Multibranding - Yum!

2.
We are now the leading global developer of new
restaurants. We’ve created the equivalent of a new
division in China, which recently opened its 1,000th
KFC and made $157MM in 2003.
We want to
continue to add
at least 1,000 new units
outside the U.S.,
each year, and do it profitably.
Top: Pizza Hut Korea President
In-soo Cho serves up some of the
new menu items in the world’s
fi rst Pizza Hut Plus, which opened
in Seoul during 2003.
Bottom: A new, 70-item menu highlights
the world’s fi rst Pizza Hut
Plus restaurant in Korea. In addition
to the usual array of pizzas, the
restaurant features a wide variety
of appetizers, salads, pasta and
beverages.
The biggest short-term international challenge we face is turning around our Mexico business.
We have nearly 500 restaurants in Mexico that only made in total about $10 million in 2003,
which is well below expectations. The good news is we have a talented team working hard to turn
around same-store sales in this tough macro environment. In the meantime, we have temporarily
pulled back on new Mexico development while we rebuild our existing business. We have so
many profitable growth opportunities in other countries that we can turn off the capital faucet in
a country, like Mexico, when we have a significant downturn and readily redeploy that capital in
other markets. We want to continue to add at least 1,000 international new units each year AND
we want to do it profitably. Consider this: excluding China, we only have 6,000 KFCs and 4,000
Pizza Huts compared to the 16,000 units McDonald’s has in international markets outside of
China. With this kind of opportunity, we believe that we can continue to profitably grow at our
1,000+ new unit pace for many years without being heroic or foolishly chasing numbers.
Our most significant longer term challenge is developing new markets … getting to scale in
Continental Europe, Brazil and India. This is tough sledding because building consumer awareness
and acceptance takes time. It also takes time to build local operating capability. Our
approach is to be patient and ever mindful of our overall profitability and returns. The promise
is obvious.
Here are key measures for international: 15% operating profit growth per year, at least 7% system
sales growth before foreign currency conversion, 1,000+ new units outside the U.S. and 20%
return on invested capital.
In the U.S., Taco Bell is now the second most profitable QSR brand and just celebrated hitting
the $1 million mark for average unit volumes. In 2003, company same-store sales were up 2%
on top of 7% growth the previous year.
This result is coming from steadily improving operations and exceptional marketing. Taco Bell
is now ranked #2 in QSR Magazine’s Annual Study for overall drive-thru service. And Taco Bell’s
“Think Outside the Bun” advertising campaign and strong new product pipeline is among the
best in the industry.
Our biggest disappointment in the U.S. this year was negative 1% and negative 2% company
same-store sales growth at Pizza Hut and KFC, respectively. However, 2003 was a year of steady
progress at Pizza Hut as the brand showed positive same-store sales growth seven of the last
eight periods in 2003. Most importantly, the Pizza Hut team laid a strong growth foundation
for this year and beyond. The brand was repositioned to target the heart of the pizza category
focusing on the family and the primary decision maker, Mom.