Yum!'s Post-Pandemic Future Is Looking Bright

Written by Jason Simpkins
Posted April 29, 2021

The question I'm (figuratively) asking every company as we emerge from the pandemic is this: What did you learn?

No doubt, for a lot of businesses, the coronavirus was an abject disaster. Those that rely on commercial traffic (i.e., airlines, car services) stood no chance.

But for others, the pandemic posed a navigable challenge — an opportunity to innovate, adapt, streamline, and ultimately improve the way they do business. And for those companies, the lessons learned can continue to be applied going forward, leaving them better off now than they were going in.

One example that caught my eye recently was Yum! Brands Inc. (NYSE: YUM).

Now, if you don't know Yum! by name, you surely know its products, because this is the parent company of fast-food favorites KFC, Taco Bell, and Pizza Hut as well as the lesser-known Habit Burger Grill.

To be honest, I've always liked Yum!. It's one of those buy-and-hold stocks you can set and forget for decades.

It's doubled in value in the past five years, and it's multiplied fivefold over the past 15.

That's the kind of bet we're talking about here.

But I also believe the company is in store for some more immediate gains as we go into the summer.

Here's why...

Getting back to my initial question: What did Yum! Brands learn from the pandemic?

It learned that a robust digital service, efficient drive-thru fulfillment, a curated menu, and fresh product offerings are a winning formula.

With respect to new offerings, Pizza Hut launched Detroit-style pizza and rebooted its Stuffed Crust Pizza. Taco Bell brought back its Nacho Fries. And KFC introduced a new chicken sandwich to compete with the likes of Popeyes, Wendy's, and McDonald's. That chicken sandwich is performing at twice the volume of previous sandwich launches.

The company also saw a spike in order value as families took advantage of meal bundles. Those ticket values will likely come down as the pandemic wanes and sit-in restaurants reopen, but they're just as likely to stay above pre-pandemic levels.

Drive-thru access and efficiency improved as well.

KFC cut its drive-thru speed by nearly 15 seconds in the past year. Pizza Hut is adding drive-thru lanes to more than 1,500 locations throughout the country. And Taco Bell delivered its fastest average drive-thru speed in eight years while serving a staggering 17 million more cars compared to the same quarter last year.

But now here's the real key: One-third of those 17 million additional cars to pass through Taco Bell were digital orders, which typically carry a higher check value along with an optimized customer experience.

Part and parcel to that, Yum! made Taco Bell the platform for its first-ever digital-led product launch, with the $5 Build Your Own Cravings Box available exclusively on the Taco Bell app or website — a move the company says drove a meaningful increase in loyalty membership during the quarter.

Meanwhile, KFC's digital sales mix reached a record of 43% during the quarter, driven by the rapid expansion of delivery, "click and collect," and the introduction of new channel-ordering options.

On the whole, Yum! whipped up a 45% increase in digital sales, which hit a record $5 billion in the first quarter.

Each of its brands set fresh highs in weekly sales per restaurant at least once in that three-month period, and U.S. same-store sales soared 10% on a two-year basis.

Again, that's on a two-year basis, so we're talking about double-digit growth over pre-pandemic levels. In that time frame, U.S. KFCs reported same-store sales growth of 11%, Pizza Hut’s U.S. division saw 8% same-store sales growth, and Taco Bell netted a 10% increase.

Yum! also opened 435 net new restaurants in the quarter.

Not all of that growth can be attributed to online orders and off-site dining, but a huge chunk of it can.

Enough of a chunk, in fact, that Yum! is beefing up its digital development with the acquisition of two tech startups: Tictuk and Kvantum. 

Tictuk allows customers to order food while on social media and messaging apps, and Kvantum uses artificial intelligence for consumer insights and marketing performance analytics.

"The key focus point for our teams was the continued acceleration of our digital and technology initiatives across the globe, all geared toward providing customers with new and seamless ways to access our brands," CEO David Gibbs said on the company’s earnings call. "Delivery has been a significant part of the strategy and we now have over 39,000 restaurants offering delivery, representing a 16% increase year-over-year, driven by expanded aggregator partnerships and continued investment in our own branded channels. We had another record digital system sales quarter with over $5 billion, about a 45% increase over the prior year."

No doubt, Yum! learned some important lessons during the pandemic — the biggest being that digital platforms offer 21st-century growth for 20th-century brands.

That's going to bode well for the company's long-term growth. And in the short term, I think things could really boom as pandemic restrictions ease and Americans make their way back out into the world.

They could find a lot of comfort in these familiar restaurants and a vastly improved experience.

Fight on,

Jason Simpkins Signature

Jason Simpkins

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Jason Simpkins is Assistant Managing Editor of the Outsider Club and Investment Director of Wall Street's Proving Ground, a financial advisory focused on security companies and defense contractors. For more on Jason, check out his editor's page. 

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