KFC and Pizza Hut owner ‘excited’ about digital growth potential

Like rival fast food chain Burger King, Yum! Brands is banking on technology and digital sales to drive the future growth of its brands.

Fast food group Yum! Brands has identified the continued acceleration of its digital and technology strategy as a “key growth driver” for its business, to enhance the customer and employee experience and provide a “competitive advantage” for its franchisees.

The business has reported “strong and sustained momentum” through its digital and off-premise channels in its financial results for the third quarter of 2021, even as customers have begun to return to its restaurants. The group posted over $5bn (£3.6bn) in global digital sales, with a near 40% digital mix overall.

“From Q2 to Q3, we did see a return to dine in,” CEO David Gibbs said on an earnings call today (28 October). “Yet we saw digital sales go up and we saw the digital mix go up, which is proving that not only is it sticky, it’s still something that’s going to continue to grow for us. Which is a great sign for all of our brands as we move forward.”

Gibbs said the group is “obviously excited about what’s going on with digital”, adding that he is pleased overall with the business’ performance over the quarter.

Total revenues at Yum! Brands rose 11% in the quarter to $1.6bn (£1.2bn), as worldwide system sales grew 8%, including 5% growth in same-store sales. Net income rose 87% to $528m (£383m), or $1.75 per share.How Yum! Brands is using ‘real science’ to bolster consumer insight

KFC, which accounts for 52% of the group’s operating profit, grew its third quarter system sales by 11%, driven by 6% same-store sales growth and 7% unit growth. On a two year basis, Q3 same-store sales were up 1%.

The chain’s international same-store sales grew by 6% during the quarter, with several western European markets seeing sales fully recover to pre-Covid levels.

According to Gibbs, top line growth in these markets has been fuelled by “strong” digital and off-premise growth, “newsworthy” products and “doubling down on value”, coupled with the continued strength of the chicken category across the quick service restaurant (QSR) sector.

In the US, same-store sales grew 4%, up 13% on a two-year basis. As of July, the brand’s year-to-date digital sales in the country surpassed its full year 2020 digital sales, which “speaks to the results we’re seeing from our investments in this critical growth channel”, Gibbs added.

We saw digital sales go up and we saw the digital mix go up, which is proving that not only is it sticky, it’s still something that’s going to continue to grow for us.

David Gibbs, Yum! Brands

The group’s Pizza Hut division, which accounts for 17% of operating profit, saw system sales and same-store sales both rise by 4%. On a two-year basis, same-store sales grew 1%.

Internationally, Pizza Hut saw same-stores sales decline 4% over the two years, but the chain also experienced “sustained strength” in its off-premise business, as reflected by its 21% system sales growth.

“Our investment in digital at Pizza Hut was one of our leading investments in the world of digital,” Gibbs claimed. “That’s one of the advantages that Yum! has – our knowledge of digital through the Pizza Hut business”.

This “bodes well for the future of the brand” and continues to fuel franchisee interest in “investing in assets focused on serving the off-premise occasion”, Gibbs said.

The Yum! Brands CEO also pointed to the wider focus on strong value propositions and innovative partnerships, including the company’s tie-up with plant-based meat company Beyond Meat.

Meanwhile, Taco Bell now has 23 ‘Go Mobile’ locations across the US, a new type of restaurant focused on mobile ordering and pickup. These have been a “big hit”, chief financial officer Chris Turner claimed, and the business has more outlets in the development pipeline.

Taco Bell also remains focused on its mission to “make tacos cool around the world”, while ensuring the brand is culturally relevant in each market, said Gibbs.

In the UK, for example, the brand gave away free tacos to celebrate England advancing to the finals of Euro 2020. Some of the England players then tweeted about the activation, helping Taco Bell become one of the top trending brands on Twitter.

Some investments in the Taco Bell brand “weren’t designed to pay off on the top line” immediately, such as relaunching its breakfast offering, a decision Gibbs said would prove beneficial “down the road”.

Ramping up digital investment

In September, Yum! Brands completed its acquisition of tech company Dragontail Systems, with a view to tapping into the “power” of artificial intelligence to streamline the end-to-end food preparation process and enhance delivery capabilities.

Thus far Dragontail’s AI kitchen order management system has been deployed in 13 markets and across more than 1,700 Pizza Hut stores. The “positive impact” of the tech integration has already been seen on sales orders, fulfilment and customer satisfaction scores, including product freshness and delivery times.

The business is also continuing to expand its delivery capabilities globally, setting a record this quarter with over 41,000 stores offering delivery to its customers.

Investmet in digital is falling into sharp focus across the fast food sector. Earlier this week Restaurant Brands International (RBI), the company behind the Burger King, Tom Hortons and Popeyes brands, described the development of its digital capabilities as “critical” and pledged to ramp up investment.

Around 90% of sales from RBI’s brands in South Korea and China are from digital channels, while in France, Spain and Russia over half of sales come from digital channels.

Heading off inflation

Taking a moment to address labour and cost inflation pressures on the business, Gibbs said Yum! Brands is “well positioned” to navigate the challenges, even as a number of stores are being forced to limit operating hours.

The business is “leveraging” its scale as the owner of four brands to help manage costs, looking at menu management, optimising promotions and pricing. But while pricing is “a lever that’s available”, Gibbs said the business is still focused on providing strong value to the customer in the short term.

“We’re confident in the ability of our brands to respond to dynamic market conditions and are working closely with our franchisees to assess strategic opportunities [with] price as and when needed, while ensuring we continue to offer compelling value to our customers,” he said.

Meanwhile, Yum! Brands is undergoing a series of changes to its senior management. KFC CEO Tony Lowings is stepping down from the business on March 1 2022, to be succeeded by chief operating officer Sabir Sami. Elsewhere, Aaron Powell joined Pizza Hut from Kimberly-Clark as global CEO earlier this month.