Parent of KFC, Taco Bell Seeks 4% Annual Expansion Amid Development Obstacles
Executives of Yum Brands said the parent company of KFC, Taco Bell and Pizza Hut is looking to return to, and possibly surpass, its pre-pandemic restaurant growth rate of 4%, but it’s not known when that will happen because of lingering development challenges.
In addition to pandemic-forced operating restrictions, the world’s largest restaurant operator faces a slowdown in local project approvals and operating permits, among other real estate-related hurdles.
“It's a challenging environment just to build stores,” CEO David Gibbs told analysts during the company’s fourth-quarter and full-year 2020 earnings call. “And there are markets that we want to get stores open, and we’re having trouble getting permits and getting the right people to construct the stores.”
With more than 50,000 locations now operating, Louisville, Kentucky-based Yum Brands and its franchisees opened a total of 1,024 restaurants globally but closed 797 during the fourth quarter, and 540 of those closings were Pizza Hut locations. Yum Brands has recently been replacing some struggling large Pizza Hut franchisees with better-capitalized operators.
Executives said Yum’s franchisees have been making changes to the sizes and types of locations they open, with some locations housing KFC and Taco Bell under one roof and many emphasizing carryout and delivery over in-store dining. But the past year’s disruptions could cause lingering delays in rebuilding the company’s development pipeline.
“We’re still not at a point where we’re going to commit to a certain time frame on that,” Gibbs said. “But the mood is definitely one of confidence.”
Despite slight declines worldwide in food sales, Yum’s total revenue in the fourth quarter, with items such as franchise fees factored in, rose 3% year over year to $1.7 billion while total revenue for the full year increased 1% over the prior year to $5.6 billion. Despite recent government-mandated operating restrictions amid spiking COVID-19 cases and rising dependence on third-party delivery services, executives said 98% of Yum’s global locations remain open in some capacity.
Yum Brands ended 2020 by opening its 25,000th KFC location, marking the addition of more than 5,000 locations for the brand since the end of 2015. Gibbs said Yum Brands is eyeing KFC as a major location growth driver going forward.
Several chain operators are counting on the arrival of vaccinations to bring customers back to restaurants in coming months, and also scouting chances to snap up shuttered locations of smaller independent restaurants. But Yum Brands’ target of 4% or higher annual store expansion is considered ambitious in the current environment compared with goals set by other chains.
For instance, Dallas-based Brinker International, operator of full-service casual brands including Chili’s and Maggiano’s, recently set a goal of 1% to 2% location growth in the coming year.
“I would like it to be, over time, towards the higher end of that,” Brinker Chief Financial Officer Joseph Taylor told analysts during that company’s recent earnings call. “There is a pipeline in process, and we have got great folks and our development teams already working that. We are seeing some changes in the real estate market.”