The good
Yum! Brands, Inc. (NYSE:YUM), similar to a venture capitalist in Silicon Valley, recognized the emerging Chinese market and wasted no time immersing its business there. With 5,700 restaurants in more than 850 cities and $1 billion dollars in profits for 2012, the company has seen a nice return on its investment. Furthermore, Yum! was able to acquire Little Sheep, a chain of hotpot restaurants and to establish East Dawning, a restaurant that has Chinese cuisine, but employ the KFC business model. Little Sheep and East Dawning are boosts to the company’s profits and presence in China.
Wacky product choices are the Modus Operandi or M.O. for Yum!. Go into any of the company’s subsidiaries and products such as, Doritos Loco Tacos, Crazy Cheesy Pizza or Boneless Chicken, are sure to evoke your curiosity, if not your appetite. In a highly competitive and innovative age, Yum! Brands, Inc. (NYSE:YUM) continues to churn out original products that excite customers. By consistently keeping their customers anticipating for more, the demand for Yum!’s products increases and in turn, raises their profits and the rate of return for their investors.
The competition
Chipotle and Panera Bread Co (NASDAQ:PNRA) each makes healthy and convenient food, at a relatively higher price than your typical fast-food restaurants. Both companies have rewarded investors by buying back stocks and consciously improving your holding long-term. It has ensured the companies to be able to expand their locations and build upon their menu. Each had a significant first quarter revenue increase, due to location expansion; in addition, to the fact that Chipotle’s Cultivate Festival and Panera’s “Live Consciously” campaign is allowing them to connect with customers in a new way. While Yum! Brands, Inc. (NYSE:YUM) is larger, cheaper, and has original products, Chipotle and Panera have redefined the fast-food experience, by employing a similar setup to their counterparts, but offering food at the highest quality.
McDonald’s strongest ability lies in being able to reinvent themselves, just as competitors think the giant might be slipping. The company’s revenue between 2010 and 2011 increased significantly, due to the introduction of the McCafe smoothies and frappes. These products revitalized McDonald’s appeal to customers and investors. Moreover, with the push for healthier food, this company continues to modify its product choices to fit the taste buds of their customer; while they also offer it for a cheap price. New menu items such as Premium Wraps, Egg White Delight, and Blueberry Pomegranate Smoothie, are a part of the revitalization plan. The company also is a double advantage for investors; McDonald’s pays out dividends, that increase yearly, and buys back shares. Yum employs a similar strategy too.
McDonalds and Yum! have found continued success, despite their menus being criticized, due to the fact that in economically strapped times, Chipotle and Panera become ideal, rather than actual choices. On the same note, customers want to have a variety of food options when on-the-go. However, McDonald’s portfolio advantage over Yum!’s is the fact that it is not heavily dependent on one country for a surge.
The bad
As much as Yum! expands domestically and internationally, the company still relies heavily on China for prosperity. Due to Avian flu outbreaks, the China Division revenue fell “41%” and this caused Yum!’s earnings per share to decrease “8%.” While the company is rebounding from these disturbances, China’s economy too is slowing up. The country’s GDP fell under predicted estimates and suggest that while China might be producing at a high rate, their goods and services are not being exported as high. These events serve as a wake-up call for Yum! that their focus may be misguided. While China has emerged as a dominant market, it does not mean that Yum! should place all their eggs in one basket. In true investor style, they need to diversify their portfolio.
The bottom line
The silver lining in the Asia fiasco for Yum! is that it allows them to redirect their focus to their other markets, particularly the U.S. With the release of 3 products, in each of their stagnant U.S. subsidiaries, this wacky, but intriguing company will continue to grow this year.
The article Crazy Little Thing Called… Yum! originally appeared on Fool.com.
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