Case Report - Group 4 Yum! Brands

8/13/2019 Case Report - Group 4 Yum! Brands

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Table of Contents

Executive Summary_______________________________________________1

Situation Analysis_________________________________________________2

Problems Found in Situational Analysis______________________________12

Strategic Alternatives for Solving Problems___________________________18

Selection of Strategic Alternative____________________________________21

Appendix________________________________________________________23

Works Cited_____________________________________________________27


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Executive Summary

Yum! Brands is one of the top fast food companies in the world hosting global brands such as

Pizza Hut, Taco Bell, KFC, Long John Silvers, and A&W. In 2003, four of these brands (Pizza

Hut, KFC, Long John Silvers, and Taco Bell), were the market leaders in their chosen food type

segments. In recent years, the fast-food industry in the United States has become saturated and

reaching levels of maturity, which is threatening to businesses such as Yum! Brands. In order to

stimulate corporate growth and expand on the companies branding, Yum! has been pursuing

expansion in international markets around the world. Although these newer markets have high

growth potential, Yum! is faced with the challenge of strengthening its position in core

international markets while also developing operations in markets where brand awareness is

weak. Along with the task of overcoming this challenge, Yum! most overcome the underlyingproblems associated with internationalization including: industry maturation, health-conscious

consumers, changing consumer tastes, and political risks.

Due to the saturation and maturity of the fast-food market, sales at sit-sown restaurants saw an

increase in sales .6% higher than fast-food chains. Fast-food chains also saw an increase in the

cost of goods as a result of maturity. Growing concerns for human diets and healthy eating

habits also has become widespread, hurting the reputation of fast-food brands all over the globe.

In the domestic market, consumer tastes are changing as a result of globalization and increasingimmigration which has raised demand for ethnic foods not offered by Yum! Brands.

The most challenging problem of seeking international expansion is dealing with the political

risks involved at the country, industry, and firm levels. At the country level, Yum! must

overcome changes in government regulations, tariff barriers, and inflation. At the industry level,

Yum! must learn to adapt to changes in supplier power and quality, changing consumer tastes

and substitute availability, and heavy rivalry among local competition. Finally, at the firm level,

Yum! has to protect intellectual property and trade secrets as well as overcome communication

barriers which cause issues with employee turnover and overall loyalty.

In an effort to address these issues, Yum! has strategic alternatives available to combat each

problematic area. Yum! Brands must look at redesigning dining rooms and service settings to

make the experience comparable to rival dinner-houses. Along with the redesign, Yum! can


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conduct research for healthier menu offerings and replacement ingredients such as local produce

and grass-fed beef. In an effort to attract consumers who prefer ethnic foods, Yum! can look into

diversifying its brand portfolio by acquiring foreign fast-food brands to bring into the United

States. This will help Yum! by adding ethnic restaurants to their home market as well as give

them the benefits of expanding internationally. By being in ventures with restaurants from

overseas, Yum! will have the benefit of establishing contacts in foreign markets making entry

easier. The ease will come from enjoying the benefits of having the same taxes and regulations

as local companies as well as established relationships with local suppliers. By implementing

these alternatives, Yum! is able to adapt to the changing economy and at the same time

overcome high risks associated with expanding internationally.

Situation Analysis

Environment

Cur rent State of the Economy

Yum! Brands operate in several different global environments, both of which pose different

opportunities and threats. In the 1990s and early 2000s you saw a steady rise in US incomes.

As 2002 and 2003 approached there began a slight recession, one that has not just affected the

US, but the entire globe. This recession has shaken consumer certainty. This has slowed the

demand for many items all over the world. In late 2003 and entering 2004 household incomes

once again began to pick up, creating more disposable income. With the international market,

there has been industrialization and development of economies creating emerging economies.

This has given individuals, particularly in the Asian market income that they previously did not

have. Emerging market economies are a big opportunity. The emerging international market has

a very high potential for growth, as many of the countries within these markets have not been as

heavily saturated with fast-food restaurants as the domestic market has. In the US, you also are


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starting to see a mature fast food market which makes growth very hard to achieve. A firm

might make slight pushes toward growth, but the rate of growth will be very, very small.

Another economic factor was the increasing price of things like cheese and chicken. For

example, chicken prices more than doubled from 2001 to 2004. This squeezes profit margins for

those who use chicken in their products.

Cultu ral and Social Values

Again, with Yum! Brands being global, the environment contains a variety of different cultural

and social values. In the US, the consumer is trending away from fast foods which are usually

high in fat and moving toward a more health conscious society where health foods are in

demand. This means that people are buying less fast-food, and are looking for alternatives. In

many international markets, meat consumption tends to be much less than in the domestic, US

market, and in some areas, non-existent due to various religious and ethnic practices. Both of

these trends can lead to the need for entirely new products and marketing platforms.

Domestically, you are beginning to see more two-income homes as women have more and more

of a presence in the workforce. At the same time however, divorce rates are on the rise. Both of

these factors represent opportunities for fast food restaurants. Domestically, we are seeing a

spike in the popularity of Ethnic foods like Japanese, Indian and Vietnamese. This represents a

threat to the fast food industry; however we are also seeing international markets acquiring tastes

for ethnic, in the sense of internationally ethnic, fast-food which represents opportunity.

Politi cal Happenings

Since Yum! Brands operate globally, the political environment is one that has to be continuously

monitored. At any time in an country there are the possibilities of war, revolution, price controls,


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tariffs, government regulations, inflation, trade movements, terrorism, etc.(Krug, 599). These

risks are currently happening all over the world in different countries at different times. As

mentioned, firms in the industry must be cognizant of these.

Environment Summary and Implications

The Environment in which Yum! Brands operates presents many threats and opportunities. With

the instability of the economy, it is hard to determine when or where growth will occur, but with

the rise of emerging market economies in places like Brazil and Asia, there are untapped

opportunities for growth. America is considered to be a very overweight county, but it is

trending towards health foods. There lies an opportunity to come up with healthier products and

regain customers who have left due to health concerns. At the same time, there is the threat of

forcing the industry to focus on designing their menu around low-calorie, small portion, health

conscious items which are generally more expensive. With every societal and cultural threat,

whether it be countries different tastes in foods, or the emergence of ethnic food in the US,

opportunities arise for companies to be the first in adapting to these changes. Politically, the

threat of unrest, turmoil and regulation both domestically and internationally will always be

there. Opportunities will only present themselves if businesses are aware of these threats and act

on them.


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Industry

Classification

Yum! Brands is a part of the restaurant industry and more specifically the fast-food sector of the

restaurant industry. The restaurant industry is broken up into two major sectors, the fast-food

sector, and the full service, sit-down sector. The fast food sector is made up of eight major

segments: sandwich chains, pizza chains, family restaurants, grill buffet chains, dinner houses,

chicken chains, nondinner concepts, and other chains (Krug, 592).

Major Competitors

Yum! Brands is made up of Taco Bell in the sandwich chain segment, Pizza Hut in the pizza

chain segment, KFC in the chicken chains segment, Long John Silvers in the other dinner chains

segment and A&W in the sandwich segment along with Taco Bell. The major competitors lay

mainly in the Pizza, Chicken and Sandwich chain segments. For the pizza chain, Dominos

Pizza, Papa Johns Pizza and Little Caesars Pizza are Yum! Brands main competitors. For the

chicken chain, Chick-fil-A and Popeyesare near the top, and in the Sandwich chain McDonalds,

Burger King, Wendys and Subway provide the most competition. Exhibits A and B provide a

breakdown of the sales and growth numbers for Yum! Brands and its major competitors in each

segment of the fast-food industry.

Competitor s Strategy

Coming off a recession, many competitors attempted to attract new customers through price

discounting. For a few this worked, but the end result was a negative one in the form of lower

profit margins. Learning from this, competitors went in the opposite direction and focused more


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on quality foods, with a higher price tag to increase value perception. This strategy ended up

working as profitability across the board was up in 2004 (Krug, 592). Pizza companies began

raising prices and charging delivery fees to keep up profit margins. They also began to

introduce, with much success, new pizza offerings, including the Philly Cheese Steak pizza at

Dominos and a barbeque chicken and bacon pizza at Papa Johns. Papa Johns even started to

give away DVDs with the purchase of a pizza in hopes to link movies with pizza. Its efforts

worked as Pizza Hut soon followed with a DVD offering of their own. Taking advantage of the

health craze, Boston Market, in the chicken chain, rolled out healthy home-style alternatives

which were met with great success.

Competitors Strengths and Weaknesses

Each competitor has its strengths and weaknesses. The biggest competitor across all segments,

McDonalds, greatest strength was its sheer sales volume. They have more stores in more

countries than any other fast-food restaurant in the world. Boston Market is able to appeal to

crowds looking for a more upscale atmosphere, but it does not have the mass appeal of a KFC.

Some competitors in the pizza industry rely on rock bottom pizza prices, but this hurts their

profit margins. Other competitors strengths are a slightly more upscale sit down experience and

others have health food appeals. Where competition falls short when implementing this strategy

is they cannot achieve the sheer volume of sales affordable to fast-food restaurants with both a sit

down and drive through options.

Competitors Threats and Barr iers to Entr y

The biggest threat of competition is coming from the dinner-house chains which saw the most

growth in 2003. These include places like PF Changs, the Cheesecake factory and Carrabbas


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Italian Grill. These chains benefited from rising household incomes and continued movement to

suburban areas by the population. These types of fast food restaurants however will have a hard

time reaching the market share that Yum! Brands has, due to the fact they are not as affordable to

the number of consumers Yum! Brands can cater to. Dinner-house and more upscale restaurants

are also limited in terms of the locations they can build. Fast-food restaurants can be within gas

stations, malls, strip-malls, student unions, or really anywhere they can find someone willing to

invest in a franchise opportunity and place a restaurant in. Dinner-house chains require a lot of

floor space and so are limited to shopping centers and main road outlet lots in terms of location.

Convenience is also a major barrier. Traditional fast-food restaurants can have you on the road

or seated at a table within five minutes. As the pace of our daily lives continues to be more

hectic, and time more constrained, sometimes sitting down to eat your food is just not an option.

Buyers Bargain ing Power

In the fast food industry, buyers bargaining power is very limited. They do havethe ability to

control price however, in the way of their purchasing behavior. Because of this most firms in the

industry have a wide range of products having high-priced and low-priced offerings. This gives

the customers options as well as taking away much of their true bargaining power. Most firms in

this industry have elected to offer higher priced products so that they may increase profit

margins, but also offer very low priced offerings to keep sales volumes high.

I ndustry Summary

Within the fast food industry, the threats lie from competitors who are essentially offering very

similar products at very similar price points. Everyone has their certain specialty, but these

recipes are very easy to copy. With a maturing fast food market domestically, we are seeing


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opportunities arise for the fast-food industry internationally. With these opportunities however

we also find threats in the form of risk. With rising per capita income internationally, it is very

tempting to move business to these new markets. These markets however carry risks of

increased distances between franchise and headquarters, increased transportation costs, and

unfamiliar, rules regulations and political happenings.

Organization

Objectives

Yum! Brands aims at being the market leader in the fast-food industry, and up to this point,

many of their brands have achieved this in their respective industry-sector segments. Yum!

Brands is also looking to venture further into the international market to discover and take

advantage of the different opportunities each international market contains. Its main objective in

2004 is to focus on portfolio management in individual countries (Krug, 589). Yum! is

increasingly focusing its international strategy in developing strong market share in countries

such as Japan, Canada, the UK, China, Australia, Korea and Mexico as well as Europe, Brazil

and India (Krug, 589). Internally, Yum! Brands is moving towards putting more emphasis on

providing support for the firmsfranchises across the world. They aim to give franchises greater

independence, resources and technical support (Krug, 591).

Yum! Br ands Strengths

This new emphasis on internal support is one of Yum! Brands strengths and that is reflected in

the high morale of its franchisees. Yum! Brands also is able to attract larger customer bases by


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offering Multibranded units, which are two brands, such as KFC and Taco Bell, in one location.

Places like Taco Bell have extremely low operating costs, which lead to greater overall profit

because many of its products use similar ingredients. Internationally, Yum! Brands, being the

leader in market share and profitability in many categories domestically, is better able to invest

in international markets than some of its competitors. They also serve food such as chicken

(KFC) that is one of the main traditional dishes in the Chinese market. Yum! also made the

smart decision of opening up a separate international subsidiary in Dallas called Yum! Brands

International which gave the firm significant international experience concentrated in one

location and a well-established world-wide distribution network (Krug, 598). In terms of

international franchising, 77% of international franchises were owned by local franchisees. This

gave the restaurants a better grasp on the local culture, customs, laws and market characteristics

(Krug, 599). In larger international markets, Yum! Brands tends to have more company owned

stores which enable lower per-unit costs, to better coordinate business functions and to keep

tighter control over its product quality and customer service.

Yum! Br ands Strengths and Weaknesses

Yum! Brands relies on suppliers food products and with the prices of many farm products as

well as gas on the rise, Yum! Brands is forced to eat the rising costs associated with its products.

By nature, the fast-food industry, and most all of Yum! Brands products are higher in fat and not

considered healthy food. This limits their growth potential as an entire market is essentially

unattainable. No informed consumer will ever go to a Taco Bell, KFC, or Pizza Hut to lose

weight. Internationally, brand awareness is weak. They also are easily shut out of certain

markets because of certain operational aspects as well as the style of food they serve which does

not comply with certain dietary restriction of various ethnic groups. Europeans are more


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inclined to sit at midscale formal restaurants than quick, cheap fast-food restaurants. Operating

internationally leaves limited resources and cash flow which have limited firms like KFC to

aggressively expand in all countries simultaneously.

Marketing Strategy

Target Market

The most important long-term challenge for Yum! Brands is to strengthen its position in a set of

core international markets while also developing new markets where consumer awareness and

operating capabilities are weak (Krug, 589). Internationally, Yum! Brands is really focusing on

emerging markets and the new money that comes with them. Yum! wants people from these

emerging markets who for the first time can afford to eat out multiple times per week, and they

want to get to them early and often to develop brand loyalty. From a franchising aspect, Yum!

Brands sought out international franchisees who were from, lived in, or had knowledge of the

international market so their knowledge and local connection could be put to good use as

mentioned earlier.

Product L ine

As mention earlier, Yum! Brands consist of more than 45,000 KFC, Pizza Hut, Taco Bell, Long

John Silvers and A&W restaurants worldwide. Each brand has its own line of products in the

form of food and drink offerings. KFC served items such as chicken, macaroni and cheese, and

mashed potatoes. Pizza Hut offers a wide variety of pizza and breadsticks. Taco Bell offers a

variety of Mexican themed foods. Long Johns Silvers offers various types of seafood and A&W


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has its world famous root-beer, Coney dogs and onion rings (see Exhibit C for Yum! Brands

product width and depth). Yum! Brands, with the acquisition of Long John Silvers and A&W in

2002 made a shift in the companys marketing strategy from a focus on individual to

multibranded units, the benefits of which were listed earlier.

Pricing Strategies

Each brand uses different pricing strategies within their various market segments. Taco Bell, for

example, has shifted from offering only low cost items, to more of a premium offering. This

helps with margins as well as competing with other Mexican and sandwich chains that employ

similar pricing strategies.

I s Marketing Research Used

This case does not go over much in terms of domestic marketing as it does with the international

market. The US market is mature so the focus now shifts to international expansion, which is

risky to say the least. To combat risk, Yum! took advantage of country by country analysis when

determining which market to enter. Yum! did this by separating risks into factors of: country,

industry, and firm. These risks included the countrys political and legal environment, economic

risk, and natural risk (things like hurricanes). Industry factors included supplier risk, product

market risk, and competitive risk. Firm factors included labor risk, supplier risk, trade secret risk,

credit risk, and behavioral risk. All of these risks are then analyzed and calculated and a

determination is made based on the results as to if and how Yum! Brands should enter the market

in question.

Yum! Brands F inancial Condition


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In 2004 Yum! Brands recorded net income of $617M on sales of $7.4B, making the return on

sales, 8.3%. In 2003, four of its brands (Pizza Hut, KFC, Taco Bell, and Long John Silvers)

were the market leaders in their segments (see exhibit B for 2003 Sales, Growth and Unit

numbers). Pizza Hut dominated the pizza segment of the market with a 41% share. KFC also

dominated its market (chicken) with sales of $4.9B in 2003, which accounted for more than 50%

market share.

Summary of Strengths and Weaknesses

Yum! Brands has many strengths both domestically and internationally. They are targeting their

most profitable customers, they are using local franchisees to assist with this, they have a well-

developed product mix, well-thought out pricing strategies and a very strong financial position in

its markets. Being the leader domestically gives Yum! brands a step above the competition in

terms of moving forward with international expansion. Yum! already has restaurants operating

internationally, but in order to compete, they must use risk analysis. This method has its

strengths and weaknesses as Yum! has entered some markets, but not all they want to get into.

Problems Found in Situational Analysis

Primary Challenge

As stated in the case, the primary problem facing Yum! Brands is figuring out how to strengthen

its position in a set of core international markets while trying to create a presence in developing

markets where consumer awareness and operating capabilities are weak (Krug, 589). Along with

this main issue, there are underlying factors inhibiting growth which the company must


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strategically overcome to find success in their efforts to expand globally. These underlying

issues include industry maturation, health-conscious consumers, increasing ethnic dining

preference, and international political risks.

Brand Maturity

Due to the size of the company and length of time they have been in business, Yum! Brands is

seeing the maturity stage of the life-cycle and the negative effects associated with this stage. In

2003, sales at sit-down restaurants in the full-service sector saw a .6% higher increase than the

fast-food market. As incomes began to rise in the 90s and early 2000s, consumers preference

was switching from quick and cheap to better service and more comfortable. The increase in

growth for full-service restaurants contributed to the slowdown in fast-food expansion in the

domestic market. In the U.S., fast-food chains began closing stores while sit-downs such as

Applebees, Chilis, andOutback continued to expand. This is evidenced on page 594 where the

case notes that dinner houses with their more upscale atmosphere and higher ticket items are

better positioned to take advantage of an aging and wealthier U.S. population.

Another effect of the maturation of the fast-food industry is an increase in the cost of goods sold.

The case notes that this increase was significant in the chicken industry where products rose over

100% in acquisition costs. Looking deeper into this, one may think suppliers are taking

advantage of the success of chain restaurants by demanding more money for products. This is

not always the case, but rather simple economics. When you have a maturing market demanding

perishable products such as livestock at record highs, the supply decreases and price is increased

to push demand down. This series of events leads to places like KFC which operates primarily


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with chicken to pay the higher prices and businesses that do not need the product to look for

substitutes. This puts KFC in a bad position where their revenue to costs ratio increases resulting

in a decrease in gross profit.

Healthy Consumers

The next obstacle in the way of Yum!s growth isthe health-conscious consumer. In the 2000s,

nutritional awareness became more proliferate in the U.S. and around the globe. Diets such as

the Atkins, South Beach, and the Zone were becoming ever more popular and consumers were

looking to decrease fat and carbohydrate intake which is prominent in fast-foods, especially

pizza. This diet craze forces giants like McDonalds and Yum! Brands to reconfigure their

business plans and marketing strategies to retain customers and attract new ones. This effort

costs the business a lot of resources in time, money, and R&D to keep a positive influence in the

global market. Mainly in the U.S., efforts to combat child malnutrition and obesity have caused

negative press and outlooks on fast-food. These chains are blamed for promoting and

contributing to bad diets across the world. This makes it hard for companies to expand and reach

into new markets who view them as a threat rather than a trend.

The move to healthier dining options has also shifted revenues away from brands such as Pizza

Hut and KFC to competitors who offer leaner options. An example would be customers going to

Boston Market for roasted chicken in an attempt to avoid fried options at KFC. As mentioned

above, other consumers look towards full-service restaurants as being healthier and having more

heart-friendly options. This shift can inhibit international expansion as well as create a bad

brand image in developing markets around the globe.


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Ethnic Dining Options

Another problem facing the fast-food industry here in America is the increasing ethnic

population which causes a demand for more ethnic foods not offered by brands such as

McDonalds, Pizza Hut, KFC, Taco Bell, A&W and Long John Silvers. According to the article,

in 2004, immigrants represent 13% of the U.S. population. This is estimated to be around 37.7

million people who are looking for establishments selling their native foods. This rise in the

demand for ethnic foods takes business away from American style fast-food restaurants creating

an increase in the popularity for Oriental, Indian, and Middle Eastern restaurants. As the foreign

population in the country increases, so will the demand for ethnic foods. This demand is not just

characterized by the influx of various ethnic groups either, as a result of globalization and

increasing consumer interest, more people are venturing out to try new items and tastes are

shifting towards ethnic cuisines.

International Risks

The biggest problem underlying the main goal of strengthening international position in core

markets and expanding awareness into new developing markets are the political risks associated

with international business. Businesses are learning that strictly running an analysis of a

countrys size, growth rate, regulations, and stability is not enough to determine whether or not

expansion is feasible. Businesses need to investigate the culture of new markets and understand

the environment in order to gauge the potential for finding success in entering that market. In


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order to do this, risk factors such as country, industry, and firm need to be examined closely

which can reveal existing problems getting in the way of expansion.

Country Factors

Country factors reveal problems in the political and economic environment that domestic

businesses face when expanding abroad. These issues include: war, changes in government

regulations, tariff barriers, inflation, high interest rates, balance of trade, social unrest, and

terrorism. Foreign markets also need to be assessed for natural risks associated with the climate

and weather conditions. A company like Yum! Brands has found financial success domestically

as well as in popular tourist regions abroad, but in new, untapped markets, high inflation and

interest rates can cause businesses to lose money. If tariff barriers make the supply chain efforts

too expensive, finding local providers can be a challenge which will slow growth. Finally, if

insurance rates are high due to entering a market with high risks for natural disasters, the costs

may outweigh the benefit.

I ndustry F actors

Problems that Yum! Brands faces associated with industry factors include: supplier power and

quality changes, consumer tastes and substitute availability, and rivalry among local competition.

Dealing with suppliers in foreign regions can be difficult if they have the upper-hand. As stated

above, the current supply chain may prevent the fast-food establishments from bringing goods in

from outside sources which leave them at the mercy of the local providers. This situation can

cause problems with high costs and issues with quality consistency.


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F irm Level Factors

The last factor associated with political and country risks is at the firm level. Businesses

expanding into new markets encounter problems with employee turnover and absenteeism due to

communication barriers. There are also problems with protecting intellectual property and trade

secrets which can have a strong impact on chains such as KFC who uses a secret formula for

their fried chicken. Lastly, foreign management or franchisees in new markets can tarnish the

reputation by not following company policies and behaving in a manner conducive to pushing

away customers.

Brazil , Germany and Mexico

Three examples given in the case where we see problems presented in foreign markets come

from Brazil, Germany, and Mexico. In Germany, the analysis of political variables was good

enough to warrant expansion in that region. The problem was they did not account for consumer

tastes which rejected the fast-food concept. In Mexico, before the NAFTA, tariffs were too high

in Mexico for U.S. companies to set up businesses and bring goods in. These are an example of

high tariffs and taxes causing a stiff barrier to entry. Currently, Yum! Brands can face these

issues in other markets around the globe. In Brazil, local customs such as eating habits prevent

fast-food restaurants from entering the market successfully. Trying to convince cultures all over

the world to adjust their customs to fit the American fast-food model is not an easy task. People

can look at this intrusively and ultimately reject these companies which prevent them from

international growth. Ultimately, if the fast-food brands are nearing the end of the life-cycle

domestically and cannot expand internationally, the chance for survival is low. This shows how

important overcoming political and economic issues are in achieving the companys objective of

strengthening its international position and creating awareness in new markets.


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Strategic Alternatives for Solving Problems

Developing strategic alternatives for the restaurant industry is as complicated as its

aforementioned problems and thus necessary to provide the same in a commensurate fashion.

Since the restaurant industry can be branched out into several fast-food segments, to include

sandwich chains, family restaurants, and dinner houses, it is unreasonable and unfit to propose a

common denominator fix to the problem. Therefore, a comprehensive approach should be

utilized to attack the problem as a whole. Yum! ought to focus on portfolio management and

diversification, giving the consumer, unbeknownst to them, a lot of choices.

Just as a good investment portfolio protects an investor from economic and social shifts with a

diverse selection of holdings as not to destroy the portfolio in one fell swoop, so too should

Yum! organize its portfolio with the same in terms of fast-food establishments, catering to as

many markets as possible. Since Americans have been trending away from the traditional

hamburger and fries (Krug, 592), Yum! must offer enough variety through a wide-range of

restaurants encompassing American and ethnic foods that also include better service; but

consumers still demand more, as the aforementioned problems suggest. The following

alternatives serve as several pieces of Yum!s fast-food puzzle.


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Health Conscience Alternative

Benefits

With its course firmly set, the country will not step back from its efforts to consume healthier

food choices and is a matter that must be fully embraced and incorporated into all its sub-

brands within its Yum! organization.

Many restaurants dishes are meat-based and with that the issue of quality comes into

consideration. All meat sources under Yum! should not only be of high quality with minimal fat

content, but also include options such as grass-fed meat sources as opposed to corn-fed. The key

is to give consumers options in varying levels of better quality than already exists.

Costs

Offering healthier ingredients will increase costs all across the board and have them sustained at

such levels, but this will translate to higher customer attraction and brand equity.

Ethnic Foods and Dinner House Expansion

Benefits

Under the 2004 Yum! organization chart (Krug, 591), the only ethnic food company represented

is Mexican by Taco Bell. In order to capture the aforementioned hunger of more ethnic food,

Yum! should diversify by having representation from all major ethnic food groups. These would

include eastern and western Asian, European, and Latin American cuisine. Such opportunities

that already exist in North America are the following restaurants:


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Noodles & Company. This restaurant captures a diverse array of noodles from American, Asian,

and European cuisine. Not in the same fast-food realm as Hardys or KFC, Noodles & Co. is a

restaurant that has an upscale atmosphere, service, and delivers quality noodles in an expedient

manner.

Panda Express. This would cater to the eastern Asian market whereby providing tasty, yet

surprisingly cheap food.

For those beyond that, Yum! should consider reaching out in a joint-partnership with overseas

fast-food establishments in Latin America and West Asia to include Middle East and India. This

importing, instead of exporting restaurants, would give Yum! strong balance and the diversified

edge against its competitors in selection. Such selections could include the following.

Weinerwald (Germany, Austri a, Turkey, and Romania)This establishment not only offers

authentic wieners, but also schnitzels and deserts such as strudel.

Kaati Zone (I ndia)Thisis your classic street-food establishment that can heavily cater to

vegetarians, whereby touching upon health conscious alternative, but can also serve meat as well.

Cost

This could be substantial in costs to either start a separate franchise or buy into a partnership

with the companies, or buy the companies outright.


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Supply Chain Audit

Benefits

In order to lower costs and increase profits across all sub-brands, Yum! should audit their supply

chain and find more efficient ways to deliver and store its goods. Some major points of

consideration would be an organic fleet of trucks, a move towards leasing of real estate, and

RFID tracking of supplies.

Cost

After the initial cost of research and audits, costs will be incurred through RFID technology.

Selection of Strategic Alternative and Implementation

As mentioned, the fast-food problem is a complex one that requires a complex solution.

Therefore, it is recommended that Yum! take on a bold approach and execute all three measures

concurrently. These measures focus on sales in the United States and takes on a more internal

and importing nature, deemphasizing sales overseas from traditional restaurants such as KFC and

Pizza Hut.

Justification of selection of strategy

The main concern for this is based off the need to stabilize and hedge against social and

economic events that may occur overseas. When importing restaurants such as Weinerwald and

Kaati Zone, the assumption is that most ingredients and all materials will be grown and


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transported within the USA; and such risks as outlined in the case (Krug, 599) that are political,

economic, and natural-based wont affect sales in the USA. However, with the inherent risks

associated with international business, inevitable problems of varying degrees that may arise.

Implementation Strategy

The first step would be to research which ethnic cuisines and thus foreign restaurants are

demanded by North Americans. The next step would then be to send out a research team across

the countries of interest to find the best and most popular restaurants to import back to North

America. Once found, negotiations could take place for a buyout or a franchise opportunity.

Concurrently, there will be an examination of all ingredients of foods to ensure a healthier end

product. Alternatives will also include buying from local farms. Also as an on-going mission,

the logistics department will ensure a better supply chain relationship, so that the end state will

be competing supply chains rather than competing restaurants.

The next step would be to initially place these restaurants in concentrated areas of ethnic

demand; gauge the sales over a certain period of time then place the restaurants in greater

regions, ultimately covering the entire nation. Concurrently, Yum! would negotiate with North

American-based companies like Panda Express and Noodles & Co. to acquire them as part of

their fast-food chain umbrella.

The implementation will take a minimum of a year in order to get solid research that is consistent

and not circumstantial. The introduction of ethnic restaurants would take a bit longer, across

several years as Yum! carefully examines sales revenues and conducts on-going research

tracking changes and trends across the nation.


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Success will be measured from sales revenue from each ethnic category. Not to be swayed by

initial and myopic results, measurement of success will be across at least one fiscal year. If sales

revenue are not as expected in a particular area, it will be shifted to another. The probable

outcome will be an increase in market share of restaurant business.


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Appendix

Exhibit A Top US Fast-Food Restaurants (Ranked by 2003 Sales in $ Millions)

Sandwich Chains Sales Change Dinner Houses Sales Change

McDonald's 22,121$ 8.9% Ablebee's 3,520$ 10.6%

Burger King 7,680$ -2.8% Chilli's 2,505$ 11.8%

Wendy's 7,315$ 5.2% Outback Steakhouse 2,456$ 7.1%

Subway 5,690$ 8.8% Red Lobster 2,315$ -1.9%

Taco Bell 5,346$ 2.8% Olive Garden 2,165$ 11.6%

Arby's 2,710$ 0.6% TGI Friday's 1,791$ 2.6%

Jack in the Box 2,360$ 5.4% Ruby Tuesday 1,450$ 14.8%

Sonic Drive-In 2,359$ 7.0% Romano's 699$ 9.4%

Dairy Queen 2,165$ -1.1% Cheesecake Factory 689$ 20.6%

Hardee's 1,662$ -2.3% Hooter's 670$ 6.5%

Other Chains 3,934$ 9.4% Other Chains 5,277$ 10.7%

Total Segment 63,342$ 5.2% Total Segment 23,537$ 8.8%

Pizza Chains Chicken Chains

Pizza Hut 5,033$ -1.3% KFC 4,936$ 2.8%

Domino's 3,003$ 2.6% Chick-fil-A 1,534$ 11.8%

Papa John's 1,719$ -2.4% Popeyes 1,274$ 1.6%

Little Caesars 1,200$ 4.3% Church's 700$ -2.5%

Chuck E. Cheese's 476$ 3.5% Boston Market 646$ 0.8%

ciCi's Pizza 380$ 13.9% El Pollo Loco 696$ 8.7%

Round Table Pizza 378$ 1.1% Bojangles 375$ 8.0%


Family Restaurants Other Dinner Chains

Denny's 2,132$ 0.6% Panera Bread 908$ 32.0%

IHOP 1,676$ 14.7% Long John Silvers 777$ 2.8%

Cracker Barrel 1,480$ 5.3% Disney Theme Parks 70$ 0.4%

Bob Evans 954$ 9.0% Old Country Buffet 548$ -4.5%

Waffle House 789$ 2.7% Captain D's Seafood 506$ 1.7%

Perkins 787$ -1.3% Total Segment 3,446$ 7.0%

Other Chains 2,162$ 1.2%

Total Segment 9,980$ 4.3% Nondinner Concepts

Starbucks 3,118$ 25.8%Grilled Buffet Chains Dunkin Donuts 2,975$ 10.2%

Golden Coral 1,247$ 7.8% 7-Eleven 1,410$ 5.6%

Ryan's 814$ 0.2% Krispy Kreme 957$ 24.0%

Ponderosa 537$ -2.1% Baskin-Robbins 510$ -2.5%


Source: Nations Restaurant News


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Exhibit BLeading Pizza, Chicken, and Sandwich Chains, 2003

Pizza Chains Sales Growth Rate Units

Pizza Hut 5,033$ -1.3% 7,523

Domino's 3,003$ 2.6% 4,904

Papa John's 1,719$ -2.4% 3,035Little Caesars 1,200$ 4.3% 2,593

Chuck E. Cheese's 476$ 3.5% 485

ciCi's Pizza 380$ 13.9% 465

Round Table Pizza 378$ 1.1% 456

Total 12,189$ 0.7% 19,461

Chicken Chains

KFC 4,936$ 2.8% 5,524

Chick-fil-A 1,534$ 11.8% 1,235

Popeyes 1,274$ 1.6% 1,447

Church's 700$ -2.5% 1,235

Boston Market 646$ 0.8% 630

El Pollo Loco 696$ 8.7% 314

Bojangles 375$ 8.0% 320

Total 9,861$ 3.8% 10,705

Sandwich Chains

McDonald's 22,121$ 8.9% 13,609

Burger King 7,680$ -2.8% 7,656

Wendy's 7,315$ 5.2% 5,761

Subway 5,690$ 8.8% 16,499Taco Bell 5,346$ 2.8% 5,989

Arby's 2,710$ 0.6% 3,303

Jack in the Box 2,360$ 5.4% 1,947

Total 53,222$ 4.1% 54,764

Source: Nations Restaurant News


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Exhibit C - Product Mix (most popular items)

RootBeer

OriginalRecipe

Fish ClassicPizza

CrunchWrap

Supreme Root

BeerFloat

ExtraCrispy

Chicken PZone Gorditas

ConeyDog

ChickenTenders

Shrimp TuscaniPasta

Burritos Papa

Burger Famous

Bowl Hush

Puppies Wings Chalupas

OnionRings

MashedPotatoes

FishTacos

Breadsticks Tacos Chili

Cheese

Fries

Mac &Cheese

PopcornShrimp

SpecialtyPizza

Quesadillas


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Works Cited

Krug, Jeffrey A. Case 1: Yum! Brands, Pizza Hut, and KFC. 2004.MarketingManagement:Knowledge and Skills. 10th ed. New York: McGraw-Hill, 2009. 589+.

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Case Report - Group 4 Yum! Brands

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