Jibbin Abraham ● Eric Chow ● Dan Malinovsky ● Dan Pragdat
Dean's Mentoring Program 2013 Presentation
Jul 05, 2015
For the Dean's Mentoring Program Case Competition, our team devised a plan for Yum! Brands to expand to India. Specifically, we recommended that the company uses the Taco Bell brand to target college students outside of Tier 1 cities across the country.
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Jibbin Abraham ● Eric Chow ● Dan Malinovsky ● Dan Pragdat
How can we replicate the huge success in
China?
Seamless Cultural
Integration
Strong Supply Chain
India
Tapping into key population
areas
Our Recommendation
1. Expand the Taco Bell brand
2. Utilize Pizza Hut’s existing and expanding supply chain to support new Taco Bell restaurants
3. Focus on colleges and universities as gateways to non-metropolitan areas
The Taco Bell Advantage
• Accommodate Vegetarian Population –30%
• Easily Customizable
• Preference for Spicy Foods
• Blends Western and Indian Cultures easily
Example Menu Item - Chili PaneerQuesadilla
• Flavorful, spicy, and vegetarian – The Perfect Combination
• Draws Indian youth to Western ideas while keeping up with Indian traditions
The Key is Higher Education
3971050
1954
2752
4925
8399
16975
0
2000
4000
6000
8000
10000
12000
14000
16000
18000
1950-51 1960-61 1970-71 1980-81 1990-91 2000-01 2010-11
Stu
de
nt
Enro
llme
nt
Years
Student Enrollment ('000') in Higher Education
Source: UGC
State Metropolitan Population Non-metro Population
Andhra Pradesh 12,057,856 76,007,405
Bihar 2,046,652 101,757,985
Chandigarh 1,025,682 29,004
Chhattisgarh 2,186,632 23,353,564
Delhi 16,314,838 438,397
Gujarat 14,033,692 46,349,936
Haryana 1,404,653 23,948,428
Jammu and Kashmir 1,273,312 11,275,614
Jharkhand 3,659,170 29,307,068
Karnataka 8,499,399 52,631,305
Kerala 12,142,240 21,245,437
Madhya Pradesh 6,463,373 66,134,192
Maharashtra 29,935,411 82,437,561
Punjab 2,797,583 24,906,653
Rajasthan 5,212,530 63,408,482
Tamil Nadu 13,331,613 58,807,345
Uttar Pradesh 14,003,273 185,578,204
West Bengal 15,355,544 75,992,192
Grand Total 161,743,453 943,608,772
2011 Population for Key States
161,743,453 (15%)
943,608,772 (85%)
2011 Population Comparison for Key States
Metropolitan Cities
Key States
Additional Considerations
No College Zone
State Capital Area (sq.km.) 2011 Population
Arunachal Pradesh Itanagar 83,743 1,382,611
Chhattisgarh Raipur 135,191 25,540,196
Jharkhand Ranchi 79,714 32,966,238
Manipur Imphal 22,327 2,721,756
Meghalaya Shillong 22,429 2,964,007
Nagaland Kohima 16,579 1,980,602
Total 359,983 67,555,410
Pizza Hut Supply Chain Expansion Zone
State Capital Area (sq.km.) 2011 Population
Bihar Patna 94,163 103,804,637
Goa Panaji 3,702 1,457,723
Himachal Pradesh Simla 55,673 6,856,509
Mizoram Aizawl 21,081 1,091,014
Tamil Nadu Chennai 130,058 72,138,958
Tripura Agartala 10,486 3,671,032
Total 315,163 189,019,873
Specific Exhibits of Strategy
• Kurukshetra University (Kurukshetra, Haryana, India)– University Population: 45,000– Surrounding Population: 964,231– Number of nearby Pizza Huts: 0
• Chaudhary Devi Lal University (Sirsa, Haryana, India)– University Population: 15,000– Surrounding Population: 160, 129– Number of nearby Pizza Huts: 0
• Guru Jambheshwar University of Science and Technology (Hisar, Haryana, India)– University Population: 5,000– Surrounding Population: 301,249– Number of Nearby Pizza Huts: 0
Sales Mix
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2011 2012 2013 2014 2015 2016 2017
Sto
re P
erc
en
tage
Store Mix (Percentage)
Taco Bell Pizza Huts KFC
0
50
100
150
200
250
300
350
400
450
2011 2012 2013 2014 2015 2016 2017N
um
be
r o
f St
ore
s
Store Mix (Total)
Taco Bell Pizza Huts KFC
0
100
200
300
400
500
600
700
800
900
1000
2011 2012 2013 2014 2015 2016 2017
Nu
mb
er
of
Sto
res
Franchised & Company-Owned Stores
Franchised Stores Company Owned Stores
Store Ownership Analysis
0
10
20
30
40
50
60
70
80
2011 2012 2013 2014 2015 2016 2017
Mill
ion
s o
f U
SD (
$)
Revenue Break-Down
Sales by Company-Owned Stores Franchise and License Fees and Income
Sales Break-Down 2011 2012 2013 2014 2015 2016 2017
Company and Franchisee Sales
Sales by Company-Owned Stores 61 76 59 61 64 68 72
Sales by Fracnhised Stores (Before Royalty) 175 217 270 309 354 398 449
Total 236 293 329 370 418 466 521
Company Net Sales
Sales by Company-Owned Stores 61 76 59 61 64 68 72
Franchise and License Fees and Income 21 26 32 37 42 48 54
Total 82 102 91 98 107 115 126
NPV Analysis
Free Cash Flows to Firm 2011 2012 2013 2014 2015 2016 2017
Company Net Sales 82.0 102.0 91.0 98.0 106.7 115.3 125.7
COGS & Operating Expenses 82.0 103.0 76.2 75.8 76.4 76.6 77.5
EBITDA 0.0 -1.0 14.8 22.2 30.3 38.7 48.3
Add Depreciation and Amortization 5.0 6.0 8.0 8.8 9.7 10.6 11.5
Subtract Taxes 0.0 -0.3 4.4 6.7 9.1 11.6 14.5
Subtract Capital Expenditure 23.0 20.0 -0.3 0.6 0.7 0.8 0.9
Subtact Increase in Net Working Capital -0.5 -0.3 0.2 -0.1 -0.1 -0.1 -0.2
Free Cash Flows to Firm -17.5 -14.4 18.5 23.9 30.4 37.1 44.6
Project Value
WACC 11.26%
Terminal Growth Rate 1.71%
Terminal Value 278.4
Present Value of FCFF
2013 2014 2015 2016 2017 TV
16.6 19.3 22.0 24.2 26.1 163.3
Intial Investment at 2012 -85.0
Net Present Value of India Initiative 186.6
Sensitivity Analysis
WACC
187 11.0% 11.1% 11.2% 11.3% 11.4% 11.5% 11.6%
1.4% 190.1 186.6 183.1 179.8 176.5 173.3 170.2
1.5% 192.0 188.4 185.0 181.6 178.2 175.0 171.8
1.6% 193.9 190.3 186.8 183.3 180.0 176.7 173.5
1.7% 195.9 192.3 188.7 185.2 181.8 178.4 175.2
1.8% 198.0 194.2 190.6 187.0 183.6 180.2 176.9
1.9% 200.1 196.3 192.6 189.0 185.4 182.0 178.6
2.0% 202.2 198.3 194.6 190.9 187.3 183.8 180.4Term
inal G
row
th
Strong Growth
Taco Bell in India as
vegetarian market leader
Thinking outside of
major cities
Utilizing Pizza Hut’s existing and growing supply chain
Focus on colleges and universities as market
drivers
Appendix• April, F. (2012, September 04). Mcdonald's goes vegetarian — in india. Retrieved from http://
www.npr.org/blogs/thesalt/2012/09/04/160543754/mcdonalds-goes-vegetarian-in-india
• Babatunde, J. (2012, May 25). Fison chairman decries low fish production in nigeria. Retrieved fromhttp://www.vanguardngr.com/2012/05/fison-chairman-decries-low-fish-production-in-nigeria/
• Douglas, K. (2012, September 08). Five trends driving nigeria’s investment allure. Retrieved from http://www.howwemadeitinafrica.com/five-trends-driving-nigerias-investment-allure/20010/
• GasGasparro, A. (2011, Nov 23). Yum splits india into separate division, names new international CEO. Wall Street Journal (Online). Retrieved from http://search.proquest.com/docview/905646284?accountid=14168
• Fisheries. (n.d.). Retrieved from http://www.nigeriamarkets.org/index.php?option=com_content&view=article&id=123&Itemid=129
• India total disposable personal income . (n.d.). Retrieved from http://www.tradingeconomics.com/india/disposable-personal-income
• Kazmin, A. (2011). India's youth savour fast-food chains. FT.Com, Retrieved from http://search.proquest.com/docview/857495357?accountid=14168
• Kentucky fried fish hits vietnam. (2004, January 27). Retrieved from http://news.bbc.co.uk/2/hi/business/3434001.stm
• KFC kentucky fried chicken in nigeria marketing essay. (n.d.). Retrieved from http://www.ukessays.com/essays/marketing/kfc-kentucky-fried-chicken-in-nigeria-marketing-essay.php
• KFCc set to stretch competition in fast food business in nigeria. (2011, August 16). Retrieved from http://businessdayonline.com/NG/index.php/branding/26023-
• KFC to open 20 restaurants in nigeria during 2011. (2010, December 10). Retrieved from http://www.howwemadeitinafrica.com/kfc-to-open-20-restaurants-in-nigeria-during-2011/6232/
• Ma Maylie, D. (2012, Jan 10). Yum to add 100 KFC outlets in africa. Wall Street Journal (Online). Rtrieved from http://search.proquest.com/docview/914943583?accountid=14168
• RapRappeport, A. (2012). Yum to export chinese model to india. FT.Com, Retrieved from http://search.proquest.com/docview/1018386124?accountid=14168
Stores and Sales Projections 2011 2012 2013 2014 2015 2016 2017
Comparable Stores (Operating for at least one year)
Pizza Huts 187 245 312 342 372 392 402
KFC 166 218 278 278 278 278 278
Taco Bell 2 2 3 31 69 117 175
Total 355 466 593 651 719 787 855
New Stores (Less than one year)
Pizza Huts 58 67 30 30 20 10 0
KFC 52 60 0 0 0 0 0
Taco Bell 1 1 28 38 48 58 70
Total 111 127 58 68 68 68 70
Total Number of Stores
Pizza Huts 245 312 342 372 392 402 402
KFC 218 278 278 278 278 278 278
Taco Bell 2 3 31 69 117 175 245
Grand Total 466 593 651 719 787 855 925
Percent of Stores Owned by Company
Pizza Huts 1% 1% 1% 1% 1% 1% 1%
KFC 40% 40% 40% 40% 40% 40% 40%
Taco Bell 100% 100% 5% 5% 5% 5% 5%
Franchised Stores
Pizza Huts 243 309 339 368 388 398 398
KFC 131 167 167 167 167 167 167
Taco Bell 0 0 29 66 111 166 233
Total 374 476 535 601 666 731 798
Company Owned Stores
Pizza Huts 2 3 3 4 4 4 4
KFC 87 111 111 111 111 111 111
Taco Bell 2 3 2 3 6 9 12
Total 92 117 116 118 121 124 127
Grand Total 466 593 651 719 787 855 925
Additional Stores for the Next Five Years
Franchised Company-Owned Total
Pizza Huts 89 1 90
KFC 0 0 0
Taco Bell 233 9 242
Sales Break-Down 2011 2012 2013 2014 2015 2016 2017
Company and Franchisee Sales
Sales by Company-Owned Stores 61 76 59 61 64 68 72
Sales by Fracnhised Stores (Before Royalty) 175 217 270 309 354 398 449
Total 236 293 329 370 418 466 521
Company Net Sales
Sales by Company-Owned Stores 61 76 59 61 64 68 72
Franchise and License Fees and Income 21 26 32 37 42 48 54
Total 82 102 91 98 107 115 126
Free Cash Flows to Firm 2011 2012 2013 2014 2015 2016 2017
Company Net Sales 82.0 102.0 91.0 98.0 106.7 115.3 125.7
COGS & Operating Expenses 82.0 103.0 76.2 75.8 76.4 76.6 77.5
EBITDA 0.0 -1.0 14.8 22.2 30.3 38.7 48.3
Add Depreciation and Amortization 5.0 6.0 8.0 8.8 9.7 10.6 11.5
Subtract Taxes 0.0 -0.3 4.4 6.7 9.1 11.6 14.5
Subtract Capital Expenditure 23.0 20.0 -0.3 0.6 0.7 0.8 0.9
Subtact Increase in Net Working Capital -0.5 -0.3 0.2 -0.1 -0.1 -0.1 -0.2
Free Cash Flows to Firm -17.5 -14.4 18.5 23.9 30.4 37.1 44.6
Operating Assumptions 2011 2012 2013 2014 2015 2016 2017
Royalty as Percentage of Franchised Stores Sales 12%
Marginal Tax Rate 30%
Percent of Stores Owned by Company
Pizza Huts 1% 1% 1% 1% 1% 1% 1%
KFC 40% 40% 40% 40% 40% 40% 40%
Taco Bell 100% 100% 5% 5% 5% 5% 5%
Company and Franchise Sales Per Store 0.51 0.49 0.50 0.51 0.53 0.54 0.56
Growth -59.2% -2.5% 2.30% 1.96% 3.15% 2.59% 3.43%
COGS & Expenses as Percentage of Company-Owned Stores Sales 134% 136% 130% 124% 119% 113% 108%
D&A per Comparable Company-Owned Stores 1.41% 1.29% 1.35% 1.35% 1.35% 1.35% 1.35%
CapEx Per Additional Company-Owned Store 0.26 0.26 0.26 0.26 0.26 0.26 0.26
Net Working Capital -1.35 -1.67 -1.49 -1.61 -1.75 -1.89 -2.06
Percentage of Sales -1.64% -1.64% -1.64% -1.64% -1.64% -1.64% -1.64%
Project Value
WACC 11.26%
Terminal Growth Rate 1.71%
Terminal Value 278.4
Present Value of FCFF
2013 2014 2015 2016 2017 TV
16.6 19.3 22.0 24.2 26.1 163.3
Intial Investment at 2012 -85.0
Net Present Value of India Initiative 186.6
WACC
187 11.0% 11.1% 11.2% 11.3% 11.4% 11.5% 11.6%
1.4% 190.1 186.6 183.1 179.8 176.5 173.3 170.2
1.5% 192.0 188.4 185.0 181.6 178.2 175.0 171.8
1.6% 193.9 190.3 186.8 183.3 180.0 176.7 173.5
1.7% 195.9 192.3 188.7 185.2 181.8 178.4 175.2
1.8% 198.0 194.2 190.6 187.0 183.6 180.2 176.9
1.9% 200.1 196.3 192.6 189.0 185.4 182.0 178.6
2.0% 202.2 198.3 194.6 190.9 187.3 183.8 180.4Term
inal G
row
th
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