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Yum! Brands SWOT & PESTLE Analysis

ID : 52358953 | Jun 2018

COMPANY PROFILE - Yum! Brands

Business Sector : Restaurants and Food

Operating Geography : North America

About Yum! Brands : Yum! Brands Inc. or simply Yum! is an American and one of the world's largest Fast Food Restaurant companies, founded by Andrall E. Pearson. It has its headquarters in Kentucky, US. As of 2017 it has 43,617 restaurants out of which 40,758 are franchised and 2859 are owned by the Company. Formerly it was called Tricon Global Restaurants. Yum! Brands subsidiaries include KFC, Pizza Hut, Taco Bell and WingStreet. It trades on NYSE as YUM. Tricon Global Restaurants was a subsidiary of PepsiCo until 1997, after the spinoff Tricon operated in three segments namely, Kentucky Fried Chicken/KFC- specialized in chicken, Pizza Hut-specialized in pizza and Taco Bell- specialized in Mexican food. In May 2002 it was named Yum! Brands, Inc and in the same year Yum company added Long John Silver's and A&W All American Food Restaurants to its holdings until 2011, after which it decided to divest itself from these brands and focus on its core brands, KFC, Pizza hut and Taco Bell. The current CEO of Yum! Brands is Greg Creed.

Yum! Brands Mission “is to build the world’s most loved, trusted and fastest growing restaurant brands and to evolve as iconic, distinctive and relevant global brands”. Yum Company strives to achieve its goals by applying 4 key growth strategies namely, building strong brands, growing the global business, having good restaurants brands and operating with multiple brands as its subsidiaries. Yum brands vision statement reads “"Yum! Brands is committed to continuing the success realized during our first ten years. Our success has only just begun as we look forward to the future, one which promises a long runway for growth, especially on an international level."The USP or Unique Selling Proposition of Yum! Brands is their secret recipes whether it is the chicken from KFC or Pizza from Pizza hut or even the Mexican style food at Taco Bell. Their recipes could not be replicated by other restaurants from the fast food industry.

Yum! Brands Revenue :
US $5.88 billion – FY ending March 31st 2017 (y-o-y growth (negative) –8%)
US $6.35 billion – FY ending March 31st 2016

Ownership / Major shareholders : Yum! Brands operates the brands Taco Bell, KFC, Pizza Hut, and WingStreet worldwide, except in China, where the brands are operated by a separate company, Yum China. Yum! Brands has 954 institutional holders out of which the following are the top 5 institutional shareholders and the percentage of shares held (as of 31st December 2017):
  • PRICE T ROWE ASSOCIATES INC /MD/- 9.95%
  • VANGUARD GROUP INC- 6.97%
  • BLACKROCK INC.- 6.12%
  • MAGELLAN ASSET MANAGEMENT LTD- 4.84%
  • STATE STREET CORP- 4.17%

Competitive Analysis of Yum! Brands

The SWOT / TOWS analysis of Yum! Brands gives insights about the key factors like the strength, weakness, opportunity and threat of the company. The internal analysis of Yum Brands clearly states that the major strength of YUM Company is its subsidiaries, the 3 big brands under yum namely, KFC, Pizza Hut and Taco bell which has built a strong global presence for the parent company. The kind of food, Yum Brandsoffers under its subsidiary brands is unbeatable in taste and pricing has helped in building a strong consumer base. The yum china case study analysis, shows that due to intense demand and popularity of yum brands food in Chinese market, Yum! decided to develop a separate entity which operates as Yum China Holdings Inc, as a licensee of Yum! Brands in Mainland China from Nov 2016.

A strong management team, unique and exceptional food style, unbeatable recipes, strong financial positioning, multi branding along with global presence are some of the niche strengths of Yum! Brands. These also lend Yum a competitive advantage over its competitors. Some of Yum! brands key success factors are quick service, huge array of diversified food products and brand loyalty. One of the weakness of the company, especially under KFC brand is quality issue and inconsistent taste in different outlets, majorly because the supply chain is not meeting the increasing demands of all outlets.

More franchises in emerging markets, with some new dishes to hit the taste buds of consumers, palpably with proper research and development presents a great opportunity for yum brands. Intense competition from McDonalds to KFC and Dominos to pizza hut, is a major threat to Yum!'s cash cows.

Strengths
Weaknesses
1. Focus on emerging markets
2. Robust supply chain operations
3. Localization & Decentralized Mgmt.
4. Brand Equity & Umbrella Brand
1. Quality Issues
2. Dearth in Innovation
3. Efforts at Rebranding
Opportunities
Threats
1. Menu and Concept Innovations
2. Expansion and increasing penetration in new and existing markets
1. Foreign Currency Exchange Risk
2. Chinese Market Risk
3. Increasing health consciousness and Competitive Threats

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Detailed SWOT Analysis of Yum! Brands

 

Strength

1. Focus on emerging markets: Yum! Brands, backed by its KFC and Pizza Hut brands, focus on emerging markets such as China, India is a major competitive edge for the company. US fast-food market is almost saturated with low growth rate of ~2.5% and hence, capitalizing on the growth potential of these untapped markets has been a boon for the company. Yum! Brands even exploited the first-mover advantage in China. 60% of KFC’s volumes and profits and 33% of Pizza Hut’s volumes and profits accrue from the emerging markets , which is testimony to the substantial growth the company has achieved in these markets.

2. Robust Supply Chain operations: Yum! Brands has establisheda strong and strategic supply chain which is rare, sustainable and inimitable core competency. Yum! Brands partners with Restaurant Supply Chain Solutions to provide supply chain services and also deploys proprietary purchasing processes to ensure that minimum quality standards are met at the lowest prices. The company also emphasises that they have strict controls on suppliers via the Supplier Code of Conduct and diverse suppliers to reduce dependencies and leverage multiple perspectives.

3. Localisation and strong decentralised management: The aggressive expansion strategy of the company has been possible due to its internal focus on ‘localisation’ and building a ‘strong decentralized management’. The local management has a better knowledge of the market conditions and thus gives Yum!the freedom to effectively tailor its menu according to the customers’ preferences. It also gives this huge company agility, flexibility and time-responsiveness. It gives the firm a competitive advantage hard to replicate for Yum!has managed to decentralize yet ensure that it provides the highest quality products.

4. Brand Equity and Umbrella Brand: Yum! Brands is a huge company with three of the most popular fast-food chains (Pizza Hut, KFC, Taco) under its umbrella. It has a tremendously high market cap of USD 26 billion. Such massive dominance and presence coupled with the popularity the brands enjoy, it becomes incredibly difficult for any smaller player to compete with the company. This competitive edge provides scalability and expansionary advantage to the company.

Weakness

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Opportunity

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Threat

1. Foreign Currency Exchange Risk: Operating in multiple geographies brings with itself the threat of foreign exchange fluctuations and Yum! Brands earn significant royalty and license fee from Yum! China. These fluctuations can hugely impact the conversion of foreign currency earnings, foreign assets, cash flows, investments abroad into USD yielding lower earnings or profits. Yum!’s foreign currency net asset exposure was as high as $2.1 billion (as of Dec 2016). Furthermore, the company is exposed to Latin American countries facing a negative growth which is hitting the company’s top line in these nations.

2. Chinese Market Risk: The most significant foreign risk Yum! Brands is exposed tois the Chinese market risk by its largest franchisee Yum! China which plays a pivotal roles in the company’s financial statement. Threats by such high indexation on one geography is twofold: a) Risks of changes in economic policies, consumer attitudes, competition, exchange rate etc. b) Risks of weakening US-China relations which could potentially lead to laws limiting Yum!’s scope of Chinese business and deteriorating public perception. Yum!’s future is potentially trapped at the whims and fancies of the Chinese government and policies.

3. Increasing health consciousness and Competitive Threats: The changing consumer preferences away from fast-foods towards healthier options is a huge threat to the entire fast food industry including Yum! Brands. There exists a major obesity problem in the US and in the recent years, consciousness about the negative effects of such foods have amplified. Not only does Yum!need to tackle the perverse consumption patterns, but also reckon with the force of medical practitioners and health activists who aggressively oppose the consumption of fast food.

The space of quick-service, fast food is becoming increasingly competitive with a larger number of players and greater intensity of competition. As consumers adapt to food ideas of burgers and pizzas, they also start demanding greater breadth of products. Domino’s Pizza is a fierce competitor of Pizza Hut/KFC and has managed high growth over the years. What compounds this threat is the economical cost proposition all these players are stuck at and how they are competing for the same segments with value-oriented prices.

The PESTLE/ STEEPL/ PEST analysis report of Yum Company gives detailed information about the impact of micro environment on the company. The external analysis is utilized to understand how all the six external factors, namely, political, economical, technological, legal and environmental affect Yum! Brands. The PESTEL analysis OF Yum! Brands is a tool to understand how current trends impact the restaurant business at large and Yum in particular. Political factors play a vital role in foreseeing the performance of any business in terms of profit and economic growth in a country. Before setting up its franchises in any country it is very important for Yum! Brands to see the impact of political factors like Bureaucracy and government interference in food industry, Taxation and pricing laws, employee benefits and wages, foreign trade policies and more. One of the economic factors that creates a huge difference for Yum! brands is availability of skilled labor in restaurant industry, as unskilled labor will blemish the brand value.For a brand that operates in the food industry, health is one of the key social factors, as the major question that arises in the consumer’s mind is the quality of food, thus to be a sustainable business, it’s imperative that Yum Brand continues to be consistent with quality.

KFC the star brand of Yum!is not only the market leader in its industry but also a socially responsible brand. An instance of this can be recognized from the fact that KFC India, motivates its consumers to contribute Rs.5 on their bill towards social causes like providing meals to poor children, and by 2020 they aim to provide 2 crore meals to poor children.

Political
Economical
1. Political Setting & Policies
2. Political Lobbying
3. Geo-Political Nature & Political Stability
1. Raw Material Price Fluctuations
2. Foreign Risk Exposure
3. Qualified Labour Pool
4. Economic Indicators & Policies
Social
Technological
1. Health Consciousness
2. Social Media Fanaticism
3. Demographics & Cultural Beliefs
1. Innovations are an imperative trend to achieve results
2. Supply Chain & Technology Awareness
3. Social Media
4. Marketing & Data Analytics
Legal
Environmental
1. Domestic Laws
2. International Laws and IPR
1. Environmental Consciousness
& Legislation
2. Weather & Climate
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Detailed PESTLE Analysis of Yum! Brands

 

Political

1. Political Setting and Policies: Yum! Brands will be affected by the political setting and instability in its domestic market U.S and other emerging markets of its operations. The political party in power in each country determines the extent of influence and restriction it places on the retail food industry and the fiscal policies/ tariffs it levies.US elections, fervently contested by Hillary Clinton and Donald trump, was the biggest political instability YUM! was dealing with in its own country. Additionally, the policies of subsidies, tax credit, low-cost loans also affect the business of Yum! Brands. It is reported that ~USD 653,000 was disbursed to the company in the form of direct subsidies from the governments between the period 2004-present. For instance: the implementation of GST regime in India will affect the taxation decisions of Yum! Brands for its companies in India. Also, knowledge about the new tax policy becomes crucial not only for the company but also its supply node partners to allow for effective input tax-credit.

2. Political Lobbying: The company and all the stakeholders of the company such as employees, franchisee partners are subject to the national, state as well as local laws making it imperative for the company to participate in the political processes of the country(specifically, US where corporate lobbying plays a huge role in framing the public policies). To be a part of the political discourse, Yum! Brands makes political contributions, takes part in advocacy actions, supports advocacy groups/trade associations to impact the resulting regulations in its favour. Through this the company seeks to ensure that its position and the impact of any law on its employees, partners are carefully measured before formulating any law. Priority issues for the company are food & nutrition, health & safety and regulation of food service industry.Yum! Brands also has a Political Action Committee that supports candidates contesting the US elections. This lobbying in the US becomes paramount given the lobbying of health activists propagating the ban of fast foods.

3. Geo-Political Nature of the Country and Political Stability: Staying aware of the happenings around the globe can help companies avoid costly surprises as the political stability and safety of a country is a prerequisite to establish stable business operations for Yum! Brands.Yum! Brands will need to carefully assess and evaluate the political stability and the propensity of riots and activism in countries before choosing to expand into that country. Another complication in the geo-political scenario to be kept in mind is the relationship of US (Yum!’s home country) with the foreign country as adversarial relationships could lead to laws damaging to American corporations. Political implications of an event differ from sector to sector. For example, beef ban in India or the pork ban in Middle East would adversely change the dynamics of the fast food industry but positively impact the poultry business. Hence, factoring such long-term and short-term implications in the holistic risk assessment is extremely important for Yum! Brands while venturing into a new geographical market.

Economic

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Social

This section is available only in the 'Complete Report' on purchase.

Technological

This section is available only in the 'Complete Report' on purchase.

Legal

1. Domestic Laws: Food business is a regulated industry and thus, Yum! Brands need to comply with laws of Food authority (labelling, ingredients, health) and of the state machinery (employment, wage, marketing, licensing, IPR, franchisee etc.). Apart from these, the company is subject to zoning regulations while making location decisions for its outlets ensuring minimum safety standards and fire protection1. Additionally, the company can face severe repercussions if it does not comply with the anti-corruption laws enforced and this becomes all the more cumbersome with the huge number of supply chain partners Yum! brands has. Violations of any of these laws could impose both monetary costs (fines, investigation costs) and non-monetary costs (reputation damage).

2. International Laws and IPR: Since 24,000 of the 42,000 total restaurants of Yum! Brands are located outside of its domestic country US, it is subject to other laws, in addition to the above laws of different countries, about FDI, import tariffs on commodities and machinery. The company needs to tweak its strategy and operations according to the different country-wise local laws.1Yum! Brands, being the umbrella brand of KFC-Pizza Hut-Taco Bell, has several trademarks and patents for both signature dishes and machinery which are a sustainable competitive advantage for the company. Yum! Brands needs to be aware of the disparate intellectual property rights across the countries it operates and prevent any IPR-related infringement.

Environmental

1. Environmental Legislation &Consciousness: Expenditures will be incurred for pollution-control and environmental-control facilities as per the laws. Environment laws, at all government levels, can potentially threaten profits and competitive advantages .Consumers are increasingly becoming aware of a company’s operations and Yum! Brands has to proactively support environmental stewardship and adopt environmentally responsible practices to not endanger its reputation. Attitudes towards ‘green’ brands shapes Yum! brands strategy wherein it has focused on providing ecological packaging for its products, reducing carbon footprint and minimizing its utility usage among many other initiatives. As a recognition of its efforts, Yum! Brands was named in the Newsweek’s 2016 Green rankings.

2. Weather & Climate: The natural risk of being a player in the food industry is that the business is influenced by the weather and climactic conditions of the regions it operates in as they predominantly drive the supply of food raw materials. Shelf life of raw materials and finished products also depends on the weather and climate the store is operating in which implies that Yum! can’t follow a standardized operating mechanism across all regions of its operations. The weather is not only a key driver from the supply-side but also the demand-side where the consumer behaviour changes from a summer to harsh winter to rainy. The location choices of the stores that Yum! opens will be affected by the impending climate and weather conditions of that particular region. Store layout will also be determined by the climate of the region – can’t go for open spaces in areas which receive heavy rains or sunshine.

Major Competitors :
1. McDonalds
2. Burger King
3. Subway
4. Dunkin Donuts
5. Starbucks
6. Domino’s Pizza
7. Wendy’s
8. Chipotle
9. Papa John’s Pizza
10. Tim Horton’s

Major Brands :
1. KFC
2. Pizza Hut
3. Taco Bell
4. Wingstreet(Wholly owned subsidiary)
5. Banh shop (Minority Investor)

Key Business Segments / Diversification :

Yum! Brands
Restaurants
Food delivery

Recent Acquisition / Mergers / Alliance / Joint Ventures / Divestitures :

Name
Business Segment
Year
Type
Objective/Synergy Achieved
GrubhubFood Ordering & Delivery2018AllianceYum! Brands purchased $200 million of common stock and acquired a 3% stake to drive incremental sales to KFC and Taco Bell restaurants in the U.S. through online ordering for pickup and delivery to make its iconic brands easier for consumers to access and drive profitable incremental sales growth for franchisees.
Daojia (Yum China)Food Delivery2017AcquisitionThe transaction aimed at accelerating digital and delivery growth by enhancing know-how and expertise in this growing segment.
Yum China (will become a franchisee of Yum! Brands in Mainland China)Restaurant2015SeparationTo separate into two independent, publicly-traded companies, each with compelling and distinct strategies and investment characteristics. The objective was to create two powerful, best-in-class companies, each with a separate strategic focus.

Source: Company website and other reliable sources. The detailed table is available in the Complete Report.


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Check out analysis of other relevant companies

The SWOT and PESTLE analysis report of Yum! Brands offers the following:

  • Complete and comprehensive internal analysis of the company detailing Yum's strengths and weaknesses.
  • Intelligence into the external analysis of the Company highlighting major opportunities and threats for Yum! Brands.
  • A brief about Yum! Brands' history, Yum! subsidiaries, revenue jumps, ownership stakes, key business segments etc., major brands and competitors.
  • Gain understanding of the the core competitive advantages Yum! enjoys over its competitors.
  • Overview about KFC, Pizza hut and Taco bell- the star brands of Yum!
  • A discussion on Yum! Brands' case study in detail and a peek into its marketing and business strategy.
  • Pestle analysis of Yum Brands touching upon specific trends and factors that impact the food industry and restaurant business at large.
  • Knowledge on specific partnerships, mergers and acquisitions, Yum Brands has undertaken.
  • Competitive analysis about its competitors and threats they pose on Yum! brands
  • Strategic intelligence on growth opportunities Yum brands has in emerging markets.
  • Global and local market position of Yum! Brands and its subsidiary brands

References used in Yum! Brands Analysis Report

1. http://www.Yum!.com/annualreport/pdf/2016-Yum!-AR.pdf

2. https://www.nasdaq.com/article/Yum!-brands-Yum!-rides-on-strategic-efforts-risks-stay-cm881933

3. http://www.Yum!.com/annualreport/pdf/2016-Yum!-AR.pdf

4. http://www.Yum!.com/company/

Copyrights and Disclaimer

Yum! Brands SWOT and PESTLE analysis has been conducted by Aastha Agarwal and reviewed by senior analysts from Barakaat Consulting.

Copyright of Yum! Brands SWOT and PESTLE Analysis is the property of Barakaat Consulting. Please refer to the Terms and Conditions and Disclaimer for usage guidelines.