Yum’s new menu items spur optimism

A look at how recent menu rollouts from KFC, Taco Bell and Pizza Hut could affect Yum’s performance

July 12, 2012 | By Mark Brandau

While the economies of its international growth markets, especially China, may be slowing down, Yum! Brands Inc. is going to market in the United States with new-product news that may bolster the domestic portions of its earnings, which the company will report next Wednesday.

During the past several weeks, the company’s three brands — KFC, Taco Bell and Pizza Hut — have each rolled out new products that star in comprehensive marketing campaigns. The wave of menu innovation comes at a time when economists fear international markets, which generate 65 percent of Yum’s operating profit, could falter from recently reliable and robust growth.

China, Yum’s key market, could be a particular concern. An Associated Press story reported Thursday that the country’s economy might only grow an expected 7.3 percent. While it would be an enviable figure for the United States economy, a growth rate below 8 percent would mark one of the lowest quarterly expansions in several years and signal weakening demand and consumer confidence.

Austerity measures, a possible banking crisis and depressed consumer confidence also could hamper Yum’s outlook in its Yum Restaurants International division.

If Yum were to look to the United States to make up some of the sales slack, recent performance and new products could be reason for optimism. After same-store sales for its domestic system fell 1 percent for fiscal 2011, they rebounded with a 5-percent increase in the first quarter of 2012.

John Gordon, principal of San Diego-based Pacific Management Consulting Group, an analysis and advisory firm focused on restaurant chains, said Yum should be able to win back sales and trial with its new offerings, provided the company makes up for lost time in the United States and stays aggressive in its advertising.

“I don’t understand why their new-product development has been so slow in the United States,” he noted. “This business is fundamentally driven by new-product news. … I’m impressed they have this new news rolling ahead, but they’ve got to sustain that and have to support it with good media. You need to bang on that drum for at least a year to get people’s involvement with the products up.”

Take a look at some the most recent menu rollouts from KFC, Taco Bell and Pizza Hut, as well as analysis of how the offerings could affect Yum’s performance.