By Saul Sterman
04/01/2007
Do you recall marketing 101? Here’s a quick recap. Use the ‘cash cow’ to build the ‘rising star’. Not bad, a whole semester in one sentence!
The Yum cash cow is the U.S. operation. Yum expects to eek out 3 to 5 percent earnings growth in the U.S. in 2007. The real story is using the generated cash to grow aggressively overseas. That’s good news because the U.S. is in the midst of a slowdown while Asia is still growing at a fast clip.
As rising stars, Yum has identified three major and three minor markets. The major markets in order of precipitated growth are; China, Japan and U.K. The minor markets are; Korea, Australia and Canada. To put things in perspective, Yum has three major brands in over 100 countries. Within the U.S. Yum operates 5,400 KFC, 7,500 Pizza Hut and 5,600 Taco Bell – totaling 18,500 restaurants. Outside the U.S. Yum operates 8,900 KFC, 5,100 Pizza Hut and a mere 200 Taco Bell – totaling 14,200 restaurants. Yum has over 34,500 restaurants worldwide.
The international expansion policy is straightforward;
Step 1) Select primary markets for maximum rapid expansion and don’t leave room for competition to get a foothold.
Step 2) Select secondary markets for continued future growth, establish beachhead for full invasion at a later date. If a snag develops in a primary market, Yum will fallback to a secondary market.
Step 3) Capital is raised from local stock exchanges as a means to finance rapid growth. This also doubles as brand acceptance as the ‘brand’ is considered to be local, not foreign or American and provides good ‘word of mouth’.
Step 4) Make sure not to pull any Starbucks sin-city moves. (Take into account local traditions and sensitivities.)
It doesn’t get more American than that. Finally, an American company is treating Asians as Americans and not as foreigners. Yum is simply doing in China what it would do in America. In southern California and Florida you speak Spanish, otherwise you lose business, right?
The Numbers
We (CrossProfit) expect Yum to open nearly a thousand restaurants a year in its primary and secondary markets and an additional 150 elsewhere including the U.S.! U.S. same store sales are expected to grow only 2.5% in 2007. International expansion should come in at 8.5%, excluding China, and profits should increase at a slightly faster clip. China is expected to grow at 21% even if President Bush messes around with Chinese paper. After all, KFC is made in China!
Estimated EPS for 2007 is $3.21.
Disclosure: This is the consensus at CrossProfit. There are no conflicts of interest.
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