What QSR Brand will Yum! Acquire?

Yum! Brands Brands has 4 food segments covered with: KFC, Taco Bell, Pizza Hut and now The The Habit Burger Grill, which was just acquired.

Alicia Kelso has a thoughtful article about Christopher Turner's thinking about what acquisitions to explore.

A. Integration Playbook - Bringing in New but smaller Brands

There was a time when Yum! owned both A&W Restaurants, Inc. and Long John Silver's, LLC. Both of these were much small brands than the three main brands. What is different this time around?

“Can we bring more brands into the portfolio? I think the answer’s yes.

We’ve improved our integration playbook because we haven’t done one of these in a long time. So, we’re keeping our eyes open.” 

It is likely that the historical knowledge about the factors which lead to Yum! shedding A&W in 2012 have been forgotten, especially since the CEO in charge of that decision, David Novak is no longer with the company.

So, we should expect that the same problems integrating the smaller brands into the larger brands co-op will persist.

B. What would be a good fit for Yum!

Here are 6 different brands in the Mediterranean food segment that may be in play.

The Mediterranean food space is interesting.

There’s lots of interesting categories out there we’re studying,” he said. 

The Mediterranean category fits that “high-growth” definition, with players like Cava, The Simple Greek, Garbanzo Mediterranean Fresh, Taziki’s Mediterranean Café, The Halal Guys, Pita Pit and more.

Some think that because of more interest in the Mediterranean diet, this interest will translate into more sales.

“Mediterranean food is all the rage now,” says Warren Stoll, marketing director for the company.

“If you went back 40 years, no one knew what Greek food was.

Now everyone knows all about the different Mediterranean foods available, and people view it as healthy.”

Unfortunately, healthy food has never attracted the budget conscious QSR quest, who wants comfort food at a low price. Not sure that this segment is a good fit for Yum!

The Digital Food Business

We are now going to see certain public QSRs try to brand themselves as "really a technology business" or "a digital business" to attract higher multiples on the public markets.

"Yum is now a $20 billion digital business, with such sales exceeding 40%. Turner said the company “should be 100% someday.” He adds that Yum is striving to own more of its technology and, again, it all comes back to the benefits of scale. "

“Technology is an area where you’ve got largely fixed-cost investments.

There should be an economic advantage for us and our franchisees for deploying those investments on that scale,” Turner said.

This reminds us of the famous battle Ray Kroc waged, but in reverse. Kroc never lost sight of the fact that although the main component of McDonald's revenue was the rent from his franchise operators, the company was always in the food business. The focus on technology over food is not a good sign.

Yum! in 2021, "was the top advertiser in the quick service restaurant industry, with 99% of their overall ad budget allocated to promoting their QSR products. 

Since last year, their ad spending has increased by 13%.

The main area of growth in Yum! Brands’ ad spending was in digital media, which saw an increase of 106%.

Digital categories, like online video, OTT, Snapchat and podcast ads have all seen increases of over 100%. "

That' a lot of money to be spending on "online video!

Buy or Rent New Technology?

Finally, let's close on 3 negotiation point.

"1. We’re going to own more of our technology than many of our competitors, partly because of our scale and partly because it just makes sense.

2.We can move faster when we own it.

3. We also don’t want to be beholden to third parties for critical competitive advantages when we’re in pricing negotiations frequently.

These 3 points are highly debatable, especially given Yum!'s size. Of interest is the third claim, which on its face seems false.

Walmart, for example, is the standard for using corporate size to extract most of the value of a bargain from its supply chain. (Perhaps Yum! needs to be consistently training for there price negotiations; Philip Brown you know anyone who could help?)

#technology #restaurant #brand