Yum! leveraging lessons from Subway, Chipotle
March 14, 2014
by Monica Watrous
BOSTON – To revive its underperforming businesses in the United States, Yum! Brands Inc. is leveraging insights from Subway, Chipotle and even its own Taco Bell.
“We are using a lot of what is going on in the industry to spur a lot of innovation into our company,” said David Novak, chairman and CEO, during a March 13 presentation at RBC Capital Markets Consumer & Retail Conference in Boston.
Yum! plans to apply strategies from Taco Bell’s success with millennial consumers to improve sales for Pizza Hut and KFC, which Novak said have fallen off track. Admitting Domino’s Pizza has outperformed Pizza Hut, he said he sees social media and smaller-box formats as pathways to growth.
“Domino's has done a better job than we have with Pizza Hut, and we think that with the right focus we can go after Domino's, make even more money than them, enter the express market, and lead in that market, and we have every intention of doing that,” Novak said. “I think one of the reasons why Taco Bell is doing so well in the US is that we really have a great powerful franchise with millennials, and we have led the way with some innovating social media. We even use the social media progress that we have made the millennial knowledge that we gained from Taco Bell, that has been one of the best practices and that know-how that we are now sharing with our other businesses. We think we are behind at KFC in the US on that front, and Pizza Hut has lost some ground on that versus Domino's, but I think we understand that we have got to connect more with millennials, and we are doing things to get after that.”
Yum! also is taking inspiration from competitors in the fast-casual segment by focusing on smaller-box extensions and multiple formats. Earlier this year, the company began testing Pizza Hut by-the-slice concepts in two locations. And last August, the company opened KFC Eleven, an upmarket version of its fast-food chicken chain, with a menu of updated side dishes, salads, rice bowls, flatbread sandwiches and only boneless pieces of Original Recipe chicken.
“And I think that the small-box format and fast-casual really has shown us that we can actually take our quality up, our pricing up and give people more even within our own formats,” Novak said. “But I think we are really going to unlock a lot of growth just by looking at the Subways and the Chipotles and the fast-casuals, the Five Guys. These kinds of concepts I think are showing us there's different ways to make money, and you can do it very profitably.”
Yum! hopes its national launch of breakfast this month at Taco Bell will be another profitable proposition for the company. The Mexican fast-food chain has worked on developing and refining its breakfast platform for more than five years.
“The good news is we have a proposition that our franchisees now are very excited about,” Novak said. “We have products that we think are destination products. We have three destination products at what we think is very, very good value. … And we have breakthrough marketing campaigns. And the biggest thing that we feel that the best thing that we've seen so far is that the marketing that we put behind the breakfast business also stimulates the whole brand.”
The company also plans to launch a chicken delivery option at Pizza Hut.
“In the US, one sales layer that we will soon be announcing is we will be delivering our award-winning wings with plans to ultimately be the first home meal delivery service chain to offer up complete chicken meals that you can order to go along with your pizza,” Novak said. “We now have fryers in all of our Pizza Huts in the US, and this will be a major sales layer that we will launch.”
Since restructuring the organization at the beginning of the year, Yum!’s new brand-focused approach has helped revitalize the three global businesses, he said.
“And so we have each of these divisions waking up every day, (saying) ‘How do we attack McDonald’s?’ if you are KFC; ‘How do we at Pizza Hut get mad as hell that Domino’s has outperformed us?’” Novak said. “Taco Bell was sort of an afterthought in terms of how do you take it global. The guys out in Irvine, they are so excited about having a focused team on taking and building the international business with Taco Bell…
“But I think the passion for the individual brands, the focus, the excitement of people having new opportunities, I think that is going to lead to more growth. It is a soft thing to talk about, but sometimes it is the soft things that really drives the hard results,” he concluded.