Pizza Hut 2006 Annual Report Download - page 5

and excluding last year’s extra 53rd week. This resulted
in YRI achieving record operating profit of $407 million.
YRI operates in over 100 countries and territories outside
of China and the U.S., and we have averaged about 4%
net new unit development annually. The great thing about
YRI is that 85% of the business is owned and operated
by franchisees who are generating almost $500 million in
franchise fees, requiring very little capital on our part, and
opening up 90% of the new restaurants.
As with China, YRI has a huge upside in terms of inter-
national expansion. KFC and Pizza Hut already are global
brands. Yet we only have 6,600 KFC and 4,700 Pizza Hut
restaurants in countries that have a combined population
of four billion people — so obviously that’s got long-term
global growth written all over it.
There’s no question YRI is a diverse, high-return business.
Witness the fact that we opened 785 new traditional res-
taurants across six continents last year. That’s the seventh
straight year of this level of new unit growth. We’re focused
on profitably driving international expansion in three global
arenas — franchise-only markets, established company-
operations markets, and emerging, underdeveloped mar-
kets with huge populations.
When you examine our franchise business, these restau-
rants generated franchise fee growth of 11% in 2006,
in local currency and excluding the 53rd week. I want to
especially recognize some great franchise business units
for their exceptional system sales growth in 2006: Asia
+10%, Caribbean/Latin America +13%, Middle East/
Northern Africa +19%, and South Africa +25%.
The single biggest competitive advantage we have at
YRI is that we already have our global infrastructure in
place with over 750 dedicated franchisees. Our only major
competitor is McDonald’s. And when you think about the
future, this gives us a great head start because it takes an
enormous amount of time and money to really establish
our brands on an international basis. In fact, other major
for growth in mainland China. We believe KFC can be every
bit as big in China as McDonald’s is in the U.S., achieving
15,000+ units; Pizza Hut Casual dining can equal the casual
dining leader in the U.S., Applebee’s, achieving 2,000+ units;
Pizza Hut Home Service can equal category-leader Domino’s
in the U.S., achieving 5,000+ units; and East Dawning is tap-
ping into the Chinese equivalent of the hamburger category.
So who knows how high is up? In total, we believe we have
the potential for over 20,000 units down the road. Of course,
as my father has pointed out to me many times, potential
means you haven’t done it yet, but that’s what has us so
excited. It’s out there for us to go do!
With all the optimism in China, the other question I get
is “What can go wrong?” Well, in the past three years,
we have weathered SARS, the avian flu, and an ingredi-
ent supply issue, with each having significant negative
impacts. Of course, events like these are always a possi-
bility. One thing I’m sure of is we will undoubtedly have our
ups and downs, but as I said last year, and I’ll say it again,
there is no doubt in my mind that one day we will have
more restaurants and more profits in China than we do in
the U.S. We will continue to push the pedal to the metal in
this great country.
CHINA DIVISION KEY MEASURES: +20% OPERATING PROFIT
GROWTH; +18% SYSTEM SALES GROWTH; 400 NEW UNITS/YEAR.
Drive Profitable
International Expansion!
Yum! Restaurants International (YRI) had one of its best
years ever in 2006, delivering system sales growth of +9%
and operating profit growth of +12%, both in local currency
#2
Some day, we believe we’ll
have more restaurants and profits
in China than in the U.S.
YRI is a diverse,
high-return business,
opening 785 new
traditional restaurants
across six continents
last year.
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