Yum Looks to Be Leaner After China Spinoff -- Update
October 11 2016 - 3:36PM
Dow Jones News
By Julie Jargon
Yum Brands Inc. plans to broaden its global reach with thousands
of new restaurant openings in the next several years as it shifts
more restaurant ownership to franchisees.
Today, there are just 300 Taco Bell restaurants outside the
U.S., in 22 countries, but in the next six years, the chain expects
to be in 40 countries with more than 1,000 restaurants, the company
said during an investor meeting on Tuesday. U.S.-based Yum will
open the first Taco Bell in China this year.
The company currently opens a new KFC every eight hours, but
Chief Executive Greg Creed told investors the company can open one
every five hours going forward. Pizza Hut opens two restaurants a
day now in overseas markets and plans to open three a day by
2020.
The international expansion comes as Yum plans to become a
leaner company operating fewer of its own restaurants after it
spins off its volatile China business next month.
The company now owns 10,000 restaurants, which will decline to
3,000 when the China business becomes its own stand-alone company.
Yum plans to increase the percentage of restaurants owned by
franchisees to at least 98% by the end of fiscal 2018, up from 77%
currently. The China spinoff alone will boost that figure to 93%
because the China business will license the brands, paying Yum an
annual royalty fee. By the end of fiscal 2018, Yum will own just
1,000 restaurants, making it one of the most-franchised U.S.
restaurant companies, behind only Burger King parent company
Restaurant Brands International Inc. and Dunkin Brands Group Inc.,
which are each nearly 100% franchise-owned.
Many restaurant brands have been moving to an "asset light"
structure in which they own the brands but not the actual
restaurants. The model allows restaurant companies to shoulder less
risk and volatility because they can collect a stable revenue
stream in the form of a percentage of franchisees' sales. Burger
King, McDonald's Corp., Wendy's Co. and other major chains have
been selling more of their company-owned restaurants to
franchisees.
Mr. Creed said the move to a more franchised business model
represents a "mind-set shift" from thinking of the company as a
brick-and-mortar business to viewing it as the steward of three
global brands. "We will be much more focused," he said.
The company also announced plans to reduce its annual capital
expenditures to about $100 million by the end of fiscal 2019 from
$500 million and to reduce its general and administrative expenses
by about $300 million by the end of fiscal 2019. General and
administrative expenses as a percentage of sales will drop to 1.7%
from 3.4% after the cuts, the company said.
As part of the cost-cutting, Yum plans to eliminate 600
corporate positions globally by the end of the year through
attrition, voluntary retirement, some involuntary layoffs and the
selling of restaurants to franchisees. An additional 1,500 jobs
will be eliminated by the end of 2018.
Yum last month struck a deal to sell part of its China
operations to a prominent Chinese deal maker and the financial
affiliate of Chinese internet company Alibaba Group Holding Ltd.
Primavera Capital, run by former Goldman Sachs Group Inc. Greater
China Chairman Fred Hu, and Ant Financial Services Group will buy a
combined $460 million stake in the Yum China Holdings Inc. spinoff.
The China business will begin trading separately on the New York
Stock Exchange on Nov. 1.
Louisville, Ky.-based Yum built KFC into China's most popular
fast-food chain after entering the country in 1987. The company in
recent years has faced increasing competition from foreign and
local fast-food rivals in China as well as numerous food-safety
scares, which resulted in volatile sales.
Write to Julie Jargon at julie.jargon@wsj.com
(END) Dow Jones Newswires
October 11, 2016 15:21 ET (19:21 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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