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Yum! Brands Strategic Analysis

Yum! Brands Strategic Analysis. Presented By: Sean Baretich Micah Bascom Tyler Smith Jason Williams Mengyao Yang. Agenda. Mission, Goals and Strategies Stakeholders External Environment Competitive Analysis Internal Analysis Financial Considerations Business Level Strategy

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Yum! Brands Strategic Analysis

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  1. Yum! Brands Strategic Analysis Presented By: Sean Baretich Micah Bascom Tyler Smith Jason Williams Mengyao Yang

  2. Agenda • Mission, Goals and Strategies • Stakeholders • External Environment • Competitive Analysis • Internal Analysis • Financial Considerations • Business Level Strategy • Corporate Level Strategy • Summary Of issues • Strategic Recommendations • Strategy Implementation

  3. Mission, Goals & Strategies

  4. Yum! Basics • Headquartered in Louisville, KY • About 38,000 Locations in 110 Countries • Heavily Favor Franchise over Corporate Ownership • 378,000 Employees as of Dec 2010 • Company Claims Over 1 Million “Associates” • Fortune 500 #214 • In Excess of $11 Billion in Revenue 2010

  5. Yum! Basics • Three Operating Segments • U.S. • China • International • Boasts 4 New Restaurants Opened Every Day in 2010

  6. Yum! Beginnings • Founded October 7, 1997 as Tricon Global Restaurants, Inc. When Spun-Off by Pepsi • Began with Pizza Hut, Taco Bell and KFC • Merged with Yorkshire Global Restaurants, Gaining A&W and Long John Silver’s in 2002 • Rebranded as Yum! Brands, Inc. at This Time

  7. Yum! Continues to Change • Created Wing Street in 2003 • In Process of Selling A&W and Long John Silver’s to be Completed Q4 2011 • Cleared by China’s Ministry of Commerce to Purchase Little Sheep Last Week

  8. Mission • “Future Back Vision” • Yum! the Defining Global Company that Feeds the World • Famous Recognition Culture Where Everyone Counts • Dynamic, Vibrant Brands Everywhere with One System Operational Excellence As Our Foundation • A Company with a Huge Heart

  9. Ownership • Single largest shareholder • Southeastern Asset Management, Inc. • 6.5% • Directors and Officers • 13,121,039 shares and options • About 2%

  10. Officer Pay • David Novak – Chair, President & CEO • Base $1,400,000 – Total $14,613,906 • Samuel Su – Vice-Chair, CEO Yum! China • Base $815,000 – Bonus $14,318,020 • Scott Bergren – CEO Pizza Hut, U.S. • Base $650,000 – Bonus $3,280,352

  11. Yum! Current Events In Iowa • KFC Corp. v. Iowa Department of Revenue • Iowa Charged KFC $250,00 in Corporate Taxes • All KFC Locations in Iowa Are Franchise • Iowa Courts Found in Favor of the State • U.S. Supreme Court Declined to Hear Appeal

  12. Stakeholders

  13. Executives • Corporate  Long term planners • Regional  Tactical planners • Store  Operational planners

  14. Board • They are the investors and deciders of who is going to be making the decisions. • The Executives report to them and can be replaced if they do not lead in a way that makes Yum Brand profitable.

  15. Employees • This is the group that makes things happen. Where the Executive decide on a direction, the Employees execute the plan. • They are the work force

  16. Customers • Are where the profit comes from. It is the customers who buy the goods and ultimately decide what will work and what doesn’t. • Customers can have an effect from individual store success to regional placement of stores simply by their spending habits.

  17. Supply Chain • They work globally to ensure each individual store is well supplied with the materials needed to operate. • Yum brand uses Unified Foodservice Purchasing Co-op, LLC (UFPC)

  18. Raw materials • The farmers who grow the food (crops and cattle). They are the unsung heroes of yum brand. • They supply the building blocks to the good being supplied. • UFPC spends around $5.4 billion procuring raw materials for Yum! Brand.

  19. ExternalEnvironment

  20. Size • Yum! Brand is the world’s largest fast food company with over 35,000 restaurants in over 110 countries. • Yum! Brand falls in the category of Quick Service Restaurants (QSR) primarily competes with McDonald’s, Domino’s Pizza and Burger King Holdings • Pizza Hut - leader of the US pizza QSR; operates in 92 countries, 12,685 restaurants worldwide • Taco Bell - leader of the US Mexican QSR; operates in 14 countries, 5,846 restaurants worldwide

  21. Growth rate • The biggest region of growth right now is in China. Yum has a 2:1 lead over McDonalds in China. • KFC in China is outpacing McDonalds growth at a 3:1 rate • This is due to a few factors such as owning distribution centers in China, having a more diverse menu, focusing on health, involving itself in the community such as basketball & dance programs.

  22. Growth Rate • Success in the International region has been found in Europe, Russia and India. • In the US market Yum! Brand is faced with an over saturated market. • To give you an idea in the US they have around 18,000 restaurants to a population around 300 million; China they have around 2,000 restaurants to a population of 1.3 billion.

  23. Differentiation • Commodity prices drive the buying of raw materials and price flux can be felt throughout the industry. • Yum! Brand also Differentiates with its different Restaurants as each one has its own QSR category. • If one category were to falter the others could be sustained.

  24. Capacity/Demand • In the US the capacity has been met forcing Yum! to focus on improving existing services as opposed to growing. • In China there is a huge hole that is open to possibilities. • The International region is in between.

  25. Entry Barriers • There are very few entry barriers on a local (by store) level main ones being branding, finding a target audience. • Anyone can have success competing on this level if executed right. The problem comes when you step it up to the regional level. • In the United States competition is so tight in the QSR business that there simply is no room for anyone else. • Without a name you cannot compete, and without competing you cannot get a name…

  26. Exit Barriers • Exit barriers are simple; if you cannot compete anymore you will be bought.

  27. Susceptibility To Economic Conditions • Yum! Brands are affected by fluctuation in commodity good prices. • Also they can become a substitute good when the economy is poor or have the reverse happen when the economy gets better.

  28. Importance Of The Product • People have to eat. Because of this fact food service in general is a necessity. • In today’s world people are always on the go and want their needs fulfilled now. This plays into the QSR as it removes all the prep-time of eating at home and wasted of sitting down to eat at a restaurant. • Until the world slows down the demand for this product will keep increasing.

  29. Proprietary Knowledge • Colonel’s secret recipe, Taco Bell’s secret ingredients, Pizza huts special sauce. As long as these special attributes stay secret, Yum! Brand has a competitive advantage no other QSR can touch.

  30. Future Of The Industry

  31. Forces • Food prices can drive industry costs up, recessions can have positive effects. • Global uncertainty can have hugh impacts as to where Yum brand branches out. • Natural disasters as well as Governments can disrupt supply chains and food growth.

  32. Trends • Healthy eating, Yum plans to introduce new products, improve the overall quality of restaurants as the US still represents over 59% of Yum’s revenues. • Expand to 20,000 restaurants in China

  33. Government • Trade policies can have an effect. • Government takeovers can be a real concern in their biggest market of growth.

  34. Technology • New menus, new styles, new targets, New supply chains, agricultural improvements, sociological improvements or reach.

  35. Competitive Analysis

  36. Direct Competing Firms • McDonald’s (MCD) • Hamburgers And Chicken Sandwiches • Domino’s Pizza (DPZ) • Pizza • Burger King Holdings (BKC) • Hamburgers And Chicken Sandwiches

  37. Competiton & Product Type • Competition Is Fragmented • YUM! Offers Wide Range • Mexican (Taco Bell) • Pizza & Pasta (Pizza Hut) • Chicken (KFC) • Products Are Commodity • Food Is Basically The Same From Chain To Chain

  38. Supplier Relationship • Supplier Code Of Conduct • Compliance With Laws And Regulations • Local, State, Federal, Industry • Employment Practices • Working Hours And Conditions • Non-discrimination • Child Labor • Forced And Indentured Labor • Notification To Employees • Audits And Inspections

  39. The Suppliers • Unified Foodservice Purchasing Co-op (UFPC) • Exclusive Supply Chain Management Organization For YUM! • Headquartered In Louisville, Kentucky • Offices Across The Country • Negotiates For Materials And Supplies • Food • Packaging • Equipment

  40. Supplier Power & How Determined • Supplier Power • YUM! Has Award-winning Supply Diversity • Many Suppliers  Many Options • Beneficial For Pricing • Pride Themselves On “Developing Strategic Relationships With Minority- Or Women-owned Business Enterprises (M/Wbes) • Bottomline: Suppliers Have Limited Power At The Co-op Purchasing Level

  41. New Entrants & Substitutes • Threats From New Entrants • Low • High Start Up Costs • Already Established Supply Chains • Threats From Substitutes • High • Cook At Home • Sit-down Restaurants • Convenience Stores/Gas Stations

  42. Change In Industry • Industry Changes • Move To Healthier Foods • Salads/Fruits/Vegetables • Leaner Meats • Smaller Portions • Taxing Unhealthier Foods

  43. Internal Analysis

  44. Strengths • Yum! Strengths • Ever-expanding • 4 New Restaurants/Day In 2010 • Well-known Brands • Taco Bell  Global Leader In Mexican Food • Pizza Hut  Global Leader In Pizza • KFC  Global Leader In Chicken • Strong Advertising Campaign • Green • Health Promotion • Mediacom

  45. Weaknesses • YUM! Weaknesses • Sensitive to overall market • Beta Close To 1 • Beta>1  Greater Price Volatility Than The Overall Market And Are More Risky • Beta=1  Fluctuate In Price At The Same Rate As The Market • Beta<1  Less Price Volatility Than The Overall Market And Are Less Risky • Possible Explanations • Increase In Food Prices • Substitutes

  46. Distinctive Competency& Deficiency • Competency • Manage Multiple Restaurant Chains • Many Successful Chains • Sold Off A Couple Less Successful Ones • A&W Restaurants (A Great American Brand LLC) • Long John Silver’s (LJS Partners LLC) • Deficiency • Chains Aren’t As Powerful As McDonald’s • McDonald’s Is A Tough Competitor

  47. Competitive Advantage • Yum! Offers A Broad Range Of Foods • Chicken • Pizza • Pasta • Mexican • Competitor Chains Offer Smaller Selections

  48. Imitation • Competitive Advantage Imitation • Not A High Rate Of Imitation • Yum! Already Established • Many Restaurant Chains • Established Supply Chain • Existing Chains Could Acquire Other Chains

  49. Financial Information & Analysis

  50. Unqualified AuditingReport From KPMG LLP

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