LOS ANGELES (Reuters) - Yum Brands Inc <YUM.N>, operator of the Taco Bell, KFC and Pizza Hut fast-food chains, said on Wednesday it is studying the recent turnaround of McDonald's Corp <MCD.N> as it tries to revive sales at its U.S. restaurants.
By Nichola Groom
LOS ANGELES (Reuters) - Yum Brands Inc <YUM.N>, operator of the Taco Bell, KFC and Pizza Hut fast-food chains, said on Wednesday it is studying the recent turnaround of McDonald's Corp <MCD.N> as it tries to revive sales at its U.S. restaurants.
Speaking to investors in New York, Chief Executive David Novak laid out Yum's strategy to drive sales at its 18,000 U.S. locations with healthier products, an increased emphasis on breakfast and evening sales and broader menus that include more desserts and beverages. All of those measures are similar to initiatives McDonald's has taken in the nearly five years since it launched an aggressive plan to reawaken its business.
"We had a McDonald's Immersion Day, where every team went to McDonald's and drew their own conclusions about how they contemporized their brand," Novak said. "They have a tremendous amount of variety on their menu."
!ADVERTISEMENT!In recent years, Yum's U.S. business has been overshadowed by the company's aggressive expansion in China and other international markets. The U.S. unit has been hit particularly hard in the last year due to rising ingredient prices and an E.coli outbreak in the Northeastern United States a year ago that was linked to some Taco Bell restaurants.
In the third quarter, operating profit at Yum's U.S. business rose just 1 percent. Same-store sales, a key retail measure that tracks sales at stores open at least a year, also rose 1 percent in the United States.
On Wednesday, Novak said Yum's plan for the Mexican-style chain included promoting its "Fresco Style" option, which allows customers to replace cheese and sauces on their tacos with a tomato salsa. In addition, Novak said Taco Bell would introduce several frozen drink varieties next summer and a breakfast menu in the next couple of years.
At Pizza Hut, which has struggled with stiff competition from rivals Domino's Pizza Inc <DPZ.N> and Papa John's International Inc <PZZA.O>, Yum will launch a line of "Tuscani" pastas that it hopes will increase weeknight sales in its delivery business. The company also plans to expand its WingStreet chicken wings brand to all of its 7,500 U.S. Pizza Hut restaurants from about 1,000 currently.
Finally, Yum said it would introduce more grilled chicken products, desserts and beverages at KFC and will work on increasing lunch sales at that chain with more sandwiches and a greater advertising emphasis on the middle of the day.
As it works on these new strategies, Yum said it was no longer pursuing multi-branding as aggressively. Multi-branding is when two or more restaurant brands are housed under one roof. About 15 percent of Yum's U.S. restaurants are multi- branded.
"We have franchisees and they grew up, and they love Taco Bell. That's all they want to do," Novak said. "We haven't been able to get it into 100 percent of our restaurants."
Also on Wednesday, Yum said it has started expanding Taco Bell outside the United States, but added that the business would not be a meaningful contributor to overall sales and profits for about five to 10 years.
Yum said it opened a Taco Bell restaurant in Monterrey, Mexico in September and plans to expand the brand to Dubai, Spain, India and Japan in 2008 and 2009. A franchisee also operates five Taco Bell restaurants in the Philippines.
"I wish it was easy for us to develop a new brand," Chief Financial Officer Rick Carucci said. "Even if we do an "A" job on it, it's not going to be a meaningful driver for our business for five to 10 years."
Unlike Pizza Hut and KFC, Taco Bell has yet to develop a significant international presence.
Yum Brand shares were up 1 percent at $39.26 in midday trading on the New York Stock Exchange.
(Reporting by Nichola Groom; Editing by Andre Grenon)
