If you are a restaurant chain, what is the second worst thing that can happen? A LIVE rat infestation caught on live TV. Why is that the second worst? Because the worst would be if rats started running customers out of the place when it was open instead of them being caught on tape when the place was closed.
That’s what happened to Yum! Brands (YUM-NYSE) as a Greenwich Village store of KFC & Taco Bell was shown live on CNBC (link to video) this morning with rats running around inside the store and a handwritten note saying "closed, sorry for the inconvenience." It sounded like this was a franchised location because they said they have the name of the owner and have not been able to reach or hear from him yet. This location has also supposedly had ‘mouse’ notices from the local inspectors as well, but keep in mind that the network also said the health score at that location was actually better than it has been at many prime restaurant locations around the city. Also keep in mind that New York City is not really representative of the entire country and keep in mind that there is a policy from the parent Yum! about keeping a restaurant clean. They certainly don’t condone rat squatters. Yum! has 34,000 restaurants or something like that when you break out KFC, Pizza Hut, Taco Bell, and others. It also has a market cap of $16 Billion. This is horrible PR and that is undeniable, but this isn’t a systemwide issue and isn’t representative of the company itself. NYC is a very different market and if you have been around the city early in the morning or in the wee hours of the night you will have likely seen worse.
Shares are down 1.7% at $60.01 pre-market, and that is after closing down almost 1% ($0.55) at $61.06 yesterday. Its 52-week trading range is $44.21 to $63.68, so keep in mind that this is much closer to its highs than lows and can create a vacuum when sellers hit. In a market neutral sense or in a static world this would be a situation where buyers look for an overreaction. With the stock right up at new highs that may be an exception today.
Do you think rats taste like chicken? Didn’t NYC do a transrat ban?
Jon C. Ogg
February 23, 2007
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