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Yum.doc - Company Profile

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SWOT Analysis. Strengths. The Company's continuous expansion into Asia and other regions. Well-developed restaurant brands and exceptionally efficient and

    Yum! Brands Inc.

    Proposed by: Matthew DeSantis

Current Price: $51.65

    Target Price: $73.95

    Stop Loss: $41.85

    52- Week Range: $35.04 $50.29 Market Cap.: 14.59 Billion

    P/E: $17.39

    Beta: 0.375

Proposition:

    Buy 33 shares at current market price

    Approx. 34,000 x 5% = $1,700

    $51.65 x 33 = 1704.45

    Company Profile:

    YUM! Brands, Inc. and Subsidiaries comprise the worldwide operations of KFC, Pizza Hut, Taco Bell, Long John Silver's and A&W All-American Food Restaurants and

    is the world's largest quick service restaurant ("QSR") company based on the number of

    system units. Long John Silver’s and A&W were added when YUM acquired Yorkshire

    Global Restaurants, Inc. on May 7, 2002. With 12,998 international units, YUM is the

    second largest QSR company outside the U.S. YUM became an independent, publicly-

    owned company on October 6, 1997 via a tax-free distribution of our Common Stock to

    the shareholders of our former parent, PepsiCo, Inc.

    Through its Concepts, YUM develops, operates, franchises and licenses a system of both traditional and non-traditional QSR restaurants. Traditional units feature dine-in,

    carryout and, in some instances, drive-thru or delivery services. Non-traditional units,

    which are typically licensed outlets, include express units and kiosks which have a more

    limited menu and operate in non-traditional locations like malls, airports, gasoline service

    stations, convenience stores, stadiums, amusement parks and colleges, where a full-scale

    traditional outlet would not be practical or efficient.

Individual Restaurant Profiles (www.Yum.com)

    A&W All American Food, based in Louisville, Kentucky, began in 1919 when

    Roy Allen mixed up a batch of creamy root beer and sold the first frosty mug of his

    delightful beverage for one nickel. He took on a partner, Frank Wright, and the two

    named the brew after themselves: A&W Root Beer. After all this time, A&W Restaurants

    still serve the proprietary beverage in more than 500 locations (most in high-pedestrian

    areas) in the U.S.A. As well as for the delicious root beer floats, the brand has become

    well known for serving all-American hot dogs and pure-beef hamburgers, and it is the

    longest running quick-service franchise chain in the U.S.A.

    KFC, based in Louisville, Kentucky, is the world's most popular chicken

    restaurant chain specializing in Original Recipe?, Extra Crispy? and Colonel's Crispy

    Strips? chicken with homestyle sides and freshly made chicken sandwiches. Since its

    founding by Colonel Harland Sanders in 1952, KFC has been serving delicious, already-

    prepared complete family meals at affordable prices. KFC has more than 11,000 outlets

    in 85 countries and territories around the world, serving some 8 million customers each

    day.

    Long John Silver's relocated to Louisville, Kentucky, in 2003. It is the largest

    quick-service seafood chain in the U.S.A. The company's first restaurant opened in 1969

    as Long John Silver's Fish 'n' Chips when consumers were demanding quick-service

    seafood. As the concept has grown, the menu has evolved to meet the desire of

    consumers looking for more variety and great taste. Long John Silver's Restaurants serve

    45 million pounds of fish and 15 million pounds of chicken annually. Each week, about

    3.8 million guests visit more than 1,200 worldwide restaurants per week.

    Pizza Hut, based in Dallas, Texas, is the world's largest pizza restaurant company,

    with nearly 8,000 restaurants and delivery units in the United States and more than 4,100

    units in 85 countries. The company is the recognized leader of the $25 billion pizza

    category. Menu items include popular choices such as Hand-Tossed, Thin 'n Crispy ?,

    Pan, Stuffed Crusts, and the complete Lover's? line. New pizzas that have also become

favorites include The Big New Yorker, The Edge?, The Insider, and Twisted Crust. In

    1958, Pizza Hut opened in Wichita, Kansas, and began selling what are still considered "the best pizzas under one roof."

    Taco Bell, based in Irvine, California, is the largest Mexican-style quick-service

    restaurant company in the world, a status quickly reached after the brand's 1962

    beginning. Currently, more than 55 million people visit Taco Bell restaurants in any

    given week in the U.S.A., and they purchase 4.5 million tacos, as well other popular

    menu items such as burritos, nachos, chalupas, and gorditas, each day in our restaurants.

    Additionally, half the U.S. population sees a Taco Bell commercial at least once a week,

    which generates significant brand recognition.

Industry:

    The retail food industry, in which the Company competes, is made up of supermarkets, super-centers, warehouse stores, convenience stores, coffee shops, snack

    bars, delicatessens and restaurants (including the QSR segment), and is intensely

    competitive with respect to food quality, price, service, convenience, location and

    concept. The industry is often affected by changes in consumer tastes; national, regional

    or local economic conditions; currency fluctuations; demographic trends; traffic patterns;

    the type, number and location of competing food retailers and products; and disposable

    purchasing power. Each of the Concepts competes with international, national and

    regional restaurant chains as well as locally owned restaurants, not only for customers,

    but also for management and hourly personnel, suitable real estate sites and qualified

    franchisees.

Porter’s Competitive Advantage Paradigm Analysis

    Entry of New Competitors

    New companies trying to enter into a similar type of venture to that of YUM! Brands Incorporated will find it somewhat difficult. This is due to the saturation of the

    restaurant market and barriers of entry, such as economies of scale, cost of entry capital,

    time it takes to develop a clientele, already established supply chains.

    The Threat of Substitutes

    As I stated above the restaurant sector is nearly completely saturated in the US, and is rather hard to just start a restaurant chain. The real threat exists in those companies

    that are already large, in the same market, and have the resources and experience similar

    to that of YUM!. It is important for corporations in the food industry to apply fair pricing,

    new innovative products, and establish for themselves a strong brand identity; all of

    which Yum! Brands Incorporated has done.

    The Bargaining Power of Suppliers

    With YUM!, their suppliers have some bargaining power, since beef, chicken, vegetables, and soda (Pepsi) are the primary components in their most profitable

    products. These products have somewhat variable prices and are subject to mild

    fluctuations based on market demand and location.

    Rivalry Among Existing Competitors

    The restaurant industry is one of the most competitive of any market, because it is so saturated and competition is so fierce. It is absolutely necessary for a new and

developing restaurant chain to establish for itself brand identity. Market advertising and

    promotion is essential, to actually gaining profits.

    Firm Positioning Analysis

     The soft US economy has resulted in a nearly zero growth environment for the

    restaurant industry. Yet, Yum! has actively overcome this by vigorously expanding into

    foreign countries in the past five years. Nearly one third of its profits now come from

    overseas.

    Cost Leadership - Yum! possesses very well-developed supply lines and uses relatively cheap ingredients that have many substitutes. Additionally, their suppliers are very

    interchangeable. This flexibility in supply chains, variety of foods being served, and the

    ease at which their foods can be produced gives them a competitive edge over their

    competitors.

    Differentiation Yum! is the first restaurant to offer more than one of it’s concepts at

    one location (multi-branding). An example is the KFC and Taco Bell in Olean, and the

    A&W and Long John Silvers in DuBois, PA. This increases revenues because a group of

    people with varying tastes is more likely to eat there, than say, a McDonalds because they

    provide something for a wider variety of preferences.

    Focus Yum! strives to provide its customers with quality, good-tasting food at highly competitive prices. Its typical customers are middle-class families looking for affordable

    meals on the go. As stated above, multi-branding appeals to many groups of people who

    would otherwise dine somewhere else.

SWOT Analysis

    Strengths

     The Company’s continuous expansion into Asia and other regions.

     Well-developed restaurant brands and exceptionally efficient and ever-improving

    restaurant operations.

     The idea of multi-branding which causes one establishment to appeal to varying

    customers.

     Strong advertising campaigns.

     Constant updating of menus and “specials” to appeal to current trends and fads.

    Weaknesses

     Some brands (concepts) may weigh down profits of top performing ones.

     Sensitivity to market fluctuations.

    Opportunities

     International expansion and growth.

     In domestic markets, turning one-brand units into multi-brand units to appeal to

    more customers, which will cut into competitors’ revenues.

     Improvement of operations.

    Threats

     The highly competitive nature of the restaurant industry.

     Entry of competitors into foreign markets first.

     Menu appeal.

How Yum Can Use Its Strengths and Opportunities to Minimize Threats and

    Weaknesses:

    With Yum!’s multi-branding strategy it can minimize the threat of competitors

    gaining market share in domestic markets by bringing in customers with varying tastes.

    Also, its aggressive expansion and high level of approval in China and other nations will

    serve to buffer against competitors seizing market demand before they do. In addition,

    their strides to improve their operations can, and will, influence customers to dine in their

    restaurants as opposed to those of their competitors. When improved operations are

    combined with their extensive advertising and constantly updated menu, Yum! can

    expect substantial growth over the next few years.

Direct Competitor Comparison

    AFC Enterprises, Inc. (AFC) develops, operates and franchises quick service

    restaurants, bakeries and cafes (generally referred to as QSR's) in two distinct business

    segments: chicken and bakery. The chicken segment operates and franchises under the

    trade names Popeye’s Chicken & Biscuits and Church's Chicken. The bakery segment

    operates and franchises under the trade name Cinnabon and franchises cafes under the

    trade name Seattle's Best Coffee. As of December 28, 2003, AFC's brands operated or

    franchised 4,091 QSR’s in 46 states, the District of Columbia, Puerto Rico and 36 foreign

    countries. In 2003, franchise revenues represented approximately 15.6% of AFC's total

    franchise revenues. In November 2004, the Company sold its Cinnabon subsidiary to

    Focus Brands Inc., an affiliate of Roark Capital Group. (Finance.Yahoo.com)

    McDonald's Corporation operates and franchises McDonald's restaurants in the

    foodservice industry. These restaurants serve a varied yet limited, value-priced menu in

    more than 100 countries around the world. The Company also operates Boston Market

    and Chipotle Mexican Grill, and has a minority ownership interest in the United

    Kingdom-based Pret A Manger. In December 2003, the Company sold its Donatos

    Pizzeria business. All restaurants are operated either by the Company, by independent

    entrepreneurs under the terms of franchise arrangements (franchisees/licensees) or by

    affiliates operating under license agreements. When granting franchises and forming joint

    ventures, the Company is selective and generally is not in the practice of franchising to,

    or partnering with, investor groups or passive investors. (Finance.Yahoo.com)

    Wendy's International, Inc. is primarily engaged in the business of operating,

    developing and franchising a system of distinctive quick-service and fast-casual

    restaurants. As of December 28, 2003, there were 6,481 Wendy's restaurants (Wendy's)

    in operation in the United States and in 21 other countries and territories. Of these

    restaurants, 1,465 were operated by the Company and 5,016 by its franchisees. As of

    December 28, 2003, the Company and its franchisees operated 2,527 Tim Horton’s

    (Hortons) restaurants with 2,343 restaurants in Canada and 184 restaurants in the United

    States. Of these restaurants open, for the fiscal year ended December 28, 2003, only 57

    were Company operated. In addition, the Company and its franchisees operated 283 Baja

    Fresh restaurants in 25 states, of which 132 were company-operated restaurants and 151

    franchise restaurants. (Finance.Yahoo.com)

    Sonic Corp. operates and franchises a chain of drive-in restaurants (Sonic Drive-

    Ins) in the United States. During the fiscal year ended August 31, 2004 (fiscal 2004), the

    Company had 2,885 Sonic Drive-Ins in operation, consisting of 539 Partner Drive-Ins

    and 2,346 Franchise Drive-Ins, principally in the southern two-thirds of the United States.

    Partner Drive-Ins are those Sonic Drive-Ins owned and operated by either a limited

    liability company or a general partnership. It owns a majority interest, typically at least

    60%, and the supervisor and manager of the drive-in own a minority interest in each

    Partner Drive-In limited liability company or general partnership. Franchise Drive-Ins are

    owned and operated by its franchisees. (Finance.Yahoo.com)

References:

    finance.yahoo.com www.sec.com www.yum.com

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