Pizza Hut 2009 Annual Report Download - page 9

There’s no question 2009 was a very disappointing year for our US business. Overall our
same store sales declined 5% as we grew prots only 1%, led primarily by a restructuring
initiative we took the prior year which yielded a $65 million decrease in our general and
administrative expenses. Nevertheless, we remain condent we’re taking the right steps
to deliver stronger brand positioning, higher returns and consistent growth performance
to tap the inherent sales opportunity and ultimate value in our 18,000 restaurants. And
the good news is we have the marketing strength to do so with category leading brands
along with outstanding unit economics on a stand-alone basis. We also have a system
that generates a steady earnings stream of over $700 million in franchise and licensing
fees. As we go forward, our strategy is to better leverage our large US restaurant asset
base and all our restaurants around the world with what we have coined “incremental
sales layers” in these ve areas:
1) More options for consumers across our menu
2) More contemporary beverage options & unique desserts
3) Expanded dayparts, especially breakfast
4) Broader protein offerings
5) Contemporary assets
Every December we host our annual investor meeting. In 2009, we intentionally chose
to highlight the fact that “85% of our prots are generated in China, Yum! Restaurants
International and Taco Bell US.” In particular, we wanted to drive home the fact Taco Bell
is our big US growth engine, accounting for over 60% of our US prots and consistent
net unit growth with lots of potential. While Taco Bell is coming off a year when same
store sales were down 1%, we had very strong prots and signicantly improved our
operating margins.
You might be surprised to learn Taco Bell is already the second most protable brand in
the US, one of the many reasons why we are so bullish about this brand’s future. This
success is driven by the uniqueness of our food and the brand reputation for giving
our customers everyday low prices and an amazing amount of food for the money. This
number one value image was fortied this past year with our “Why Pay More!” offerings
that start at 79 cents. With branded value as our foundation, in the next few years we
intend to bring the “sales layer” strategy to life with the introduction of the Drive-Thru
Diet, featuring 9 items under 9 fat grams; launching more proteins including shrimp and
pork to complement our beef, chicken and steak; attacking the snacking dayparts by
expanding our Frutista line of beverages as we add desserts; introducing a Fiesta Family
Meal that bundles our products up for a take home dinner; and perhaps most exciting
of all, bringing Taco Bell value to the breakfast occasion. The bold goal is to ultimately
leverage our assets like McDonald’s has done, 24 hours a day. While all this marketing
sizzle is exciting, I’m especially pleased with the signicant improvement we are making
with the blocking and tackling of operations. The leading independent industry survey
has consumers ranking us #2 overall as the best drive thru with top tier performance
in both speed and accuracy. At the same time we have a remodeling program that is
generating solid sales and returns which is helping us refresh our assets to complement
our drive for new units. Given strong unit protability, we actually grew net new units in
2009 and believe that as we add new “sales layers,” we have the potential to go from
nearly 5,200 units to Burger King levels of at least 7,500 over time. We are absolutely
convinced Taco Bell is on its way to being an even better and bigger brand in every way.
That said, I want you to know we are also absolutely passionate about addressing the
challenges of both Pizza Hut and KFC. In a year when all areas of the restaurant industry
showed transaction declines, the dinner occasion showed the greatest decline as
consumers chose to save money and eat at home. This had a signicant impact on both
Pizza Hut and KFC because the pizza and chicken categories were the hardest hit. But
we take accountability as well for some self-inicted wounds we need to heal.
#3
Dramatically
Improve US
Brand Positions,
Consistency
and Returns.
Taco Bell is
+60%
of our US prots,
with lots of potential
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