Yum! Brands: Pizza Hut needs 'more consistent value messaging'

Yum! Brands is still reeling the effects of China's avian flu and poultry supply chain issues that befell the company's KFC brand earlier this year, but its U.S. and international businesses are both on a solid growth path.

Domestically, however, that growth was slightly stifled by a weak performance from Pizza Hut, down 2 percent in same-store sales.

President Richard Carucci said the brand was negatively impacted by not having a consistent and compelling value message like its competitors.

"Our competitors have simply done a better job in this area so far this year. We'll have a more consistent value message going forward and expect to deliver better sales growth at Pizza Hut during the balance of this year," he said.

Those sales should be driven, in part, by new product launches including the brand's new flatbread pizza.

It wasn't all bad news at Pizza Hut U.S., however. The company has experienced net new unit growth for the second year in a row.

China

Also, while Yum's business in China was hit hard by its flagship KFC presence there, its Pizza Hut casual dining brand is growing strong — up 7 percent during the quarter, on top of 10 percent during the same period last year.

"Pizza Hut continues to lead with innovation and everyday affordable value. We just launched a major new product with Stone Pan Sizzling Steak that we know our customers will love. We're also continuing to leverage our assets by expanding our breakfast menu into more and more cities," said CEO David Novak.

Pizza Hut casual dining has more than 900 units in 228 cities in the China market and is expanding into lower-tier cities.

Yum also continues to invest in the development of Pizza Hut home service, which now has 171 units in 21 Chinese cities.

"We now have strong unit economics and will ultimately scale Pizza Hut delivery service across the country, which is obviously more good news for the powerful Pizza Hut brand in China," Novak said.

The company will continue to leverage China's still-growing economy, expected to jump 7 percent this year. The consuming class makes up 300 million people today and is expected to jump to 600 million by 2020.

"It's still the fastest-growing economy in the world. These are things that bode well for brands that are consumer-oriented," Novak said.

Yum Restaurants International 

Yum Restaurants International turned in a strong quarter, with high growth in emerging markets such as South Africa, Russia and Thailand. YRI plans to open at least 1,000 new units this year, 90 percent of which will be franchised.

Carucci said the company's franchise fees reflect its "dominant presence" in high-growth emerging markets, which now account for almost 50 percent of Yum's revenue stream. Yum is also finding a foothold in new emerging markets such as Argentina, the Ukraine, Malawi, Angola and Outer Mongolia.

"This accelerated growth in net new unit count is significant for two reasons: First, 2013 will be the second consecutive year where we will generate 4 percent growth in YRI net new units. Second, this accelerating pace excludes India, which was a key growth driver for YRI before it was separated into its own division in 2012," Carucci said.

Yum's India division expects to open 150 new units this year, and double its restaurant count by 2015 to about 1,000 units. Sales in this market during the quarter were up 24 percent, driven by 25 percent unit growth and 2 percent same-store sales.

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