Yum! Brands Strategic Analysis

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

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Yum! Brands Strategic AnalysisPresented By:Sean BaretichMicah BascomTyler SmithJason WilliamsMengyao YangAgendaMission, Goals and StrategiesStakeholdersExternal EnvironmentCompetitive AnalysisInternal AnalysisFinancial ConsiderationsBusiness Level StrategyCorporate Level StrategySummary Of issuesStrategic RecommendationsStrategy Implementation

Mission, Goals & StrategiesYum! BasicsHeadquartered in Louisville, KYAbout 38,000 Locations in 110 CountriesHeavily Favor Franchise over Corporate Ownership378,000 Employees as of Dec 2010Company Claims Over 1 Million AssociatesFortune 500 #214In Excess of $11 Billion in Revenue 2010

Yum! BasicsThree Operating SegmentsU.S.ChinaInternational

Boasts 4 New Restaurants Opened Every Day in 2010

Yum! BeginningsFounded October 7, 1997 as Tricon Global Restaurants, Inc. When Spun-Off by PepsiBegan with Pizza Hut, Taco Bell and KFCMerged with Yorkshire Global Restaurants, Gaining A&W and Long John Silvers in 2002Rebranded as Yum! Brands, Inc. at This Time

Yum! Continues to ChangeCreated Wing Street in 2003

In Process of Selling A&W and Long John Silvers to be Completed Q4 2011

Cleared by Chinas Ministry of Commerce to Purchase Little Sheep Last Week

MissionFuture Back VisionYum! the Defining Global Company that Feeds the WorldFamous Recognition Culture Where Everyone CountsDynamic, Vibrant Brands Everywhere with One System Operational Excellence As Our FoundationA Company with a Huge Heart

OwnershipSingle largest shareholderSoutheastern Asset Management, Inc.6.5%

Directors and Officers13,121,039 shares and optionsAbout 2%

Officer PayDavid Novak Chair, President & CEOBase $1,400,000 Total $14,613,906

Samuel Su Vice-Chair, CEO Yum! ChinaBase $815,000 Bonus $14,318,020

Scott Bergren CEO Pizza Hut, U.S.Base $650,000 Bonus $3,280,352

Yum! Current Events In IowaKFC Corp. v. Iowa Department of Revenue

Iowa Charged KFC $250,00 in Corporate Taxes

All KFC Locations in Iowa Are Franchise

Iowa Courts Found in Favor of the State

U.S. Supreme Court Declined to Hear Appeal

StakeholdersExecutivesCorporate Long term planners Regional Tactical plannersStore Operational planners

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

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

Customers Are where the profit comes from. It is the customers who buy the goods and ultimately decide what will work and what doesnt. Customers can have an effect from individual store success to regional placement of stores simply by their spending habits.

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

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

External EnvironmentSizeYum! Brand is the worlds largest fast food company with over 35,000 restaurants in over 110 countries. Yum! Brand falls in the category of Quick Service Restaurants (QSR) primarily competes with McDonalds, Dominos Pizza and Burger King HoldingsPizza Hut - leader of the US pizza QSR; operates in 92 countries, 12,685 restaurants worldwide Taco Bell - leader of the US Mexican QSR; operates in 14 countries, 5,846 restaurants worldwide

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

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

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

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

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

Exit BarriersExit barriers are simple; if you cannot compete anymore you will be bought.

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

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

Proprietary KnowledgeColonels secret recipe, Taco Bells secret ingredients, Pizza huts special sauce. As long as these special attributes stay secret, Yum! Brand has a competitive advantage no other QSR can touch.

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

TrendsHealthy eating, Yum plans to introduce new products, improve the overall quality of restaurants as the US still represents over 59% of Yums revenues. Expand to 20,000 restaurants in China

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

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

Competitive AnalysisDirect Competing FirmsMcDonalds (MCD)Hamburgers And Chicken SandwichesDominos Pizza (DPZ)PizzaBurger King Holdings (BKC)Hamburgers And Chicken Sandwiches

Competiton & Product TypeCompetition Is FragmentedYUM! Offers Wide RangeMexican (Taco Bell)Pizza & Pasta (Pizza Hut)Chicken (KFC)Products Are CommodityFood Is Basically The Same From Chain To Chain

Supplier RelationshipSupplier Code Of ConductCompliance With Laws And RegulationsLocal, State, Federal, IndustryEmployment PracticesWorking Hours And ConditionsNon-discriminationChild LaborForced And Indentured LaborNotification To EmployeesAudits And Inspections

The SuppliersUnified Foodservice Purchasing Co-op (UFPC)Exclusive Supply Chain Management Organization For YUM!Headquartered In Louisville, KentuckyOffices Across The CountryNegotiates For Materials And SuppliesFoodPackagingEquipment

Supplier Power & How DeterminedSupplier PowerYUM! Has Award-winning Supply DiversityMany Suppliers Many OptionsBeneficial For PricingPride Themselves On Developing Strategic Relationships With Minority- Or Women-owned Business Enterprises (M/Wbes)

Bottomline: Suppliers Have Limited Power At The Co-op Purchasing Level

New Entrants & SubstitutesThreats From New EntrantsLowHigh Start Up CostsAlready Established Supply ChainsThreats From SubstitutesHighCook At HomeSit-down RestaurantsConvenience Stores/Gas Stations

Change In IndustryIndustry ChangesMove To Healthier FoodsSalads/Fruits/VegetablesLeaner MeatsSmaller PortionsTaxing Unhealthier Foods

Internal AnalysisStrengthsYum! StrengthsEver-expanding4 New Restaurants/Day In 2010Well-known BrandsTaco Bell Global Leader In Mexican FoodPizza Hut Global Leader In PizzaKFC Global Leader In ChickenStrong Advertising CampaignGreenHealth PromotionMediacom

WeaknessesYUM! WeaknessesSensitive to overall marketBeta Close To 1Beta>1 Greater Price Volatility Than The Overall Market And Are More RiskyBeta=1 Fluctuate In Price At The Same Rate As The MarketBeta