Pizza Hut 2004 Annual Report Download - page 4

The฀foundation฀of฀this฀consistent฀growth฀comes฀from฀the฀
competitive฀ advantage฀ of฀ the฀ strong฀ infrastructure฀ we฀
already฀ have฀ in฀ place.฀ For฀ this฀ we฀ are฀ largely฀ indebted฀
to฀ PepsiCo฀ who,฀ prior฀ to฀ our฀ spin-off฀ in฀ 1997,฀ invested฀
40฀years฀and฀billions฀of฀dollars฀to฀establish฀the฀global฀net-
work฀we฀inherited.
The฀ tough฀ reality฀ for฀ our฀ competition฀ is฀ that฀ it฀ would฀
take฀ the฀ same฀ kind฀ of฀ time฀ and฀ commitment฀ to฀ reach฀
our฀ size฀ and฀ scale.฀ The฀ obvious฀ exception,฀ of฀ course,฀
is฀ McDonald’s.฀ McDonald’s฀ already฀ makes฀ $1.8฀billion฀
outside฀the฀U.S.฀demonstrating฀the฀clear฀profit฀opportu-
nity฀we฀can฀capture฀in฀the฀international฀arena.
That’s฀because฀the฀great฀reality฀for฀us฀is฀we฀already฀have฀
strong฀ local฀ teams฀ and฀ operate฀ in฀ approximately฀ 100฀
countries฀around฀the฀world฀with฀nearly฀600฀international฀
franchisees฀growing฀two฀popular฀global฀brands,฀KFC฀and฀
Pizza฀Hut.฀In฀fact,฀our฀franchisees฀opened฀up฀over฀80%฀of฀
the฀738฀new฀restaurants฀we฀added฀this฀year.฀This฀helps฀
make฀our฀international฀business฀high฀return฀because฀our฀
franchisees฀are฀using฀their฀capital,฀not฀ours,฀to฀grow.
Our฀plan฀is฀to฀continue฀to฀leverage฀our฀big฀scale฀markets.฀
We฀have฀nine฀countries฀and฀franchise-only฀business฀units฀
that฀have฀over฀600฀restaurants฀each.฀We’re฀focusing฀our฀
international฀ company฀ operations฀ investment฀ in฀ four฀ of฀
these฀countries฀where฀we฀are฀building฀scale฀and฀expect฀to฀
produce฀excellent฀returns฀over฀time฀(U.K.,฀Australia,฀South฀
Korea,฀Mexico).฀The฀largest฀of฀these฀markets฀is฀the฀U.K.฀
where฀we฀have฀great฀KFC฀and฀Pizza฀Hut฀businesses.฀Here,฀
we฀have฀almost฀1,300฀restaurants฀generating฀$115฀million฀
in฀operating฀profits฀with฀a฀24%฀5-year฀growth฀rate.
When฀ you฀ look฀ at฀ our฀ franchise-only฀ business,฀ you’ll฀ see฀
we฀have฀nearly฀4,500฀restaurants฀generating฀$154฀million฀
in฀ operating฀ profit฀ and฀ a฀ 16%฀ 5-year฀ growth฀ rate.฀ What’s฀
more฀we฀have฀broad-based฀growth฀evidenced฀by฀the฀fact฀we฀
opened฀new฀units฀in฀60฀countries฀this฀year.฀
Going฀forward,฀we฀want฀to฀continue฀to฀add฀at฀least฀700฀new฀
units฀each฀year฀and฀do฀it฀profitably.฀Consider฀this,฀excluding฀
the฀China฀Division฀we฀only฀have฀6,100฀KFCs฀and฀4,500฀
Pizza฀Huts฀compared฀to฀over฀16,000฀units฀McDonald’s฀has฀
in฀international฀markets฀outside฀of฀China.
an฀incredible฀head฀start.฀We฀estimate฀ there฀ are฀already฀
500฀million฀urban฀Chinese฀customers฀who฀can฀afford฀our฀
food.฀There’s฀no฀question,฀we฀are฀on฀the฀ground฀floor฀with฀
an฀unprecedented฀opportunity.฀I฀liken฀it฀to฀the฀days฀when฀
Colonel฀ Sanders,฀ Glen฀ Bell,฀ Dan฀ Carney฀ and฀ Ray฀ Kroc฀
started฀KFC,฀Taco฀Bell,฀Pizza฀Hut฀and฀McDonald’s,฀respec-
tively,฀and฀created฀fast-food฀categories฀in฀the฀U.S.,฀leading฀
to฀270,000฀units฀today.฀We฀have฀the฀first฀mover฀advantage฀
and฀the฀opportunity฀to฀do฀the฀same฀thing฀in฀China.฀
That’s฀why฀our฀goal฀is฀to฀build฀dominant฀restaurant฀brands฀
in฀ every฀ significant฀ category.฀ So,฀ in฀ addition฀ to฀ KFC฀ and฀
Pizza฀ Hut฀ casual฀ dining,฀ we’ve฀ recently฀ developed฀ Pizza฀
Hut฀Home฀Service฀and฀our฀Taco฀Bell฀Grande฀dine-in฀format.฀
The฀team฀has฀also฀enthusiastically฀developed฀and฀is฀now฀
testing฀East฀Dawning,฀which฀is฀a฀Chinese฀fast-food฀concept฀
that฀is฀geared฀to฀provide฀the฀everyday฀local฀favorite฀foods฀
of฀Chinese฀customers.
With฀all฀the฀good฀news฀in฀China,฀the฀leading฀question฀is,฀
what฀can฀go฀wrong?฀Well,฀the฀past฀two฀years฀we’ve฀weath-
ered฀SARS,฀the฀Avian฀Flu฀and฀events฀like฀that฀are฀always฀
a฀possibility.฀And฀I’ll฀leave฀it฀to฀you฀to฀predict฀the฀future฀
economy฀or฀potential฀political฀issues.฀One฀thing฀I’m฀sure฀of฀
is฀we’ll฀have฀our฀ups฀and฀some฀unforeseen฀downs฀but฀as฀
I฀said฀last฀year฀and฀I’ll฀say฀it฀again,฀there’s฀no฀doubt฀in฀my฀
mind฀that฀one฀day฀we฀will฀have฀more฀restaurants฀in฀China฀
than฀we฀do฀in฀the฀U.S.
China฀Division฀Key฀Measures:฀+20%฀operating฀profit฀growth;฀
+22%฀system฀sales฀growth;฀+375฀new฀units/year.
#2฀
DRIVE฀PROFITABLE฀
INTERNATIONAL฀EXPANSION฀
Since฀ China฀ is฀ now฀ a฀ separate฀ division,฀ the฀ remainder฀
of฀our฀international฀business฀is฀now฀reported฀excluding฀
our฀ China฀ Division.฀ It฀ too฀ is฀ a฀ large฀ and฀ growing฀ busi-
ness.฀For฀the฀fifth฀straight฀year฀we฀opened฀ up฀over฀700฀
restaurants฀in฀countries฀outside฀of฀China฀and฀the฀U.S.฀The฀
International฀Division฀generates฀over฀$335฀million฀in฀oper-
ating฀profit,฀with฀a฀solid฀record฀of฀growing฀at฀least฀10%฀in฀
operating฀profits.฀
Our฀China฀Division฀is฀our฀
highest฀return฀international฀
equity฀business฀generating฀
over฀$1฀billion฀in฀revenue฀
and฀$200฀million฀in฀
operating฀profit,฀up฀over฀
20%฀versus฀a฀year฀ago.
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