleanliness, Hospitality, Accuracy, Maintenance, Product Quality and Speed). A&W Restaurants, Inc., based in Louisville, Ky., is the longest running quick service franchise chain in America. Since 1919, A&W All-American Food has been serving a signature frosty mug root beer float and All-American pure-beef hamburgers and hot dogs.

There are over 600 A&W All American Food outlets in 13 countries and territories around the world and nearly 600 points of distribution at Yum! Brands multibrand restaurants. There are approximately 344 A&W All-American Food restaurants in the U.S. and more than 290 in 11 other countries. KFC Corporation, based in Louisville, Ky., is the world’s most popular chicken restaurant chain specializing in Original Recipe, Extra Crispy and Colonel’s Crispy Strips with home-style sides, Honey BBQ Wings, and freshly made chicken sandwiches. Since its founding by Colonel Harland Sanders in 1952, KFC has been serving customers delicious, already-prepared complete family meals at affordable prices.

There are over 12,000 KFC outlets in more than 102 countries and territories around the world serving some eight million customers each day. Long John Silver’s, Inc. based in Louisville, Ky., is the world’s largest quick-service seafood chain, specializing in batter-dipped fish, chicken, shrimp and hushpuppies. Inspired by Robert Louis Stevenson’s classic Treasure Island, Long John Silver’s was founded in 1969. Today, there are more than 1,000 Long John Silver’s, Inc. restaurants worldwide, and over 350 additional points of distribution in multibrand restaurants.

Pizza Hut Inc., based in Dallas, Texas, is the world’s largest pizza restaurant company specializing in Pan Pizza, Thin ‘N Crispy pizza, Hand-Tossed Style Pizza and Stuffed Crust Pizza. There are more than 6,100 restaurants in the United States and more than 4,900 restaurants in over 92 countries and territories around the world. The company is the recognized leader in the pizza category. Taco Bell Corp. is the nation’s leading Mexican-style quick service restaurant chain serving tacos, burritos, signature Quesadillas, nachos and other specialty items. Taco Bell serves more than 35 million consumers each week in more than 5,100 restaurants in the U.S.

Marketing Strategy
Product

Yum Brand is in the food service industry but they also look to market their restaurant chains, as individuals own 80% of Yum Brands restaurant chains. Yum Brands is the largest restaurant supplier of chicken, tacos, fish, and pizza to the consumer market and they sell very recognizable products. In their marketing of products, Yum Brands focuses less on individual products and more on the brand as a whole. After conducting comprehensible market research, Yum Brands found that the majority of people purchasing from one of their restaurants are not looking for a specific product. Yum Brands found that the majority of consumers choose Yum Brands because of their convenient locations, low prices, and the quality of food is high.

KFC sells the most recognizable brand of chicken in the world, although they have many competitors, none of their competitors have as many locations or as much brand recognition as KFC. However, there have been some large selling Items, which Yum Brands has chosen to market individually, such as the KFC 12 piece bucket and Taco Bell’s Crunch Wrap Supreme. With large ticket items, Yum Brands has designed custom meal deals focused around these items. Instead of simply offering chips and a drink or a biscuit, Yum Brands has focused on supersized meals and the marketing strategy of getting the most for your money. They do this by supersizing the meals consumers purchase at a price increase that is both favorable to the consumer and beneficial to costs.

Price

The goal of Yum Brands is to compete at the lowest price possible and they do this by owning distribution centers around the world and controlling the process that food comes into one of their restaurants, from the farm to the customer. Because Yum Brands is the largest supplier of chicken, tacos, fish, and pizza to the market they have a competitive advantage over their competitors simply because they can move more product, thus they can provide lower prices. This industry’s customers are characterized as highly price sensitive so they can easily switch to a product that is like in quality and service but offered at a lower price. Also, switching costs are quite low. Customers do not have to incur any cost for not buying from a firm.

Place

Yum Brands has more physical locations than any other restaurant in the world. Yum Brands operates over 38,000 restaurants in 110 countries. Yum Brands has focused on convenience for all consumers in the structure of their restaurant chains. With large physical location presence in the market, Yum Brands can ensure stability as well as growth. Recent expansion into China has also proved to be a booming market for more physical locations and sales growth. Yum Brands continues to surge in revenue and market share with each additional restaurant opened in expanding markets such as China.

Promotion

Unlike competitors such as McDonalds who attempt to brand their products like the Big Mac, Yum Brands focuses on controlling the entire market. KFC chicken is an American cornerstone of culture. KFC dominates the chicken market because of the great reputation and wide brand recognition of Colonel Sanders. There are fierce advertising battles among the large restaurant chains McDonalds, KFC, Pizza Hut, Subway, Taco Bell. Because brand recognition and price so greatly affect consumers, marketers want to make customers aware of deals occurring at their chains. The Food Industry is one of the most heavily marketing industries in the world. In 2010, the fast food industry spent $4.2 Billion in advertising.

Analysis

Yum Brands has shown significant, consistent, large financial growth in the last year. (YUM) has a market cap of $23.99 billion with a price-to-earnings ratio of 20.75. The stock has traded in a 52-week range between $45.94 and $57.75. The stock is currently trading around $52. On July 14th, the company reported second quarter revenues of $2.82 billion, compared to revenues of $2.57 billion in the second quarter of 2010. Second quarter net income was $$1.16 billion compared to net income of $824 million in the second quarter of 2010. Yum Brands has shown significant financial growth over the past year, and projects continued growth and expansion through 2012. One of YUM’s competitors is McDonald’s Corporation (MCD). McDonald’s is currently trading around $90 with a market cap of $90.14 billion and a price-to-earnings ratio of 17.68. McDonalds pays a dividend that yields 2.8% versus YUM, whose dividend yields 2.2%.

YUM is one of the largest food service company’s in the world. In 2010, the company increased its net income by 10% from $824 million in 2009 to $1.16 billion in 2010. YUM is an international company that is rapidly increasing its overseas earnings. In 2010, YUM took in $755 million from China while taking in $700 million in the United States. On September 15th Jim Cramer endorsed YUM. YUM has a policy of paying out 35 to 40% of its profits in dividends. Over the last five years, the company has done well and has increased its dividend by 34.7%. I believe that YUM will continue to increase earnings, and that the dividend and the stock price will follow.

This ratio shows us the percentage of total assets made up by goodwill and other intangibles is called the Intangible Asset Ratio. Heiserman, creater of the ratio, says he views anything over 20% as worrisome, “because management might be overpaying for the acquisition or acquisitions that gave rise to the goodwill.” Yum! Brands has an intangible assets ratio of 11%. This is below Heiserman’s threshold, and a sign that any growth you see with the company is healthy (Moore).

The strengths of Yum Brands is in their global reach and consistent financial growth. Also Yum Brands operates several large chains in a strategic move to diversify their assets and sales. However, their largest competitor McDonalds, has also shown significant financial growth and expansion. In 2010 McDonalds saw a global sales growth of 5.0% and earnings per share growth of 11%. Although, McDonalds is also showing large profits and increased growth, Yum Brands is increasing at a faster rate. Yum Brands saw a 10% growth in sales in just the third quarter of 2010. Yum Brands is a low cost leader in the food industry with unique taste differentiation. The wide availability and unbeatable values of Yum Brand chains make it convenient and affordable for customers to buy from Yum Brands.

Yum Brands has cemented their products with unique taste differentiation by making their chains the leaders in the industry. A&W is Root Beer and KFC is fried chicken. Yum Brands has shown an excellent demonstration of Focus Strategies by not trying to compete with McDonalds. Yum Brands does not offer hamburgers, instead they have focused on cornering the market in Tacos, Fried Chicken, Pizza, Fish, and fountain beverages. This strategy is key to their continued growth. By letting McDonalds control burgers and fries, Yum Brands can slowly take control of all other consumer needs in the fast food industry. This strategy will lead to Yum Brands surpassing McDonalds because Yum Brands is showing much greater growth. However, McDonalds revenues are still much greater than Yum Brands. In 2010 McDonalds brought in $23.1Billion to Yum Brands $11.3 Billion.

Yum Brands has great Corporate Social Responsibility and leads many initiatives around the globe. In Australia, KFC has been working on a Closed Loop recycling project for the past three years. This program has attracted never before seen government funding and is a world leading QSR recycling initiative. No other QSR in Australia (nor have we found elsewhere in world) is doing anything on this scale and impact. KFC has been awarded $400K from the Australian Packaging Covenant and state governments to go towards the infrastructure of the new “Split Bin” to support this initiative. In addition, 100 percent of waste oil is recycled.

Yum! Ranked #337 out of 500 on Newsweek’s 2010 Green Rankings U.S. list #62 on Corporate Social Responsibility Magazine’s 100 Best Corporate Citizens List of 2010, #33 in 2009 The company is expected to enjoy a number of tailwinds in 2012 including lower interest expense due to favorable debt issuance over the past couple of years and retirement of the April 2011 bonds as well as around 20 million currency translation benefits in China. Although Yum’s market is exposed to risks, such as changes in interest rates such as food cost pressure, wage inflation in China, competition, unexpected margin pressure, inability to execute its growth plan, and food safety. Foreign currency exchange rate risks exist as international operating profit constitutes around 50% of the company’s operating profit.

Key variable factors affecting the U.S. results include consumer spending, gasoline prices, housing market conditions, consumer credit, and stock market volatility. Taco Bell, which accounts for more than 60% of the total U.S. earnings, is presently the most important domestic brand. The recent Taco Bell lawsuit related to the content and quality of its beef products has negatively impacted the sales. Although, on April 18, Alabama-based Beasley Allen law firm voluntarily withdrew the allegation, YUM expects the negative impact to continue in 2012.

KFC and Pizza Hut are the primary concepts, accounting for nearly 96% of total YUM restaurants within the YUM Restaurants International (YRI) division. Each concept offers sit-in as well as take-home options for customers. YUM has over 38,000 restaurants in over 110 countries. YUM is also a leader within the Quick Service Restaurants (QSR) industry in China, with over 3,500 restaurants in the region (i.e., Taiwan, Mainland China, and Thailand), more than 1,800 of which are located in Mainland China.

Yum Brands is the worldwide leader in multi branding, which offers consumers more choice and convenience at one restaurant location from a combination of KFC, Taco Bell, Pizza Hut, A&W or Long John Silver’s brands.

Yum Brands has seen substantial annual growth for the past 2 fiscal years.

Yum has seen tremendous growth in china with over 50% of Yum’s income coming from outside of the United States.

Yum is putting all its chips in China, and growth there was strong. Same store sales grew 19% in the quarter, compared with a 6% increase a year ago. Margins, though, eased and fell to 21.3%, from 25.2% a year ago. Operating profits surged 13% to $301 million. Store sales in the U.S. fell 3%, compared with a 1% gain a year ago, while operating profits hit $143 million, down 16% from a year ago. Internationally, the company earned $163 million (up 15%) and saw system sales growth increase by 13% (Fontevecchia).

In May of 2011, Yum agreed to purchase Chinese hotpot chain Little Sheep for HK$4.56 billion. The deal spent more than 4 months in anti-trust review by the Chinese Ministry of Commerce, to determine whether or not the transaction would result in a monopolistic positioning of Yum in the country’s restaurant industry. The Chinese Ministry just approved the deal in November of 2011, according to Little Sheep representatives. This new acquisition should continue to increase growth in China.

Yum recently raised its 2012 earnings per share forecast to $2.85, excluding one-time items, meaning growth of at least 13 percent, despite what Chief Executive David Novak said were “disappointing U.S. results. That compares to its previous forecast of a 12 percent gain. The forecast comes ahead of Yum’s annual investor day on November 30th and two months after the company sought to reassure Wall Street that business in China remained on track. With this reassurance, Yum will continue to expand, giving investors a strong reason to invest. The share price went up in response to this news (Reuters).

In direct growth, Yum Brands far exceeds any other competition in the industry including their largest competitor, McDonalds. If Yum Brands continues this net growth, they are on par to surpass McDonalds, becoming the global leader in the Food Service Industry.

The corporate structure of Yum Brands is strong, the company is continuing to increase employment opportunities and expand their staff. David C Novak has been CEO of Yum Brands (YUM) for 6 years. Mr. Novak has been with the company for 20 years. The board of trustees overseas consistent growth of the company and the core values of Yum Brands have served them well thus far in the Industry.


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