LOUISVILLE, KY. — Yum! Brands Inc. is leveraging value-oriented menu offerings to attract more consumers during an economic downturn.
The return of $5 mac and cheese bowls and a limited-edition $6 two-piece chicken meal boosted sales and transactions at KFC in the third quarter. Taco Bell benefited from an expanded $2 cravings menu, including a new bean burrito, while Pizza Hut introduced a $6.99 pizza deal and brought back its Big Dinner Box as an abundant family value offering.
“Value does seem to be more of a factor today than it might have been six or nine months ago,” said David Gibbs, chief executive officer at Yum! Brands, during a Nov. 2 call with financial analysts to discuss third-quarter results. “If you dig into what’s going on in the US, it’s been well documented that there’s a k-shaped recovery. There’s a little bit of k-shaped demand for value on the high-end.”
The company is seeing strong demand for deals and affordable menu options as well as more expensive premium offerings, he said.
“There’s more emphasis on premium value… where products aren’t at the absolute lowest price but can still be very appealing to consumers as long as the experience, the convenience and the craveability of the food is all there,” Mr. Gibbs said. “That’s why you’re seeing us do things like the double steak grilled cheese burrito at Taco Bell, which is at a higher price point than normal. On the low end, you have KFC going back to mac and cheese bowls with some success that moves the needle. It’s at a price point that’s appealing to a low-end consumer but still not just discounting our core product.”
Consumers seeking both low- and high-end value boosted sales at Yum! Brands in the third quarter while strength in the US dollar weighed on results. Net income for the three months ended Sept. 30 was $331 million, equal to $1.16 per share on the common stock, down from $528 million, or $1.78 per share, in the same period a year ago. Foreign currency rates weighed on earnings per share by 10¢. Revenues increased to $1.64 billion from $1.6 billion.
Worldwide system sales grew 7% in the quarter excluding foreign currency translation, with KFC at 8%, Taco Bell at 9% and Pizza Hut at 4%. Companywide same-store sales increased 5%, with KFC at 7%, Taco Bell at 6% and Pizza Hut at 1%.
Yum! Brands in October signed an agreement to transfer ownership of its Russian KFC restaurants to an existing Russian franchisee, paving the way for a full exit from the country. The company this summer transferred ownership of its Pizza Hut assets in Russia to another local operator. The new owners will be responsible for rebranding the restaurants into non-Yum! concepts.
The company in the second quarter removed the Russia business from key performance metrics, which negatively impacted its third-quarter system sales growth, KFC sales growth and operating profits.
“Core operating profits grew 8%, which includes a three-point headwind from the removal of Russia profits this year,” said Chris Turner, chief financial officer at Yum! Brands. “Were it not for the loss of Russia profits, we would expect core operating profit to be high single digits this year, in line with our long-term growth outlook.”Removing Russia from the company’s prior-year base, system sales would be up 10% and KFC sales would be up 12%, he said.