Pizza Hut 2004 Annual Report Download - page 6

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Given฀the฀fact฀we฀are฀the฀only฀restaurant฀company฀to฀have฀a฀
portfolio฀of฀leading฀brands,฀we฀have฀the฀unique฀opportunity฀
to฀offer฀our฀customers฀two฀great฀brands฀in฀one฀restaurant.
Not฀surprisingly,฀when฀you฀think฀about฀it,฀our฀customers฀tell฀
us฀they฀prefer฀multibranding฀over฀single฀brands฀because฀
it฀provides฀more฀choice฀and฀convenience฀under฀one฀roof.฀
For฀example,฀if฀someone฀doesn’t฀want฀chicken,฀they฀can฀
have฀tacos,฀thereby฀canceling฀a฀veto฀vote.฀The฀response฀
we฀hear฀most฀often฀from฀our฀customers฀who฀experience฀
multibranding฀is,฀“What฀took฀you฀so฀long?”
As฀a฀result,฀multibranding฀is฀becoming฀a฀big฀business฀for฀
Yum!,฀accounting฀ for฀ 14%฀ of฀our฀U.S.฀traditional฀ restau-
rant฀base฀and฀an฀estimated฀$224฀million฀in฀U.S.฀company฀
store฀profits฀and฀franchise฀fees.฀Sales฀of฀our฀new฀multi-
branding฀restaurants฀are฀typically฀$250,000฀a฀year฀higher฀
than฀our฀single฀brands฀and฀same฀store฀sales฀for฀restau-
rants฀opened฀more฀than฀a฀year฀are฀also฀higher.
To฀ give฀ you฀ a฀ historical฀ perspective,฀ we฀ started฀ with฀
combinations฀ of฀ KFC/Taco฀ Bell฀ and฀ Taco฀ Bell/Pizza฀ Hut฀
Express.฀We฀learned฀that฀we฀were฀able฀to฀add฀significant฀
incremental฀average฀sales฀per฀unit,฀dramatically฀improving฀
unit฀ cash฀ flows.฀ Our฀ franchisees฀ then฀ pioneered฀ multi-
brand฀combinations฀by฀pairing฀KFC฀and฀Taco฀Bell฀with฀Long฀
John฀Silver’s,฀the฀country’s฀leading฀quick-service฀seafood฀
restaurant,฀and฀A&W฀All฀American฀Food,฀which฀offers฀pure-
beef฀ hamburgers฀ and฀ hot฀ dogs฀ along฀ with฀ its฀ signature฀
Root฀Beer฀Float.฀Based฀on฀outstanding฀customer฀feedback฀
and฀ results,฀we฀acquired฀ Long฀John฀ Silver’s฀ and฀A&W฀in฀
2002.฀With฀this฀acquisition฀we฀significantly฀expanded฀our฀
multibranding฀potential฀in฀the฀U.S.
We฀ can฀ now฀ open฀ high฀ return฀ new฀ restaurants฀ in฀ trade฀
areas฀ that฀ used฀ to฀ be฀ too฀ expensive฀ or฀ did฀ not฀ have฀
enough฀population฀density฀to฀allow฀us฀to฀go฀to฀market฀with฀
one฀brand.฀With฀multibranding,฀we฀believe฀we฀can฀eventu-
ally฀take฀both฀KFC฀and฀Taco฀Bell฀to฀8,000฀units฀in฀the฀U.S.฀
compared฀to฀the฀over฀5,000฀each฀we฀have฀today.฀
I’m฀happy฀to฀report฀2004฀was฀another฀year฀of฀solid฀prog-
ress฀for฀multibranding.
Our฀ KFC/Taco฀ Bell฀ concept฀ had฀ solid฀ same฀ store฀ sales฀
growth฀and฀achieved฀parity฀margins฀with฀our฀single฀brands.฀
Taco฀Bell/Long฀John฀Silver’s฀is฀showing฀promise฀with฀high฀
volume฀and฀good฀margins.฀Given฀the฀results,฀we฀will฀begin฀
to฀more฀aggressively฀expand฀ this฀ combination.฀While฀it’s฀
too฀ early฀ to฀ make฀ a฀ call,฀ we฀ have฀ expanded฀ testing฀ of฀
our฀new฀Long฀John฀Silver’s/A&W฀combos.฀Given฀the฀soft-
ness฀in฀KFC’s฀core฀business,฀we฀have฀delayed฀expansion฀
of฀multibranding฀ in฀company฀stores฀until฀we฀improve฀our฀
operations.฀However,฀our฀best฀KFC฀franchise฀operators฀are฀
continuing฀to฀develop฀multibrand฀units.
After฀seeing฀the฀power฀of฀multibranding,฀our฀Pizza฀Hut฀team฀
successfully฀ created฀ and฀ tested฀ its฀ own฀ multibranding฀
concept฀ for฀ home฀ delivery฀ called฀ WingStreet,฀ which฀ is฀ a฀
tasty฀line฀of฀flavored฀bone-in฀and฀bone-out฀chicken฀wings.฀
We฀also฀took฀the฀menu฀and฀learnings฀from฀our฀Pasta฀Bravo฀
acquisition฀ and฀ created฀ Italian฀ Bistro฀ as฀ a฀ partner฀ brand฀
with฀Pizza฀Hut’s฀traditional฀dine-in฀restaurants.฀Again,฀early฀
results฀are฀extremely฀promising.
We฀are฀now฀confident฀the฀ potential฀ for฀ multibranding฀ at฀
Pizza฀Hut฀ is฀ as฀ strong฀ as฀ it฀ is฀ for฀ our฀ other฀ brands.฀ In฀
fact,฀ our฀interests฀and฀capabilities฀to฀take฀advantage฀of฀
the฀multibranding฀opportunity฀for฀all฀our฀brands฀has฀never฀
been฀greater฀than฀it฀is฀today.
However,฀our฀biggest฀challenge฀for฀multibranding฀remains฀
the฀ same.฀ We฀ must฀ continue฀ to฀ get฀ better฀ and฀ better฀
at฀ building฀ the฀ operating฀ capability฀ to฀ successfully฀ run฀
these฀restaurants.฀And฀the฀plain฀fact฀is฀it’s฀harder฀to฀run฀
a฀ restaurant฀ with฀ two฀ brands.฀ With฀ more฀ variety฀ comes฀
more฀ complexity,฀ so฀ we’ve฀ been฀ dedicated฀ to฀ improving฀
the฀ capability฀ of฀ our฀ people฀ to฀ deliver฀ our฀ customers฀ a฀
great฀experience.฀We฀have฀simplified฀our฀ back฀of฀ house฀
systems฀and฀are฀reducing฀costs฀by฀value฀engineering฀our฀
facilities,฀ while฀ at฀ the฀ same฀ time฀ offering฀ more฀ exciting฀
building฀designs.฀
Again,฀this฀is฀an฀opportunity฀we฀created฀and฀is฀unique฀to฀
Yum!฀and฀again,฀we฀continue฀to฀ have฀first฀mover฀advan-
tage.฀Our฀operational฀learnings฀put฀us฀well฀ahead฀of฀the฀
Multibranding฀is฀becoming฀฀
a฀big฀business฀for฀Yum!,฀฀
accounting฀for฀14%฀of฀our฀
U.S.฀traditional฀restaurant฀฀
base฀and฀an฀estimated฀
$224฀million฀in฀U.S.฀
company฀store฀profits฀
and฀franchisee฀fees.
4