i\*.-

lildAinsnraF100t.

Itll\r M.'k

rtlc to Kcc|

o Lodgilc

r 1001.

H?ttt\ t1o 1l>l,n

ln5 wlaaAor

Ir)lcnsc cortrl)ctition, slorv slnrc-storc salt,s, and asluggish cconoml, lravc plagucd quick-scrvicc rcstau-rant (QSR) chains for scvcral ycars. By |unc 2003,l\'lcDonald's santc-srore sales had fallcn for cach ofthe prcvious twclvc months, with the first quartcr of2003 p1eiu6i19 N.{.Donald's lirst quarrerly loss sinccbccoming a public company, in 1965.1 Bascd on fif-tccn ycars of ntarket and demographic trcnds,\'lcKinsey and Contpany consultants projected thatthc fast-food segment. of the industry would growrevcnucs by just I perccnt a )rar ovcr tlre ne\1 eight'1cars, lcss rhan halfthc 2003 ratc.2 Among thc largestrcstaurant chains, aggressive efforts to retain theirnrarkct shares led to excessive discounting. To regainprolitabilirv, they have moved arvay from pricc dis-counting and are scrutinizing potential site locations,r-rpgradrng menus and dicor, investing in trainingprograms for crcw members, and developing cus-tonrer-lovaltv markcting programs.l

Ytrnt! Brands Inc., with three top-tcn chains, isonc olthc nrajor plal'ers in thc highly conrpetitil,e fasr,tood scgnrent ofthe industr,v and is the worldt largesrreslaurani company with 33,000 stores in more than100 countics.l The other large holding companies withnrultiple brands include McDonald\ Corporation,Diageo PLC, B_rinlier lnternatioDal, CKE Restaurants,\\tendy's lnrernational, Dardcn Restaurants, AlliedDo;lccq Quick Servic4 Qq512ur.rtt, OurbackSteaklrouse, and AFC Enterprises_ fbgcther th€se large

\\tiflcn b! Prof.ssor Cathv A. Enz of Corncll Univcrsitv This cai.was qrittcn es rhc basis for class discussion. Thc Gvcnts dcrribcd.rc not inrcndd ro illu3r.at. .irhcr cffecliv. <rr inclT.di\t man-_a8cnr.nr pradiics.

conrpalics accounl for $107.5 billi<tn i:r salcs, or iLSpcrccnt oI total rcstaurant industry salcs.s

Thc rop 400 Iargcst clrains rcporrcd a toral sal..sgain of 5.6 pcrccnr in 2002 for a toral of $207.6 bil_lion. McDonald's was at thc rop of rhc list rtirharound $40.5 billion in sales, followed by BurqcrKing with $t t.3 billion. Thc rhird and fourth larg.,srchain restaurants werc Kentucky Fried Chicicn(KFC) (SI0.3 billion sales) a'.ld ptzza Hut ($7.8 bi)-lion sales), both owned b1,yum! Brands_6 Wlrile rht,burger segmcnt is the largest, accounting for :i-i.,pcrceirt of the top 400 chains'saies, the fastest gror,._ing segntcnt is coffec/snacks, which includcs con_cepts lile Starbucks and Krispy Kreme Doughnurs.

The maturing of the fast-food indusrry h.rsforced the key players ro rcthink rhcir slrategies an.lrcinvcnt their operations. Managenrenr rcorganir.r_tion, new product development, aggressivc ntarker,ing, and strategic i-edirection helped the indusrrrlcaders rebound in larc 2003.:UcDonald's sanre-strrr.,sales rr'ere flat in 2001 and dropped l-5 percenr irr2002. Horvever, in October 2003 the corporarionposted irs strongest monthly U.S. salcs gain in lir.<,

1ears, rrith a 15 percent increase afier an er1ensir..,global reorganization of senior managcment.\^tend)'s International Inc. attribured custom.rr-esponse to the chain's nerv Homcstvle ChickerlStrips as one explanation for its reported sanre-storcsales iump of.7.6 perce-nt during the same period_s

tn spite of recent sales turnarounds, sonreobservers rvonder if fast food will continuc to pros.per given changing consumer tastes and recenlobesitl larvsuits.9 Burger King, the second fargest tasifood chain in the United Statcs, has struggled in

Multibranding at yum ! Brands lnc.:Thinking Outside the Bun

5t I

I

srz i caser '.'LT.BRAND.NG

AT YUH! BMNDS lNciTHlN(lNG ourslDE THE 'uN

rcccnt ycars. Diageo PLC, an intcrnational brcwing ln rcfcrcncc to thc hcaltlry-dining consumcr"'No mat-

".i'rpi'rli" *"gf""rcratc, sold thc chain in thc fall of tcr what wc do," hc says' "wc won't bc ablc to attract

2002 for a low pricc of $l.6 billion.lo tn fact, an csti- thosc PcoPlc lo thc Goldcn Archcs-"|9 McDonald's also

.-"i tt lo 20 p"r."nt of Burgcr King franchisccs owns a 33 pcrcent sharc in Prct A Mangcr' a frcsh-

rvcrc lrchind on royalty paymcnts, althoJgh thc chain sandwich corccpt' wilh an oPtion to buy rhc chain

*"r:"n-ur.g.a- ln iob3 by s"lcs .rf thc-n$v low-fat ourrighr in 2005.16 \^/ith a rcccnt rcvitalizrtion plan,

chickcn baguittc linc.ll Ncvcrrhclcss, onc of llurgcr McDonald's lropcs to attract ncw custonlcrs' cncour-

ii,rg, f".g""rt ft"".hisccs' AmcriKing, with 120 units' agc cxisting customcrs to visit nrorc oftcn' and crcatc

.""r"in ctr'"p,". ll bankruptcy in 2013 and intcndcd brand loyalty. Thc plan includcs upgrading scn'icc'

,,r r"tt i,. "n,ira

portfolio of rcstatrrants l2 inlProving traininS' and crrlrancing thc tastc and rclc-

.l.lrc first Arrrcricans to gro\{ up with fast food, varrcc of its footl.lT Tlrc chairr rvill focus its brantl k1 -

thc baby-boonr gcneration (iridividuals t'orn alty on yor.rng adults' kids' and monrs )inr Qotalulxr'

bctwccn 1946 and 1964), havc maturcd and arc McDolald's chairnlan and chicf cxccutivc officcr'

secking altcrnativc dining options. Thc cnrcrgence explaincd thc plan as follows:

and rapid growth of thc "quick casual" scgment it n'h.r, *" embarkcd upon our rcvitaliza-cvidcncc of rhis rrend. Quick-casual r€staurarts tron plan earlier this year, we announccdprovidc limitcd or sclf-scrvicc conccpts, usually fca- that in 2003 wc would sharpcn our focus

turing"upscalc" nrcnu items such as gourm€t souPs' and takc the actions nccessary to oPti-salads, and sandwiches.ls As thc baby boomcrs mize the business. W-e've madc progress

scarch for fresher and more nulritious food' fast roward this goal with October markingcasual chains such as Pancra Brcad Co', Atlanta the first firl-*onlh that our unirecc-Brcad Co., Cosi lnc., Cafd Express LLC, Corner dented "i'nr lovin'it" campaign reachcd

Balicry Co. and Pci Wei Asian Diner are capturing custonlcrs around thc gloLe. This ncwIunchtime. Most fast-food chains havcresp6ndcd by brand positioning is bringing a ncrv atti-altcring their menu itcms, adding salads' and chang- tud" and en".gy io life foi our customcrs

ing ingredients. Market Fresh sandwiches' intro- and crew. The management changes rve

duced by Arby's, and artisanal breads at Subw"y' announced carlicr this rveck arc another

Quiznos Sub, and Togo's Eaterics are just a lew examplc ofhow we are making rhe best

examples of product innovations ln luly 2003, Taco ur. oi ou. t"l"nt,nd resources. DuringBcil introduced its "Outside the B-un" Caesar salad the fourth quartcr, we rvi.ll rake addi-and a chicken Caesar grilled stuffed burrito. Thc rional actions to re'iralize rhc business.' burriro contains grilled all-r.'hite-meat chicken' These will inclucie making decisionsromaine lettuce, crunchy r€d lorrilla striPs, and a

related to our Partner Brands and implc-Caesar drcssing, wrapped in a toflilla.l{.Analysts menting the rccently announced plans

attribute N'[cDonald's line of premium salads as a tbr reviializing our business in lapan.

maior factor in its mid-2003 rebound'. These actions, along with the comi.letionAs pari of its strategy, McDonald's has made a of annual in.rpairn.rlnt testing, willr€sult

u".iety of inte.tm"nts in fast-casual concePts, includ in charges in the fourth quarter 2003.ts

ing the. acquisiiion of Boston N'tarket, Chipotle -

t lilc"n Grilt, and Donatos Pizza- Boston MarLt, a Muitiple branding is likely to bE: pan of the

-quick-casual concePt, was purchased in 2000' and future for all of the major plaryers as they rethink their

McDonald's immeiiately began a turnaround effort strategies' While McDonald's strategy has been ro

rhat induding remodeling stores ind tbe menu- Russ develop icbrands separately, tlre company could capi-

SmJ'th, a senior manager rcponsibll for the fast-casual talize on cobranding in thc future' ln contrast' Yum!

activities at McDooald's, notes that rhesc partnerships Brands lnc. is bening on a multibranding srrategy, i4

enable ttrc firm to rcach a diffcrent type of consumir' which the 6rnr puts more than one of its brands into

ct

ioll-inIl,lI-rtc

thc sanrc storc in thc hopc of raising salq5 snd lqvcrag-

ing opcrating cfficicncy. This Fortrrttc 100 comPany'

baicd in Louisvillc, Kcntucky. is ablc to cxccutc a nrulti-

branding stralcgy casily bccausc it olxratcs {ivc rvcll-

knorvn brattds: A&\{ All-Arrrcrican Food, Kcrttuc\'l:rir.d Chickcn (Kl:(l), Long lohn Silvcr's, l)izza llut':rntl'lico llell. Salcs lirr thc glrttral systcnr totalcd $24 2

billion in 2002, up fnrrn $22.1 billion in 20ol're

llc{orc May 2002, Yum! llratrcls Inc. was callcd

liicon Global llcslaurants to rcPrcscnt its thrcc

nraior brands, Kcrrtucky l:ricd (lhickcrr' l'izz-a llrrt'arrd

-llco llcll. ll icort r*as cstablisht'd ns rrI ilrti''pcntlcnt, irublicll' (x\'ncd conrPany wllcn il wns

spun ()[l frotlr PcpsiCo, rvlrich ()wncd and fran-

chiscd thc llrrcc quick-scrvicc rcstaurant braDds

worldwidc.2o l'hc I)anlc chalrgc (o Yuml Brands lnc'

camc in lr4arch 2002 after thc acquisition of

\brkshirc Global Xs511u13n15. With this acquisitiorr'

tllc company addcd t'^ro additional QSR brands:

Long lohn Silvcr's and A&\{ All-Anlcrican Food'

With {lvc brands in hand, thc nanre changc bcttcr

rcflccts rhe enlirc Portfolio o[ restaurants as u'cll as

thc conpany's t.!crv York Stock Excharrgc ticker:

YUN'l. Exhibir I providcs a bricf overview oI the

conrpan)"s carnings pcr sharc (EPS)'

FIVE LEADI NCRESTAURANT BRANDS

In 2002, Yum! Brands opened a rccord 1,051 nc'v

irrternational s)'stclrl rcstauranls Kcy to the 'onlPan\)s

Frv€ LEA'TNG ResTaJRANT sR NDs I sI3

continucd growth, thc intcrnational busincss rcprc-scnts 35 pcrccnt ofsyslcm salcs,3l pcrccnt ofrcvcnuc,and onc-third of opcrating profits with about 12,(X)0

rcstaurants, conrparcd to McDonald's nrorc thirrt 6,000 units inlcrnationally.2l McDonald's is consid-

crcd thc l,rinrary conrpctitor irrtcrrrationally wirh

carnings of ovcr $l billiorr itt intcrnatiorral prolit.conrparcd to Yutrr! Ilrand's $400 rlilliorr anci llurgcrKing's $50 nrillion.22

Thc brands tlrat drivc intcrnational grorvth arc

primarily Kl:C wilh 6,800 rcstltrranls an<l l)izza lltrtrvitlr 4,400. \\/ill) a 8o.rl ol doublint (hc rrurttbcr ,rl

inlcrnationxl rcslaurirtls b1' 2013, Yunr! llr;rntls is

focuscd on China, ]r'lcxico, thc Utritcd Kingdont, arttl

South Korca.l'hcsc four countrics rcccivc thc ltajor-iry of thc {irm's capitai invcstnlcnts bccausc of high

rcturns-21 Brand operations in China includc

approximatcly 800 KFCs and 100 Pizza lluts. Thc

company has carcfully positioncd itsclf in China

rvith rhc largcst real cstatc tcam of any company in

any indusrry and a distribution systcm thal givcs itcovcragc in cvcry nla;or provincc-and hcnce acccss to

n'rosr of China's 1.3 billion residcnts. Olhcr Parts ofthc rgorid offer challcnges, as the firm tries lo gct ulro scalc in Contincntal Europc, particularly in

Gernrany ',vith KFC, and in lndia r^rith Pizza Hut A

rcccnt joinl r'cnture in Brazil r.'ill help cxpand thc

KFC brand in South AmericaSincc 1999, the corporation has bccn strategicall)'

rcducing its sharc of total s1'stenr units by sclling

company-orvned reslauranis to cxisting and Irer.'

ac,

1c-

:cr.

2002 20022002

FYQ4Q3Q2Q1

2002 2002 2001

fY

rf thei theiren tolcapi-Yum!:9" ln{s into

OnBoinB ope(atin8 EP5

lmpacl of NFAs

lmpacl oa unusuals

Reported tPS

5 0.45 s O.49

(0.02) (0.o1)

s 0.56 s r.91 s l.6t(0.01) (0.09) 0.0r

s 0.40i0.02)

0.38

0.02

0.43

o02

o.46

0.01

0.55

0.01

1.82 1.62

o.o6

$ 0.40 s 0.45 s o.47

fu(r.:Yum: lland\. -!i ("!l{x Rdrlnrn!.- hqt:/sv-yum co'Mn\<51o'y'sss hlm lDtrcslx' l 2o0l

s 0.56 $ 1.88 5 r.62

YUHI BRANDS INC. EARNINGS PER SHAREFOR 2002 ANO 2001

ffi(tNMILL'oNs,EX

I

stl I clser HuLTIoRANDING arYUl''l!aRANos lNciTHlNKlNc ourslDETH€ ouN

franchisccs. A tolal of 174 units wcrc rcfranchiscd

(sold) in 2002, altlrough thc bulk of rcfranchising rvas

.,r,,ir."a ir1 2o0o, with salcs of 757 tcslaurants' and

in 2001 with salcs of ?Jl ulits2a In addition' 224

rc{tirurxtlts wcrc closccl in 2002 bccausc o( poor 1xr-

f,rrrrr"rrcc <rr rcl,rc,rlitrtt For scvcral ycars Yunr! Brands

hls workcd to hclp frarrchisct's sttuggling uodcr high

lcvcls of dc'l.lt. In 200i, il rvaivcd past-duc royaltics

,,ruc.i try nu"rl"u"rog"d l rco llcll t'ltcratots 15 ln addi-

r,,,,1, i1 sold or (1,'scd .tl'llrorilrr'tlcly 5 200 cr)lllP'lt))-

{,rrcr.rtc(l rasl:lrrr:llll. lltc cl').iltt artd scllirrg t'f st'rlc'

hchrcrl thc (,'rtlt),tt1f Icrjtr\c tlrc $4 5ltillrorr ilr l'rrrg-

r.rrrr .lt'bt lllrl it (arlr'(i r[tcr l'ctrtg 'pun-oft try

l,cpsiCo in 1997.:6 ln 2002' tlrc company chargcd

cxpcnscs of 58 million to opcrating profit to allow for

doubtful franchisc and license fec reccivablcs in thc

Taco Bcll systcnr. Comparcd to 2001, franchisc and

liccnsc cxpcnscs dccrcased by $10 nrillion or l8 pcr-

ccDt in 2002. as a rcsull of financial rcstructuring 0(

ccrtairr Tirco Bcll franchisccs in 20Ol ' Ovcrall' syslcnl

salcs irrcrcascd by 9 pcrccnt to $ 1,243 nlillion irt 2fi)2,

with sanc-storc' salcs up 2 pcrccnt' Exhibit 2 providcs

a sumnrary of opcrating Pcrfornlancc''l'hc corporation is divided inlo fivc divisions-

A&\{ r\ll-Anrcrican Food conrbincd u'itlr l-ong lohn

Silvcr's, KFC, l)izza llut, l'aco llcll' and Yrrrn!

IlcslarrrJnls lntcrnational llach divisr<ln is lctl by a

rrrcsiJcnt, .r Prcsidcnt altd cltici ol'crattng 'r(litct lr

,,rcsrdcnt attd chicl conccpt ofliccr' or' in tlrc rasc of

lh" i,rtcrnarional division. a chairnran Thc board of

t]I

I

l

i

I

Q3Q4Q2Qr

2002

Q3 Q1 Q2

5r,597 S1,721Company sales

franchise and license iecs

Revenues

Food and PaPet

thyroll and emPloyee beneiits

Occ upancy an'i otl'or operating e' pente'

Company res(au.an( e)iPense!

Ceneral aod adminislralr!e expense3

tranchise and license e\Penses (b)

Other iinconle) exPenses'cl

Refranchising nel loss l3?in) {cl

OperarinB pro{it beiore sPecral ilenls (dl

1,614 I,767 1,9r 5 2,4 61 1,802 1,916

51,426 51 ,5 71

188 196

5r,705710

s2.1 89

272

sr,765)14

,13 9 442

395 422

169 405

492 512

450 173

410 162

1,377 1,467

20t 208

76(4) (2)

213

217 251

42 42

57 70

1,203

182

t07

1.109

215

9

5

1,124

219

t?9

1,498

212

7

t .17

457

.150

671

601

582

1,854

297

18

r,989

544

47j481

(l1.199 I 1,66r 2,159 3 1679 r,716

215

3.1

6.1

33

302

60

71

100%

10.5

27 .5

17)

6

273

39

67ln(ere5t exPense. net

lncome (ax Provision

Earnings beiore gPecial items (di

Tax rate belore sPecial ilems (dl

234

45

65

sl44 S171 $1r8 sl15 51675r l7 5l14

3r.30/" 12.5% 31.0% 29.8% t2.60/" lz-3"h 29.0"/"

Company sales

Food and paPer

Payroll and emPloyee beneiits

OccuPancy and ollrc. oPeralinB exPenses

Restau€nt m3rgio

5.7 4 65 21

10090

30.8

)3.9

r o00/"

30.7

26.9

100%

30.l16.8

100%

30.8

28.2

100%

30.9

27.4

100%

30.8

25.8

r5.670 16.7 16.4" 15.4%

;*...-t"-'i.*a., -t."1r(t Rdnl(ms " ht\)r//\{w v('m rottvinl(xiorsksr"htm (De(cnlxr 2 2OOlr'

l4-l l4.E% l5.l

of!'nl02,

lcs

dirccrors is comPoscd of thirtcen individuals, with

lwo from Yum! Brands, hvc from rctail companics

likc Targct CorPoration and Kohl's Supernrarkets'

"n.l ,noilr". fivc fronr banks or invcstmcnt firms 27

l'lrc othcr mcmbcr is thc chairnran of thc board ofllarnran Mauagcrrlcnt CorPoration, onc of KFC's

largcst franchisccs. David C. Novak' thc clrairrrrnn of

thc board and chicfcxccutivc officcr ofYunl! Brands,

scrvcd as Prcsidcnt of thc conlpany and was a brand

group prcsidcnt for KFC and Pizza Ilut whcn thcy

rucrc owncd bY Pcpsi-Cola.Ibrrr of tlrc Yunll brltrtls arc global lcadcrs irr

tlrcir catcgorics of chickcn' scafood, ltizza, and

rrvE LGADTNG REsrruRANr sR\Nos | 5 I 5

Mcxican food- As a pcrccntagc of QSR catcgorysalcs, Yum! Brands holds 65 Pcrccnt irt lhcMcxican-stylc catcSory wilh Taco Bcll,46 Pcrccntin chicken with KFC, J3 pcrccnt in scafood withLong John Silvcr's, and, l5 f'crccnt in pir-za rvith

Pizza llut.26 Although a sntallcr playcr in thc largc

hamburgcr scgntcnt, A&w is thc lotrgcst-runningquick-scrvicc rcstauraot in Amcrica. 1'hc to;rtwcnty-fivc quick'scrvicc clrains' salcs and unilvolunres arc shown in Exhibit 3. As lhc lablc indi-catcs, four of thc brands arc in thc to| lwcnt)'-llvcin thc quick-scrvicc scctor'

,;rntl,)'nr, ll:oflof

Chain

2002 Sales(in millions)

Number of Units(as of 1/1/03)

l3,7 65

224

,989

544

17J

481

.49 8

212

17)

6

t .71627J

39

67

5r67

9.O"k:=:=

r00%

30.8

26.8

27.3

5.1"/"

]. McDonald s

2. Eur8er King

3. XFC

4. Pizza Hut

i. wendy s

6.5ubwa1'7. Taco Ecll

8. Domino's Pizza

9.Starbuckslo. Dunkan'Donuts

I L Dair) Queen

12. Arbys

ll. Sonic Drive'ln

1.1. ,ack in the 8ox

15. 7-Eleven

15. hpa lohn's- 17- Hardees

t8- Tim Hortons

19. Popq€s

20. Chick-iil-:il. Littl" C""s".t22. Carls lr.

23. Baskin-Robbins

24. Church3 Chicken

25. tong lohn Silve.'s

540,457.6r l,loo.d10,300.0

7,800.0

7,500.0

5.773.O

5.400.0

3,961 .7

3,182.0'

1,000.0

2.730.0'

2,695.0

2.241.0

2.239.6

2,118.5

1,857.6

1,813.6

1,700.0

1,432.0.

1,)7 2.8 '1,2@.0

lo7 4.6

913.8

900.0'a28-O'

30,02 5

I1,40012,362

r2.030

6.233

17 ,3586,432

7 .2 jO

5,886

5,s00

5,710

1,401

2,576

1,871

5,821

2,792

2,348

1,672

1,074

2,700

987

4,700

1,481

1,249

.f.xr.(,: '.{m Rrnkin8t' R(t€u.rnlr & lnrtt!,lioor' l5 luly 20ol t8 29

' Rctr:u..nlt a ,nslildifis eslimilc.

IcAsE 7 HULTIBMNOING AT YUH! aMNOS INC :THINKING OUTSIDE THE BUN

KcntuckY Fried Chicken

Kcntucky Fricd Chickcn (KFC) was foundcd in 1939

bv Grloncl llarland D- Sandcrs' who pionccrcd wlrat

lrc callcd "sr-rnday Dintrcr' Scvcn l)a1s a Wcck" rnd

whal is now frcqucntly rcfcrrcd t() as "honrc nrcal

rcplacctrrcnt"-sclling conrplctc nlcills k) cilrl)'

u,,t.2' Kl'C spccializcs in chickcn dirrrlcrs tlratr_-i.^., .Ii'i(r.. an{l

includc Original llccipc, Extra Crispy' lwistcr' and

advertisemcnts KFC Original Recipe Chicken Breasts

are conrparcd to Burger King \{hoPFers' A comPany

prcss release stated:

balancc that with an aPProPriarc

arrount of cxcrcisc-ils all about

cncrgY in, cncrgY out"'il

N4arty havc criticizcd Kl:C for jrrrrrpin6 on tlrc

hcalthful-altcrnarivcs batrdwirgcln r''itlrrrut lritvitrg't

hc:rlthful product. Ar: cdiloriitl in 11'lt'tltisirrg "l.q'

clraritctcrizctl thc ad catrrPaigtr lrs "laughatrl':' arrti

<1anraging." 'l-hc cditorial callcd for tlrc arls ttr bc

prrllcJ off thc air ilrltrrcdralcly As thc cdrtorial rrrt-

ucrt,'tl. lrr thc long l)i\lory ol Jl)surd. rlti'lc'tdrrrg 'rrr'l

i,,J,.,,r,',' .,,1 cl.rirtrs' tltc (irlrrf'rrrlr) \ l\){r{ltrlrrllq r\l

Kl:(l's brt'a,.lcci, fricd chickc'rr as a P'rrt rrf a ltcaithv

dict nrcrirs spccial dcrision lt danragcs tirc crcdibi)-

rlv Dol iusl of K FC but o[ thc cnttt e nral kctiltg itrdu'

,rr.-tt ,q o pcrccnt dcclinc in samc-slorc sales rc'rs

rcportcd by KFC for Scptcnlbet 2003 comparcd to

rlrc prcvious ycar-ll Thc troublcs nlay nol stop Ihcr';

thc U.S. Fcdcral Tradc Conlmission (FTC) is invcsli'

ealinq, thc tclcvision comtDcrcial's clainrs, askitrg thc

In,n1.-uny to cxplain and justif' rvirh c*'idcrrec thc

clainr that irs products can hclp consunlcrs cat nlorc

hcalthfullY and losc rvciglrt r{

Pizza Hut

Pizza Hut, the rccogt'rizcd lcader in thc S33 billion

pizzd calcgory, is lhc largcst pizza rcslaulanl (hain lD

ihc rvorld,.rith I0'600 unrls in morc than 100 coun-

tricsr morc than 6,600 units are itr thc Unitcd Statcs'

Thc conrpany \{as namcd Best Pizza Chain in

Ancrica in a national consuntcr survev published b1'

Restaurottts 4r lnstituliotls magazine Like manl'

rcstaurants started by entrePreneursi thc conlPan)'

bcgan rvhcn lrvo college-agc brothers borrorved 5600

fro-m their mother to purchase second-hand equiP-

ment and rent a snrall building on a busf intcrsection

in \\tichita, Kansas.lt The year was 1958' and rhe

coniept of a pizza parlor was new but promising- A

. year later the first fianch-ise unit lvas oPericd' and {he

hrst internatidnal lestaurant opened in 1968 in

Canada. Units in Mexico' Soulh America, Australia'

Europe, the Far East, and Africa s'ere quick to follos'

Ncariy 3,200 units were in operation bt l977' s'hen

PepsiCo acquircd the €omPan)"

Coloncl's Ciispy Strips chickcn with a varicty ol'

"lr()nr('-st)'lc" sitlcs. lr4orc tlran 100 othcr Prodtlcls'

such as ChLrnky Chickcn I'ot l'ic itr thc Utritcrl Statcs

arrd a salmott satlclrviclr in I'tPan' arc oflcrcd itr r"tri-

ous locations u'orldroidc'

Frauchising bcgan in 1952, and thc unit count

had riscn to 6,600 units by thc timc KFC was acquircd

bv Pcr:siCo in i9ti6.J0 N{o\*'alnlosl cight nrillion cus-

,onr"r, "r" scrvcd daily in (hc nlorc than ll'000

rcstaurants. This long-cstablishcd brand is locatcd in

morc than eight countrics and tcrritories Trying to

diflcrcntiate thc brand from othcr QSR products' in

2002 the company inrroduced thc "Thcre's fast food'

Then lhcrc's KFC" advcrtising caurpaign rvith Jason

A.lexander, a wcll-known actor from the Seinfcld

show. ln spite of thcsc cfforts, salcs remained flal'

Entcring 2003, thc entirc QSR segurent came undcr-

h".sh ciiticisnr by activists who claimed the risc of

obcsity in children is atlributcd to nreals that are.high

in fat and calorics- ln an effort to Present its chickcn

prbducts as "hcalthy," KFC devclopcd an advertising

."nrp"ign that has mariy crying foul KFC began in

l"tc )oo1 airing a national advcrtisirlg campaign that

idcntities the tiicd chicken producls as lo\{' fat ln thc

"\^rc want to sct the .eco.d str"ight'

Consumers should no longer feel guilty

about cating fried chickcn," said Scott

Bergren, KFCs Executirrc Vice President'

Marketing and Food lnnovation-"Consunrers will bc surpriscd ro learn

rhey can en)oy fried chickcn as part of a

healthy, balanced dict. Of coursc' rhcy

should eat all iood in moderation, and

thcgirAi"r rrcl

bc.u!i_

lnd,otIt lr i,rbil.lus

dtorcrc,'csti

,l thc'thc

Pizza Hut is known for six corc pizzas: Pan

I'izza,'I'hin 'N Crispy' l-land-Tosscd Stylc, Stuffcd

Crust, Thc Chicago Dish' and Thc Rig Ncw Yorkcr'

Tlrc conrpany continucs ro rcfitlc and dcvclop prod-

ucts, including thc Fit 'N Dcliciotrs Piz-zas' Thcsc piz-

ras havc half rhc chccsc oI tlrc rcgular Thin 'N Crispy

rcciPcs, gclrcrotrs lrorli()ns ol lonrnto saucc' and tt>|_

pings rhar itrclucic lcan nrcats and frcsh vcgctatrlcs'

i'ittlng iu *ith lhc trcnd for lowcr-fat foods' a slicc

contains only 3.5 to 5 granrs oI firt, dcpctlding on thc

sclcclior) of availablc t<lppirtg,s- according to thc

corulnrly, tlrat is 25 pcrccnl lcss flt thart a rcqular

rccipc,l-hirr 'N OrisPY Pirz-a'

Taco Bell

Taco llcll was startcd in 1962 by Glcn Bcll in Downcy'

California. Until thc company went public in 1966'

thc banks would not lcnd thc company nroncy and

financing was oftcn sccurcd by Privatc borrowing ]6

A forn.rcr Los Angclcs policcman, Kermit Becky'

bought thc first Taco Bell franchise in l964 This

stori did t.entcndous voluntes from thc beginning'

inspiring othcr franchisees, as Bccky himself fre-

oucnrlyilcurcd S10,000 in onc month ln 1975'GleD

,"rignad ,, clraitman of the board, and thtcc years

latci he sold Taco Bcll's 868 units to PcpsiCo' lnc'r?

l'he dcal nradc Glen Bell a major PepsiCo share-

holder and an cnormously rvealthy man'

A varier,v of innovations followcd in thc 1930s'

including the installalion of drive-through rvin-

do,vs, r'alue pricing, and frec drink rehlls Taco Bell's

compact carts, kiosks, and in-line units begin

appearing in airports' gas stations' retail stores' cin-

emas, stadiunls, and schools in rhe early 1990s'

Thcsc Express busiuesses provided Taco Bell food in

a variety of locations that rvould not merit a full-

store oPcration.$'ilh 6,000 rcstaurants in th€ United States and

nrore than 35 nrillion consumers served each weck'

Taco Bell generaied S3.4 billion in systemwide sales

in 2002. Like the othcr brands in the company' Taco

Bell has inrroduced a variety of advertising cam'

paigns, including the PoPular talking Chihuahua

canipaign. This effort reciir'ed the advertising indus-

rry's highcst honor' th€ EFFIE in 1998'

rlYE LEADTNG RESTAURANT sR Nos I 5l7

Long lohn Si lve r's

Thc rcccntly acquircd Long lohn Silvcr's lrrand is thc

largcst quick-scrvicc sca[<rod chaitr, with morc than

1,200 utrits and 14,000 crrrployccs worldwidc. 'l'his

sca{ood conccPt, bcgun in l96lt' was inspircd by

llobcrt l.otris Slcvcttsott's classic borlk Trt'rrlrrr,'

.lslrrrrd. Thc rcslaurants offcr sclfood prcl,alqd i;l .1

sccrct battcr of wlrcat, corrl, and olhcr natural ittgrc-

dicnts.lE As thc conccpt Srcw' thc nlcnu cxltan<ictl

llcyond thc fanriliar lrush pttppics arrd battcr-dippcd

ilsh. chickcn, alcl shrirrrl' to irtcltrdc slntlrviclrcs. sitl'

luds, and dcsscrts. ()llc ncw PloDroliot)ill ilcll) lllstorcs duritrg rhc lall of 2003 rvas lobstcr-stuffcd crab

cakcs. Whilc onc of tlrc stlallcr lrrands in thc Yun)l

corporation, Long )ohn Silver's servcs 3.8 nrillion

custonrcrs pcr rvcck and sclls 45 million pounds of

frsh pcr ycar.le

For ycars Long Iohn Silvcr's rvas a public\'

tradcd company callcd jcrrico Inc. A lcvcraged buy-

out in I989 lcd by thc conrpany's scnior managcment

and a r.\ew York invcstntcnt firm rcsultcd in thc conl

pany's becoming Private.40 Thc next year the conl-

pany's othcr restauranl concePts \verc divested and

the firnr dcvotcd all of its rcsources to thc oPeration

of Long lohn Silvcr's. A dccade latcr, Long )ohn

Silvcr's nrcrged with A&W Rcslaurants, resultirrg in

thc creation of Yorkshire Global Rcstaurants'

A&W All-American Food

Ir \1as lglg rvhcn. using a fornrula hc had purchased

fronr a pharmacisr in Arizona, Californian Ro,v Allcn

made a batch of creamy root beer, se[ing the first

glass for a nickcl.{l Allen took on a partner' Frank

ivright, and together they staned An.tericak first fast'

food chain, A&W in 1923 in Lodi, Califomia' By

1933, therc were- more than .170 franchised outleis

operating in the Midwcst and \{est- Alleo retired and

.old th" busi.tess in the earlv 1950s to a Nebraskan

named Gene llurtz who formed thc A&W Root Becr

Company rvith morc than 450 A&W r€stauranti

nationwidc. The company rvas sold in 1963 to the l'Hungerford Smith Companl', rvhich had manufac-

tured A&W Root Beer concentrate since l92l' A few

1'ears latcr the company was purchased by the United

illionrin in:oun-

'talcs.in in,cd byntanYrlPan)'I 5600:quip-:'ction,d the

ing. A-rd thc'63 in,tralia,bllorv.rvhcn

st8 | "ora , tuar,aa^*DtNc AT yuM! s*Nos tNc :TH'NK.NG ourstDE THE suN

Fruit Conlpany of Boston. tn 1970, Unitcd Fruit was

acquircd by thc AMK Corporation, which fornrcd a

nc\^, corporation, Unitcd Brands Company' A&W was

sold again in 1982 to A. Alfrcd Taubman, a dcvclopcr

of shopping ccntcrs and rcal cstatc' ln 1994,

Srgitlarius Ac<luisitions. lnc., hcadcd by Sidncy

Iicltcnstcin purchascd thc colrrPalr)' fronr Tautrtrralr'

Vrrkshirc Global Rcstaurants was crcatcd in 1999' fol-

lowing tlrc ntcrgcr of l-orrg lohn Silvcr's and A&W All

Anrcrican Food llcstaurants. Yorkshirc, bcconring thc

pxrcl)l conlPatly for lloth lrrarrds ilr 2000'

A STRATEGY FOR CROWTH

Tlrc vision of Yunr! IJrands lnc. is to offcr custonrcrs

food thcy cravc so that lhey will return again and

again, whilc using customcr-focrrscd teams With

750,000 associatcs worldvridc, (uslolllcr scrvice train-

ing is a key priority. The company devclopcd a pro-

granr called CHAMPS to Suidc opcrations training'

CnaVpS stands for Clcanliness, I{ospitality,

Accuracy, Maintenancc, Product Quality, and Speed'

Thc company has developed a "Customcr Mania"

training program tha( irs proPonents arguc Puts

proccss arid discipline around all aspects of opcra-

iions rclated 1o custoncr satisfaction.42 The skills

managcrs are teaching the frontline team mcmbers

includc horv to listcn to the customet how to be empa-

thctic to customcr nccds, horv to exceed o.?ectations

within rcason, and how to rccovcr from mistakes.{l

To guidc employccs, Yunrl has dcvclopcd a list offoundinS truths (scc Exhibit 4) and a statcmcnt ofhow cmployccs work togcthcr (scc Exhibir 5).{a

Customcr Mania inclr-rdcs a CllAMl'SExccllcncc rcvicw, in which 150 o[ tlrc corrrparry\

bcst nranagcrs arc sctlt otll lo (hc rcst.lurants to

iDspcct thc storcs arrd cnsurc that tlrc Cl{AMPS stan-

dards arc bcing nrct. Thc conrpany has madc an $18

nrillion invcstnrcnt in this training Progralrr itr tlrchopcs that it rvill givc thc firn1 a conrpctitivc advan-

lagc. Aylin Lcwis. chicf opcralitrg olliccr of Yunr!,

uotcs, "Typically you scc a con)Pan) roll sorrrcthing

out, and that's thc cnd of il. Wc will l-'e training four

tinrcs a ycar. This is a pcrtrrancnl comnritnrcnt to

quality rraining. Once is not going to be enough."as

The cntire fast-food industry struggles r'r'ith

poor custonter scrvicc. For examplc, in a coorPany

nlcmo scnl to a McDonald's franchisce, thc following

mcssage was bluntly summarizcd:

\{e are nccting our sPccd of servicc

standard only 46010 of the time, and 3

out of l0 custonrcrs arc waititig nrotc

than four nrinutes to comPlete !heirorder. Our 800 number has con{lrmed

that - -. the numbcr of complaints .

for rude scrvice, unprofessional

employccs and inaccurate scrvice has

riscn steadill',{6

Our Founding TruthsPeople Capability Fi6t - . .sa(isfied custome6 and profitability follow

Respond to thevoice oi the Customer . . not iust litten

The RCM is Out 11 Leader .-. . not senior management

Run Each Restaurant Like lt't Out Only One . . . avoid the (raP of the averages

Reco8ni(ion Shows You CARE . . "PeoPle

leave when yolJ don't

Creal Operations and Ma*eting lnnov:tion Drive Sales ' ' no finger pointin8

Opera(ion Dircipline Through Process and Stairdards ' consistency-not 'proSram of the month"

Faanchisees atevital Assels - . - oPerate as one System, not t\rvo

Qu.lity in EverylhingWe Do . esPecially lhe lood

f<v.c(.: \'qm! 8.and5, -Yum! Vil(,l5.- htlrt:/M.yldrcarean.onvy!6value-franre*tup_html {D(<(.rl{,(:r 2 2ml'-

A SrR^rrcY FOR GRc'rfrH l5l9

.r ofIt of

\4 PS

1ny's

is loitan -

I $18) thclva rr -

iunrl,(lrin8

i fournt toh,"{ s

with'rPany

rwing

How Wc Work TogetherCuttomcr Mroia

wc not only ft5len and rrslnod ro thc voice o{ llr(.(uslontcr, wc nrc ol)le5scd lo 8() lhc (!xlr.r ntilc k)

nr.rkc our custonrtrr h.t1t1t1'

Bclicf in Pcoplc

Wc l,ehcve rn 1rcr_4rlc, trust rn lx)\rltv(: i lclllronr. rrrt orrr.rgc irk,.rr ironr {lvrryonc anrl .r< tivr'ly rk vt lo|i wo.k{orcc lh.1l i! div(:rs(' in slt'lo .rt(l lr.v kgrounrl

Rccogni(ion

Wc iind rersons lo ct'k:lx,rtt tlrr: .rchicvcrlcnts o{ orhcrs .rnd havc {on {loir)U it

Crraching and SuPPorl

\ r'r' coar h .rntl strplxrrl {1r( h (tlx '

A(c()unlabilitY

Wc do what we s:y, we are ar:count,rlrlc; wc icl likc owners

txecutional Exccllcnce

we l)e.t ycar aBo r6ults by con(inuoully inrProving;rnd innova(in8 wc iollow throu8h with d'1il)

in(cn5ily.

Positivc Encrgy

We execu(e with Posi(ivc cnerBy and intensit)' - wc hete bureaucracy and all thc nonsense lhal conts

with i(.

we pr"ctice team togethec leam aPa11 ailer Prodlctive conflicl

j/)!r..' \,UorI ElJn(I!, ,calels ai tUfi1.'' hlll,:/A\^!!v.-vUnr(nr(r''rs conl/vun\1ik(,-iriN's{]lU|) hhll !Dc\:cml)cl '], ]01),}l

Thc Hardcc's chain also has a ncw Progran) that

focuses on enrployee training. Andrel{'Puzder' thc

prcsidcnt and CEO of CKE, has nrade a conlnlitnrcnt

ro custolner scrvicc in thc poorly PerformingHardcc's chain. He notes, "Our progran focuses on

taking care of thc custonlcr' lt's our only solution'

The fact is that if thc custonrer comes in and the

rc5lauranls arcn't read)" thc custonrcr isn't coming

back- \{c rvant people to havc an opPortunity to find

out how good our food is. 5o our emphasis now is on

training, changing the culture, and Paying more

attcntion 10 cleanliness and scrvice."l? According to

industry watchers, it's about rimc, l'trilc Flardee's

franchisecs are mixed on CKE'S effo.ts. In contrast,

Yum! is getiing results. One Taco Bell restauranl

nranager fronr Florida dcscribid the Customer

Mania program as follows:

Custorner Mania has provided us rvirh a

super edgc in hiring grcat Teanr

Mcmbers and in keePing thc Brcat oncs

wc'vc put so Inuclt cffort into training.Wc're building a rcrvard and rccognition

culture, one that gcts our (cam PunrPcdup and excited about satisfying cach

and cvcry custonrer. It's a great culturc*je're creatirrg and it makes a big diffcr-cnce in the store da,v to day and makes

people want to stay.lE

Yum! hopes to becoDe the best restaurant oPcr-

ator in the k'orld through the execution o[ thc

Customer Mania Program. This Program is vievcd as

an important strategy implementatioo acritity, while

fivc long-term growth dtiYers help shape corPorate

stratcgy- Bclorv are thc five dimensions believcd to be

essential to corporiie progress and growth.

l- International Expatlsion; Yum! Brands'

number-one goal is to drive global expan-

sion with its categoryJeading brands. ln.2002, thc comPany opened a record 1,05I -

i

szo I cestr MULTIBRANoING AT YUHI aRANDS INC:THINKING oursloETH€ eL'N

intcrlational rcsraurants and incrcascd

irrrcflrarional systcnl salcs 9 pcrccnt prior

to f<rrcigtr currcncy convcrsion'

l4ukiltnrnd F-qtttttsiorl: Yuml llratrtis is tllc

rv,rrl<hviclc lca<lcr in rtrultibr:rrrding. oflcr-

irrt consuttrcrs nl()rc choicc :llld convclr-

it'rrcc irt ortc rcstauratlt krc:rlion lionr:tcornbinaliott o[ t,vo o[ thc cotlltatt)"s

brirrtc'ls.'l'hc colrll)alry alrd its fratlclrisccs

olr.r.rtc Illolc th.lll 1,975 rrrtrltilltarlci

r a\1.llrrilrlls, l]cllcriltirrg $2 billiorl irl'rrlrrLlil

sv\rcltr sirlcs. API) rox irlla tcly 150 sys

tcrlr\{idc tlrullibralrd rcstaul ants wcrc

opcncd in 2002.

l\trtfttlio of I'cttding Brarrds: U S sls-

lcnr\{idc sanlc-storc sales incrcascd

approxin)atcly 4 Pcrccnt in 2002 whilc U'S.

sarne_storc salcs at colrlPilily rcstarrrallts

incrcascd approximatcly 2 pcrccnt'

Clobal Frcndtist Fecs: Clobal franchisc fccs'

a significant faclor in annual profits and

casir l)orv, grcrv 6 Pcrccnt to 5866 milliorr

in 2002. Global franchisc ncl fcstaurant

growth \eas 2 Pcrcent.

-strorrg Casir Gcneratiorts rtrrd Rcltrrrls:

Yurrll iJratrds gctrcratcd $l l billiorr irr

cash from all sourccs in 2002' nlorc tlran

fully funding capital cxpcnditurc nccds,

allowing frcc cash flow for sharc rcpur-

clrasc and s<tnlc rcpaynrcnt of dcbt. llcttrrn

on invcstcd capital is lll pcrccnt' ir thc

rcstlturNt'll itt<lustry's t{)l) licr'r9

Acconrplishirrg tllc 8r()K'tlr 1l)'ll Yunr! clrvisi()rt\

will rcqtrirt' carcful l)lcnsurcllrcnt and attclrliolr t(r

pcrf.rrttrarr.c rcstrlrs'lir lrcnchrtr'rr! itr lcrforrtranet"tlrc crrttp.rny has idcrltihcd fitt lcy trtclsurcntcttt

arc:rs, shorvn in Ilxlribir 6. Addinc. nlor!' nltrllil)rittr(i

rurits is ottc of thc kc)' l'c'r f<trrlr'rrrec tltrqcls

TRANSFORMINC THE

INDUSTRY THROUCHMULTIBRANDINC

llighcr unit volunlcs arc at thc ilcart of thc corpor'tlc

nr;ltibranding st.atcgy. For years' N4cDonald's hls

bccn thc cnrry of thc industry rvith t^rice thc volutllc

of thc typical KFC or Taco Bcll McDonald\ iras

sc\rr) tyPcs of food (burgcrs, chickcn, fish, salads'

cpcs. rvaHles, and pancakcs)' br-rt KIC and Taco Bcll

.ric"cach focuscd olr onc lood L alcgor)" No orlc lo')l\for a KFC or Pizza IIut burger' According to Dart^

Dcno. chief hnancial officcr at Yum!"'Thc biggcst

rhing that nrulti-branding offcrs is the chancc to

lcll

l.

4.

lmportant Measures

lnrernitronat s)'\lem_lales 8ro\Lllr rlo(al (urreDCvl jNunrlrrr oi n'\\' rnlernatro:'al rost rurant opentng<

Net rnternational unil gros'th

Number oi mul(ilxand restaurant locations

Numl>er of multibrand rmi(5 added

Crorvth in franchise fees

Ne$ restauran{ openings b)' {ranchisecsNei U.S. unil g.o\\4h

.t US gyslem_s.les 8ro\{hZ U \ blended seme-slo.e s.rles

. Cash Seneraled bv the business

r C;<h gener;(ed aner tap'tal sp"ncling

) ope,alinS -a'8inRetorn on invesled caPital

4

\,,,r,. \1!nl llri ndr. '()ur vi<k '\.- hlll):/ArN\rvlm 'on/inv6lrt4isi('n hlm rl){'(cml'(r 2 2(Y)lr

lcvcragc our cxisting asscts that havc lowcr volunrcs

lhan say a Mcl)onald's for instancc."50 Early cfforts at

cobranding wcrc conrbinations of KFC-Taco llclland Taco llcll-l'izza llut. -lhc nct rcsult of thcsc

t'fforts was thc addition of l>clrvccn 5100,000 antl

S4(X),(X)0 pcr trnil in .tvcraq.c salcs incrcascs- C)nc

franchiscc. l,arr1' l)ttrrctt' Irrcsidcttl of Sotrthcrn

Mtrltilrxrtls, lrrc., opctrcd thc lirst cotrratrdc'd fitcolScll-l.ong Ioltn Silvcr's atr<1 cxplaitrs rvhl' nrulti-brancling is such a porrcrlitl idcl for franchist'cs.

\.lrrltiblanLling lr.rs r clr:rrtralic inrp:tct orl

tlrc .:rrstorttct. lt's a l>.rrricr_ltrt'akcr forllruilics, tttc:Ining thlt sotllctirlcs kids

likc to cat diffcrcnt things than adults. Il

vou'vc got an A&W/Long lohrr Silvcr's'

likc rvc do in Soutlr Tcxas, you can scc

how it offcrs sonlclhing for cvcryonc.

)v'lorc globalll', though, if 1'ou havc a

KI:C/Taco llcll,1'ou n.right gcl sonrconc

who wants a taco one day and who will\unrc Lld(l tltc ttclt dal for ihickcn\Mrcn u,c add volunre to thcsc rcstau-

rants lhrouglr multibranding, wc add

incrcmcntal profits that rrc could nolhavc gottcn any other u'ay. For cxanlplc,

if yorr takc a good restaurant-iikc a

5900,000 Taco Bell-and add a $400,000

Long lohn Sih'er's, You have added

irrcrenrcntal profits that rtould bc

inrpossiblc lo gct anv othcr.ta,r'.51

Stxrn thc cotnpanl'bcgan to t11'conrbinations o[Kl:C and Taco Bcll rvith Long lohn Silver's and AS\V.

llcfore thc acquisition of Yorkshire GlobalR,--staurants, the t\{o Parent companics engaged i:l

four 1'ears of partnering rr'ith multibranding. Testing

rhc conccpt r"irh cighty'thrie KFC-A&\\'units, six

KFC-Long John Silvcr's oPcrations, and thrcc Taco

Bcli-l ong lohn Sih'cr's galc Yum! an oPPotlunrl) to

expcrincnt rvith thc conccpt. lt r.,as not until thc

concep( had ficlded positivc results that Yum!

tlrands acquired \brkshire CIobal. Yunl! CEO David'Novak plans to aggressivclv drivc Yunr!'s gro\{h Nithnruhibranding, arguing, "Multibranding is going totranslbrm rhc industr,r'- Consunters do rsant nlorechoice-'52 Nor., r.'ith thc addilion of the trvo ncw

TMN'T.RMTNGTH€ rNousrRy rHRouGH ..uLTr"*^*o^o | ,r,

brands, thc company gaincd thc advantagc o[irttracting franchisccs with cvcn morc brands undcrtlrc sanrc corporatc cntity.

Wrilc Yum! Ilrarrds is tlrc n)ost aggrcssivc conl.

fary to usc this stratcgy, Allicd [)onrcc<1 I)ll: has corrr-

binc<l its llaskin-lkrbbins, l)unkin' Donuls. artd'li)g(isliatcrics inlo a sirrglc locatiotr to boost lttnch btrsincss.(lurl's Ir., a rcgiolal brantl opcratc<i bv (iKli.

l{cstaurants, has cobrarrdcil witlr Sarrta l}irrl)rlra

I{cstauaar)l Grou|'s (lrccn l}r.rrritrt clTairt to cnhirncc ils

tiinncr busirrcss. llotll ol llrc |irrcrrl cortrpanics of thcsc

brarrcls sharc thc surrrr' ch:rirnr:rn, \\/illiiln I:ol(').il li)rMcI)oDalcl's, "lt is ccrtainli' a nrlltcr of \./hctr, nol ill' it

cxpcriurcnts rvillr rrultibranding, according to a

spokcspcrson for thc conrl,alr)' back in 2001-5{ l'hctin)c appcars to bc no\v, as McDonald's bcgan in 2003

lo cxl)cnnlcnl wltll nc\v col(cPt5 rn cxisting storcs.

Dlcvcn units in lndiana havc addcd a dincr, and onc

unit il Ncbiaska has a thrcc-in-orrc colccpt rvillr a

McDonald's traditional mcnu, an upscalc sandwich

shop, and a scparatc trcat area rvith bakcd goods and

dcsscrts.55 lndccd, thc chairnran of Yum! Brands nray

bc corrcct that nrultibranding will lrc thc biggcst salcs

and profit drivcr for thc last food scgmcnt since t]rc

advcrrt of thc drtvc thtough rvindorv.

Thc bcne6ts of multibranding include incrcas-

ing sales volumcs and unit profitabilitl'. Yum! rcportsthat each timc i1 conbincs brands in a unit, salcs

lravc junrpcd )0 pcrccnt.t( lr) addrllon, Pullittg two

or ,lrore col)cePts under thc sanrc roof can spread

business out during sevcral parts of thc day. For

Allied Domccq, thc addition of thc Togo's chain

allorvcd thcm to nrovc bcl,ond inrpulse snack orbreakfast items into lunch and dinner pcriods. 81'

offcriDg two or ntotc brands thesc (omPanics can

also enter into snraller trade areas lrith expcnsi,'c rcal

estatc.- "Now wc can go into tradc arcas that wc

couldn't go into \yith an individual brand," notcs

Chuck Rawlel', chief devclopmcnt officer for Yuml57

Sharirrg crcw, storagc, and productton space pernritsa more efficient use of thc asset.

The dranratic improvcmcnts in unit sales and-

the nced to modernizc and rcmodel ouldated stoles

havc motivated Yun! Brands to remodel much of itsexisting asset base. Unit dcsign in thc Pasr had bccn

decentralized to the brand lcvel. bu1 in 2002 il vas

-l

I522 | ce'sE? MU].1BRAND|NG AT yuMt BRANDS tNc.:THtNKtNG ouTstoETH€ oUN

ccntraliz,cd with thc crcationposition, sclrior vicc presidcnt

of a new corporatc

and nrultibranding.5E Dcsign is

for conccpt dcsignno\{ conncctcd k)

brand nrarkctirrg and consunrcr prcfcrcrrccs ratlrcrtlral a dcvcloprrrcnt [unction.

Multibrandinr is nor rvithour challcngcs.l'r>telrtial problcnrs rrtay itrcludc cncrolching on cxist,ing uuils'salcs, ancl thc ability to opcrjtc subsrantiallynn)rc cot)lplcx storc lcvcl opr'rations. \\rhilc cncroaclr-nrcrlt docs nol apl)car to ltc a scrious issuc, cxcculionof lhcsc ncrv corrccIts is.-hr lrandlc thc nccdctl oPcra-tiorr:rl capabilit)' to (rl)crnl. nt()r(r colll)l(-\ rcslartrn'1s

thc conrpany has.dcvclopcd sinrplificd ofcrating andtraining systcms.5e

1'hc goals, as statcd by CEO David C. Novak, arcto rakc both KFC and l'aco Bcll ro rhc disrriburionlcvcls of llurgcr King, which has 1t,000 unirs in rhcUnitcd Statcs and to lravc volutncs of al lcast $l_ltrrilliorr Pcr rcslauritnl.60 Thc corupant o|crllc.inrorc lhan 1,975 multibrand rcstaurar)ls r.,orltlvitlc.wlriclr gcncrarc salcs of $1.2 billion cach 1,crrr. lrlroIcs-.to rrrorc than triplc its cobrandccl units by2007.61 Exltil)it 7 shorvs tlrc nunrtrcr of rrrulribrande.ir('sl:ruranls b1' corrcc|t coDtltinalion.

P

cIs

t,

I'l:

NUHBER OF MULTIBRANDED UNITS

Worldwidc

665 673 690 7A3

186 r9r 208 229

8l 94 118 t6l48 49 50 5l6 7 7 12

2-I tl 16 )4

989 1,027 1,089 t,I BO

571 587 608 608ltiT

123

3 /-7

!tl55s

-ll

2001

Q4XFC

Taco Bell

Pizza llur; t,t 719

l.l0 lr{r 99 210

;l ;l19 l;

665

r8l71

45

5

3

l

971

708

2t9r82

50.16

Taco Bell/Pizza Hul l'n'lLong John Silver's

Chock Fu ll o' Nuts

Vr'ing \ryorks

Total

T.co Ecll

Pizza lluttonS iohn Silver's

Eackyard Burgers

Total

Pirza HutKFC

Taco Bell

\^/in8 Works

hsta Eravo

Wing Streets

Eackyard Burgers

Tolal

l-ong lohn Silver's

24 16

r,2r9 I :;9

6t 0

21

ll

:6r.306

i542

6

B

ll

6:

66;t6 615 1,.);

lll;663llrll

- 2_ t92l

196167149r33 171 I7.1r,529 r,566 1,7i7 1,86t t,975

5oo.. c: Yonrl lt.nftls. -lnkrkr Rchii(nr." hftp../ $sv.yum.c.rnlin1{,st(l{1/5s1_.hlm rt)6crntx{ 2. 2(X) t).

2,O37 2.08;

, atctionthc

sr.lzlcsid c,

, b|'rdcri

Q3

719

244

210

52

35

26

t,106

625

26

8

2

661

1

6

l3

42

Thc latcst cxpc.imcnts includc thc partncring ofPizza Hut with thc fiftccn-unit fast-casual Pasta

Bravo chain, hcadquartcrcd in Aliso Vicjo,California.62 Pasta llravo scrvcs a varicty of frcshlyprcparcd pasta dishcs fanrily stylc- Mcnus includc a

$12.95 buckcl of splghcrti and ntcal sau(c scrvingforrr to six pcoplc. Thc partncrslrip is in thc form ofa Iiccnsing agrccnrcnt, in rvlrich linritcd tcsts in pri-nlarily fra nch iscc-ol)cra lcd dinc-in urrits will dctcr-rlinc rvhcthcr this pairirrg is viablc for cxpansiotr.

THE FUTURE

Should Yunrl Brands partrter or acquirc anothcrquick-scrvice or a fast-casual cbain? Wltat rcould bc

a good rrcnu catcgory to add to thc currcnt porlfo-lio? "lf 1,ou pair a hot cmcrging brand with a provelonc, in a rcal estatc contcxt that alrcady has strongdrar.'ing powcr, you can takc advantagc of complc-mentary naturcs for frequcncy, reach and freshncss,"

according to Sarah Palisi-Chapin, CEO oftlre restau-

rant rcscarch and dcvelopmcnt firnr Enersyst.6l\ltrile thc fast-food industry strugqles to rcinvcntrtself and hold on ro thc afflucnt, quality-drivcn baby

boonrcrs, ncw. conccpts may necd to bc dcwlopedfor the emerging Gcneration X and Y palatcs. If so,

hor.,should Yr-rnr! Brands expcriment with its multi-plc branding?

Notes

l. \\:ho Molcd M.DonilJ's Cheesc? Dttf?.r, 6 ll.i;!,r 1,1.1ti,

,une 2003.l.2. r{. B. Horn. e. A. Ledet. and S- Rauch. Fast Food llitt thc

Brakcs.'' Mr&rrsr1, Qra't.rb' 1 12002): e.

L S. Hum..'Back lo thc Future, R.naurdflri + Irtr;rrriod5. liluly 2003,20.

{. \'unrl Brands lnc.. "lnv.nors, hltp://\'1.^L.nrm.rom/in. csrors/d.fault.htm, 2 I N-oven]b€r 2001.

i. lbid.6. S. Humc, ''40O RankinSs." Rclrdrrdnrt d l.rslnur; rr, l: lul!

?001.25.7. A. G.rbcr,'Sup€rsi?.d: M(p Salca ,ump l5o/o in Oclobcr,

A'allb,! R.rrdu.atrr Nd,t, 17 ^\o\€mbcr

2003, t.8- '\\tndys U,S. -samc-storc Salcs lurnp 7.6.eo in o.tob.r,

Afarirni R.rlr'l,ranl ,\tl9', l7 r.\orcmbcr 2001. 12.

9. M. Bolu Chapnrin. "Fururc (,f Falt Food," C/n; kad$,llJl'!2003.8.-

INOr€s | 521

D. Milton, Srnrrlaral & h'ert lddrnry Su.t.yt: Rctdurantt(Ncw York: McGraw lJill, 2003).A. Carbcr,-Turnaround l,lans DrinBChanScs ro McD, BK fnn-chisccs." Mrir',!,! R.rrarr."rl N.s5. l0 Novcnrltcr 2003. 125-

lbid., l2sD. I'lilron. Sr,' ldrd 6 l\\n't I .lustry fi t\rt t: Rtknr,nlt''Ta(o Scll hun.hcs Porrnblc Ccasir sal;'(t. l\.$ Rclcr.(.lunc 27, 200.r. hrrpJ/\ qe.ticdhcll..("r1.25 N,'r. rl'(r :ul.t.X. Mr.irthrr. llos{{,n l,lirkcr Ad\ Mikc l)'nncr i li{r\.

10.

.

t2.I:i.l,{.

li.n/, .r I it;,r.ri ,4.(., 20 liDurr y 200:1, 14.

16. D. I'hiladclphia, Trstitr, l'lushcr rnd l:rsr. l,rrr Sorr/,llrrrf.. l0 SctrcDrt)cr 2002, 5l

17. N4(l)('Dald s, 2002 Srr)rnr.!,v An,,ril l(.t('rr.'hrlf //wh $ r)r.(l,,n,,ld\ (,,rn/r.r tortrr./i!rr.\r,'rlti,,.rn(r.,lrnft,/.nnurl/rcporl/l.rtcr/t,.,A(l/|)d(r.hlnrl, t5 N.!cr)rl\,2001.

l8 I'lcDon.ld s Rctorrr Rccord Ocrol:cr Srlcs Up r8,x, and

Iurrhcr Srcfs in Rrvilaliz:rion Irlan, l,rcss litl$rc.http://wwr*.mcdonalds €onr /(o r po ra rc/prc'r/fin!n-cial/2001/l 1072001/indcx html, 25 Novcnrbcr 2001.

19. Yuml Brands lnc., A\nual Rcpon fu 2002., Tri.on ClotelRcsrauranrs, A,xra? R.po lot 2001.

20. Yunrl Bra'rds Ifl(, lnvcsting iD Yuml ll.,odr l')..,'hrrp://\.l\e.)!m.conr/invcstorr/dcf.ulr.htm, 2t r.vovcmb.r2001.

21. Yunrl Brands Inc.,^ rual R.to fat 20u,)e22. \'um1 Brands Inc., A" aa1 Refo lor 20Q pg. 10.

2r. Ibid.,4.2a Yuml Brands In(.,,4 ual Rcpo fo(2002,31.25. A. Spccror, Tricon I{ounrs Ta<o Bcll Bailou1, Ndrfu,,'s

A.ir.ro'nnr N.\".lo FcL' ud' f 2001.1.26 ibid.27. \'unr! Brand5 Inc,'Abou(Yuml Brands, Board of Direcrors.'

hltp://"*.vunr com/about/boardofdir-htm. 29 No*nrt'er2001.

tbi,tXentu.ky Frird Chick€n, Abour XlC, hrrp:/A,r.r*.Ilr.tonr/aboul, 24 Nolemb€r 20i13.

Iuml Brandr In..,'Our Five Brandt. hl rf J/$.a1.\anl .o )

/about/divisions.hrm, 2 I l\-ovcmbcr 20O1.

Kcntuckv Fried Chicken. P.css Releasc. "KFC Scrs the Record

Straighl.'' lS Oclob€r 2001, hrrp://\.hL.kf( (om/aboul/pr/l0280l.hlm, 24 No\cmb.r 2001.-KFC Blund€rs in'll.alth'Ads," Ad v.rr isine .{sr. i No\tmbcr:001,22.

31. Chain Updat.: La(en from Yum, Rcd Robin, Oth<rs,'Fooase^.ne Eqri,ftnt a- S,.tpli.J. O obcr 2001.20

1.1. I,{. \vi.ldr. A. Sr€inb.r8, and B. \\'ilk€.'FTC EIanriocs Hr:lrhClaims ln KFC! Ads,' T lte t\hll Sk.et |oktnal.En:t. 1Ed;li/,t.l9 hNo€ftber 2003. Bl.

15. Pizza Hut. ".1bour Pizza.Hut: Our Stor-r'. hnp;/A.r.rv-pizza-hur..om/ab^ur/d.lauh arf..'l l-orcmb.r 2001

-16. Ta(o B.ll.'Hi(orv.- hnF://$a.\'.iiaob.ll..om, :.1 No\rmbcr:003.

.17. Ibid.

28.

29.

10.

lt.

t2

196

2,205

--