i\ *.- lildAinsnraF 100t. Itll\r M.'k rtlc to Kcc| o Lodgilc r 1001. H?ttt\ t1o 1l>l,n ln5 wlaaAor Ir)lcnsc cortrl)ctition, slorv slnrc-storc salt,s, and a sluggish cconoml, lravc plagucd quick-scrvicc rcstau- rant (QSR) chains for scvcral ycars. By |unc 2003, l\'lcDonald's santc-srore sales had fallcn for cach of the prcvious twclvc months, with the first quartcr of 2003 p1eiu6i19 N.{.Donald's lirst quarrerly loss sincc bccoming a public company, in 1965.1 Bascd on fif- tccn ycars of ntarket and demographic trcnds, \'lcKinsey and Contpany consultants projected that thc fast-food segment. of the industry would grow revcnucs by just I perccnt a )rar ovcr tlre ne\1 eight '1cars, lcss rhan halfthc 2003 ratc.2 Among thc largest rcstaurant chains, aggressive efforts to retain their nrarkct shares led to excessive discounting. To regain prolitabilirv, they have moved arvay from pricc dis- counting and are scrutinizing potential site locations, r-rpgradrng menus and dicor, investing in training programs for crcw members, and developing cus- tonrer-lovaltv markcting programs.l Ytrnt! Brands Inc., with three top-tcn chains, is onc olthc nrajor plal'ers in thc highly conrpetitil,e fasr, tood scgnrent ofthe industr,v and is the worldt largesr reslaurani company with 33,000 stores in more than 100 countics.l The other large holding companies with nrultiple brands include McDonald\ Corporation, Diageo PLC, B_rinlier lnternatioDal, CKE Restaurants, \\tendy's lnrernational, Dardcn Restaurants, Allied Do;lccq Quick Servic4 Qq512ur.rtt, Ourback Steaklrouse, and AFC Enterprises_ fbgcther th€se large \\tiflcn b! Prof.ssor Cathv A. Enz of Corncll Univcrsitv This cai. was qrittcn es rhc basis for class discussion. Thc Gvcnts dcrribcd .rc not inrcndd ro illu3r.at. .irhcr cffecliv. <rr inclT.di\t man-_ a8cnr.nr pradiics. conrpalics accounl for $107.5 billi<tn i:r salcs, or iLS pcrccnt oI total rcstaurant industry salcs.s Thc rop 400 Iargcst clrains rcporrcd a toral sal..s gain of 5.6 pcrccnr in 2002 for a toral of $207.6 bil_ lion. McDonald's was at thc rop of rhc list rtirh around $40.5 billion in sales, followed by Burqcr King with $t t.3 billion. Thc rhird and fourth larg.,sr chain restaurants werc Kentucky Fried Chicicn (KFC) (SI0.3 billion sales) a'.ld ptzza Hut ($7.8 bi)- lion sales), both owned b1,yum! Brands_6 Wlrile rht, burger segmcnt is the largest, accounting for :i-i., pcrceirt of the top 400 chains'saies, the fastest gror,._ ing segntcnt is coffec/snacks, which includcs con_ cepts lile Starbucks and Krispy Kreme Doughnurs. The maturing of the fast-food indusrry h.rs forced the key players ro rcthink rhcir slrategies an.l rcinvcnt their operations. Managenrenr rcorganir.r_ tion, new product development, aggressivc ntarker, ing, and strategic i-edirection helped the indusrrr lcaders rebound in larc 2003.:UcDonald's sanre-strrr., sales rr'ere flat in 2001 and dropped l-5 percenr irr 2002. Horvever, in October 2003 the corporarion posted irs strongest monthly U.S. salcs gain in lir.<, 1ears, rrith a 15 percent increase afier an er1ensir.., global reorganization of senior managcment. \^tend)'s International Inc. attribured custom.r r-esponse to the chain's nerv Homcstvle Chickerl Strips as one explanation for its reported sanre-storc sales iump of.7.6 perce-nt during the same period_s tn spite of recent sales turnarounds, sonre observers rvonder if fast food will continuc to pros. per given changing consumer tastes and recenl obesitl larvsuits.9 Burger King, the second fargest tasi food chain in the United Statcs, has struggled in Multibranding at yum ! Brands lnc.: Thinking Outside the Bun 5t I
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i\*.-
lildAinsnraF100t.
Itll\r M.'k
rtlc to Kcc|
o Lodgilc
r 1001.
H?ttt\ t1o 1l>l,n
ln5 wlaaAor
Ir)lcnsc cortrl)ctition, slorv slnrc-storc salt,s, and asluggish cconoml, lravc plagucd quick-scrvicc rcstau-rant (QSR) chains for scvcral ycars. By |unc 2003,l\'lcDonald's santc-srore sales had fallcn for cach ofthe prcvious twclvc months, with the first quartcr of2003 p1eiu6i19 N.{.Donald's lirst quarrerly loss sinccbccoming a public company, in 1965.1 Bascd on fif-tccn ycars of ntarket and demographic trcnds,\'lcKinsey and Contpany consultants projected thatthc fast-food segment. of the industry would growrevcnucs by just I perccnt a )rar ovcr tlre ne\1 eight'1cars, lcss rhan halfthc 2003 ratc.2 Among thc largestrcstaurant chains, aggressive efforts to retain theirnrarkct shares led to excessive discounting. To regainprolitabilirv, they have moved arvay from pricc dis-counting and are scrutinizing potential site locations,r-rpgradrng menus and dicor, investing in trainingprograms for crcw members, and developing cus-tonrer-lovaltv markcting programs.l
Ytrnt! Brands Inc., with three top-tcn chains, isonc olthc nrajor plal'ers in thc highly conrpetitil,e fasr,tood scgnrent ofthe industr,v and is the worldt largesrreslaurani company with 33,000 stores in more than100 countics.l The other large holding companies withnrultiple brands include McDonald\ Corporation,Diageo PLC, B_rinlier lnternatioDal, CKE Restaurants,\\tendy's lnrernational, Dardcn Restaurants, AlliedDo;lccq Quick Servic4 Qq512ur.rtt, OurbackSteaklrouse, and AFC Enterprises_ fbgcther th€se large
\\tiflcn b! Prof.ssor Cathv A. Enz of Corncll Univcrsitv This cai.was qrittcn es rhc basis for class discussion. Thc Gvcnts dcrribcd.rc not inrcndd ro illu3r.at. .irhcr cffecliv. <rr inclT.di\t man-_a8cnr.nr pradiics.
conrpalics accounl for $107.5 billi<tn i:r salcs, or iLSpcrccnt oI total rcstaurant industry salcs.s
Thc rop 400 Iargcst clrains rcporrcd a toral sal..sgain of 5.6 pcrccnr in 2002 for a toral of $207.6 bil_lion. McDonald's was at thc rop of rhc list rtirharound $40.5 billion in sales, followed by BurqcrKing with $t t.3 billion. Thc rhird and fourth larg.,srchain restaurants werc Kentucky Fried Chicicn(KFC) (SI0.3 billion sales) a'.ld ptzza Hut ($7.8 bi)-lion sales), both owned b1,yum! Brands_6 Wlrile rht,burger segmcnt is the largest, accounting for :i-i.,pcrceirt of the top 400 chains'saies, the fastest gror,._ing segntcnt is coffec/snacks, which includcs con_cepts lile Starbucks and Krispy Kreme Doughnurs.
The maturing of the fast-food indusrry h.rsforced the key players ro rcthink rhcir slrategies an.lrcinvcnt their operations. Managenrenr rcorganir.r_tion, new product development, aggressivc ntarker,ing, and strategic i-edirection helped the indusrrrlcaders rebound in larc 2003.:UcDonald's sanre-strrr.,sales rr'ere flat in 2001 and dropped l-5 percenr irr2002. Horvever, in October 2003 the corporarionposted irs strongest monthly U.S. salcs gain in lir.<,
1ears, rrith a 15 percent increase afier an er1ensir..,global reorganization of senior managcment.\^tend)'s International Inc. attribured custom.rr-esponse to the chain's nerv Homcstvle ChickerlStrips as one explanation for its reported sanre-storcsales iump of.7.6 perce-nt during the same period_s
tn spite of recent sales turnarounds, sonreobservers rvonder if fast food will continuc to pros.per given changing consumer tastes and recenlobesitl larvsuits.9 Burger King, the second fargest tasifood chain in the United Statcs, has struggled in
Multibranding at yum ! Brands lnc.:Thinking Outside the Bun
5t I
I
srz i caser '.'LT.BRAND.NG
AT YUH! BMNDS lNciTHlN(lNG ourslDE THE 'uN
rcccnt ycars. Diageo PLC, an intcrnational brcwing ln rcfcrcncc to thc hcaltlry-dining consumcr"'No mat-
".i'rpi'rli" *"gf""rcratc, sold thc chain in thc fall of tcr what wc do," hc says' "wc won't bc ablc to attract
2002 for a low pricc of $l.6 billion.lo tn fact, an csti- thosc PcoPlc lo thc Goldcn Archcs-"|9 McDonald's also
.-"i tt lo 20 p"r."nt of Burgcr King franchisccs owns a 33 pcrcent sharc in Prct A Mangcr' a frcsh-
rvcrc lrchind on royalty paymcnts, althoJgh thc chain sandwich corccpt' wilh an oPtion to buy rhc chain
*"r:"n-ur.g.a- ln iob3 by s"lcs .rf thc-n$v low-fat ourrighr in 2005.16 \^/ith a rcccnt rcvitalizrtion plan,
chickcn baguittc linc.ll Ncvcrrhclcss, onc of llurgcr McDonald's lropcs to attract ncw custonlcrs' cncour-
ii,rg, f".g""rt ft"".hisccs' AmcriKing, with 120 units' agc cxisting customcrs to visit nrorc oftcn' and crcatc
.""r"in ctr'"p,". ll bankruptcy in 2013 and intcndcd brand loyalty. Thc plan includcs upgrading scn'icc'
,,r r"tt i,. "n,ira
portfolio of rcstatrrants l2 inlProving traininS' and crrlrancing thc tastc and rclc-
.l.lrc first Arrrcricans to gro\{ up with fast food, varrcc of its footl.lT Tlrc chairr rvill focus its brantl k1 -
thc baby-boonr gcneration (iridividuals t'orn alty on yor.rng adults' kids' and monrs )inr Qotalulxr'
bctwccn 1946 and 1964), havc maturcd and arc McDolald's chairnlan and chicf cxccutivc officcr'
secking altcrnativc dining options. Thc cnrcrgence explaincd thc plan as follows:
and rapid growth of thc "quick casual" scgment it n'h.r, *" embarkcd upon our rcvitaliza-cvidcncc of rhis rrend. Quick-casual r€staurarts tron plan earlier this year, we announccdprovidc limitcd or sclf-scrvicc conccpts, usually fca- that in 2003 wc would sharpcn our focus
turing"upscalc" nrcnu items such as gourm€t souPs' and takc the actions nccessary to oPti-salads, and sandwiches.ls As thc baby boomcrs mize the business. W-e've madc progress
scarch for fresher and more nulritious food' fast roward this goal with October markingcasual chains such as Pancra Brcad Co', Atlanta the first firl-*onlh that our unirecc-Brcad Co., Cosi lnc., Cafd Express LLC, Corner dented "i'nr lovin'it" campaign reachcd
Balicry Co. and Pci Wei Asian Diner are capturing custonlcrs around thc gloLe. This ncwIunchtime. Most fast-food chains havcresp6ndcd by brand positioning is bringing a ncrv atti-altcring their menu itcms, adding salads' and chang- tud" and en".gy io life foi our customcrs
ing ingredients. Market Fresh sandwiches' intro- and crew. The management changes rve
duced by Arby's, and artisanal breads at Subw"y' announced carlicr this rveck arc another
Quiznos Sub, and Togo's Eaterics are just a lew examplc ofhow we are making rhe best
examples of product innovations ln luly 2003, Taco ur. oi ou. t"l"nt,nd resources. DuringBcil introduced its "Outside the B-un" Caesar salad the fourth quartcr, we rvi.ll rake addi-and a chicken Caesar grilled stuffed burrito. Thc rional actions to re'iralize rhc business.' burriro contains grilled all-r.'hite-meat chicken' These will inclucie making decisionsromaine lettuce, crunchy r€d lorrilla striPs, and a
related to our Partner Brands and implc-Caesar drcssing, wrapped in a toflilla.l{.Analysts menting the rccently announced plans
attribute N'[cDonald's line of premium salads as a tbr reviializing our business in lapan.
maior factor in its mid-2003 rebound'. These actions, along with the comi.letionAs pari of its strategy, McDonald's has made a of annual in.rpairn.rlnt testing, willr€sult
u".iety of inte.tm"nts in fast-casual concePts, includ in charges in the fourth quarter 2003.ts
ing the. acquisiiion of Boston N'tarket, Chipotle -
t lilc"n Grilt, and Donatos Pizza- Boston MarLt, a Muitiple branding is likely to bE: pan of the
-quick-casual concePt, was purchased in 2000' and future for all of the major plaryers as they rethink their
McDonald's immeiiately began a turnaround effort strategies' While McDonald's strategy has been ro
rhat induding remodeling stores ind tbe menu- Russ develop icbrands separately, tlre company could capi-
SmJ'th, a senior manager rcponsibll for the fast-casual talize on cobranding in thc future' ln contrast' Yum!
activities at McDooald's, notes that rhesc partnerships Brands lnc. is bening on a multibranding srrategy, i4
enable ttrc firm to rcach a diffcrent type of consumir' which the 6rnr puts more than one of its brands into
ct
ioll-inIl,lI-rtc
thc sanrc storc in thc hopc of raising salq5 snd lqvcrag-
ing opcrating cfficicncy. This Fortrrttc 100 comPany'
baicd in Louisvillc, Kcntucky. is ablc to cxccutc a nrulti-
branding stralcgy casily bccausc it olxratcs {ivc rvcll-
carnings of ovcr $l billiorr itt intcrnatiorral prolit.conrparcd to Yutrr! Ilrand's $400 rlilliorr anci llurgcrKing's $50 nrillion.22
Thc brands tlrat drivc intcrnational grorvth arc
primarily Kl:C wilh 6,800 rcstltrranls an<l l)izza lltrtrvitlr 4,400. \\/ill) a 8o.rl ol doublint (hc rrurttbcr ,rl
inlcrnationxl rcslaurirtls b1' 2013, Yunr! llr;rntls is
focuscd on China, ]r'lcxico, thc Utritcd Kingdont, arttl
South Korca.l'hcsc four countrics rcccivc thc ltajor-iry of thc {irm's capitai invcstnlcnts bccausc of high
rcturns-21 Brand operations in China includc
approximatcly 800 KFCs and 100 Pizza lluts. Thc
company has carcfully positioncd itsclf in China
rvith rhc largcst real cstatc tcam of any company in
any indusrry and a distribution systcm thal givcs itcovcragc in cvcry nla;or provincc-and hcnce acccss to
n'rosr of China's 1.3 billion residcnts. Olhcr Parts ofthc rgorid offer challcnges, as the firm tries lo gct ulro scalc in Contincntal Europc, particularly in
Gernrany ',vith KFC, and in lndia r^rith Pizza Hut A
rcccnt joinl r'cnture in Brazil r.'ill help cxpand thc
KFC brand in South AmericaSincc 1999, the corporation has bccn strategicall)'
rcducing its sharc of total s1'stenr units by sclling
dirccrors is comPoscd of thirtcen individuals, with
lwo from Yum! Brands, hvc from rctail companics
likc Targct CorPoration and Kohl's Supernrarkets'
"n.l ,noilr". fivc fronr banks or invcstmcnt firms 27
l'lrc othcr mcmbcr is thc chairnran of thc board ofllarnran Mauagcrrlcnt CorPoration, onc of KFC's
largcst franchisccs. David C. Novak' thc clrairrrrnn of
thc board and chicfcxccutivc officcr ofYunl! Brands,
scrvcd as Prcsidcnt of thc conlpany and was a brand
group prcsidcnt for KFC and Pizza Ilut whcn thcy
rucrc owncd bY Pcpsi-Cola.Ibrrr of tlrc Yunll brltrtls arc global lcadcrs irr
tlrcir catcgorics of chickcn' scafood, ltizza, and
rrvE LGADTNG REsrruRANr sR\Nos | 5 I 5
Mcxican food- As a pcrccntagc of QSR catcgorysalcs, Yum! Brands holds 65 Pcrccnt irt lhcMcxican-stylc catcSory wilh Taco Bcll,46 Pcrccntin chicken with KFC, J3 pcrccnt in scafood withLong John Silvcr's, and, l5 f'crccnt in pir-za rvith
Pizza llut.26 Although a sntallcr playcr in thc largc
hamburgcr scgntcnt, A&w is thc lotrgcst-runningquick-scrvicc rcstauraot in Amcrica. 1'hc to;rtwcnty-fivc quick'scrvicc clrains' salcs and unilvolunres arc shown in Exhibit 3. As lhc lablc indi-catcs, four of thc brands arc in thc to| lwcnt)'-llvcin thc quick-scrvicc scctor'
lcvcragc our cxisting asscts that havc lowcr volunrcs
lhan say a Mcl)onald's for instancc."50 Early cfforts at
cobranding wcrc conrbinations of KFC-Taco llclland Taco llcll-l'izza llut. -lhc nct rcsult of thcsc
t'fforts was thc addition of l>clrvccn 5100,000 antl
S4(X),(X)0 pcr trnil in .tvcraq.c salcs incrcascs- C)nc
franchiscc. l,arr1' l)ttrrctt' Irrcsidcttl of Sotrthcrn
Mtrltilrxrtls, lrrc., opctrcd thc lirst cotrratrdc'd fitcolScll-l.ong Ioltn Silvcr's atr<1 cxplaitrs rvhl' nrulti-brancling is such a porrcrlitl idcl for franchist'cs.
\.lrrltiblanLling lr.rs r clr:rrtralic inrp:tct orl
tlrc .:rrstorttct. lt's a l>.rrricr_ltrt'akcr forllruilics, tttc:Ining thlt sotllctirlcs kids
likc to cat diffcrcnt things than adults. Il
vou'vc got an A&W/Long lohrr Silvcr's'
likc rvc do in Soutlr Tcxas, you can scc
how it offcrs sonlclhing for cvcryonc.
)v'lorc globalll', though, if 1'ou havc a
KI:C/Taco llcll,1'ou n.right gcl sonrconc
who wants a taco one day and who will\unrc Lld(l tltc ttclt dal for ihickcn\Mrcn u,c add volunre to thcsc rcstau-
rants lhrouglr multibranding, wc add
incrcmcntal profits that rrc could nolhavc gottcn any other u'ay. For cxanlplc,
if yorr takc a good restaurant-iikc a
5900,000 Taco Bell-and add a $400,000
Long lohn Sih'er's, You have added
irrcrenrcntal profits that rtould bc
inrpossiblc lo gct anv othcr.ta,r'.51
Stxrn thc cotnpanl'bcgan to t11'conrbinations o[Kl:C and Taco Bcll rvith Long lohn Silver's and AS\V.
llcfore thc acquisition of Yorkshire GlobalR,--staurants, the t\{o Parent companics engaged i:l
four 1'ears of partnering rr'ith multibranding. Testing
rhc conccpt r"irh cighty'thrie KFC-A&\\'units, six
KFC-Long John Silvcr's oPcrations, and thrcc Taco
Bcli-l ong lohn Sih'cr's galc Yum! an oPPotlunrl) to
expcrincnt rvith thc conccpt. lt r.,as not until thc
concep( had ficlded positivc results that Yum!
tlrands acquired \brkshire CIobal. Yunl! CEO David'Novak plans to aggressivclv drivc Yunr!'s gro\{h Nithnruhibranding, arguing, "Multibranding is going totranslbrm rhc industr,r'- Consunters do rsant nlorechoice-'52 Nor., r.'ith thc addilion of the trvo ncw
1'hc goals, as statcd by CEO David C. Novak, arcto rakc both KFC and l'aco Bcll ro rhc disrriburionlcvcls of llurgcr King, which has 1t,000 unirs in rhcUnitcd Statcs and to lravc volutncs of al lcast $l_ltrrilliorr Pcr rcslauritnl.60 Thc corupant o|crllc.inrorc lhan 1,975 multibrand rcstaurar)ls r.,orltlvitlc.wlriclr gcncrarc salcs of $1.2 billion cach 1,crrr. lrlroIcs-.to rrrorc than triplc its cobrandccl units by2007.61 Exltil)it 7 shorvs tlrc nunrtrcr of rrrulribrande.ir('sl:ruranls b1' corrcc|t coDtltinalion.
Thc latcst cxpc.imcnts includc thc partncring ofPizza Hut with thc fiftccn-unit fast-casual Pasta
Bravo chain, hcadquartcrcd in Aliso Vicjo,California.62 Pasta llravo scrvcs a varicty of frcshlyprcparcd pasta dishcs fanrily stylc- Mcnus includc a
$12.95 buckcl of splghcrti and ntcal sau(c scrvingforrr to six pcoplc. Thc partncrslrip is in thc form ofa Iiccnsing agrccnrcnt, in rvlrich linritcd tcsts in pri-nlarily fra nch iscc-ol)cra lcd dinc-in urrits will dctcr-rlinc rvhcthcr this pairirrg is viablc for cxpansiotr.
THE FUTURE
Should Yunrl Brands partrter or acquirc anothcrquick-scrvice or a fast-casual cbain? Wltat rcould bc
a good rrcnu catcgory to add to thc currcnt porlfo-lio? "lf 1,ou pair a hot cmcrging brand with a provelonc, in a rcal estatc contcxt that alrcady has strongdrar.'ing powcr, you can takc advantagc of complc-mentary naturcs for frequcncy, reach and freshncss,"
according to Sarah Palisi-Chapin, CEO oftlre restau-
rant rcscarch and dcvelopmcnt firnr Enersyst.6l\ltrile thc fast-food industry strugqles to rcinvcntrtself and hold on ro thc afflucnt, quality-drivcn baby
boonrcrs, ncw. conccpts may necd to bc dcwlopedfor the emerging Gcneration X and Y palatcs. If so,
hor.,should Yr-rnr! Brands expcriment with its multi-plc branding?
Notes
l. \\:ho Molcd M.DonilJ's Cheesc? Dttf?.r, 6 ll.i;!,r 1,1.1ti,
,une 2003.l.2. r{. B. Horn. e. A. Ledet. and S- Rauch. Fast Food llitt thc
Brakcs.'' Mr&rrsr1, Qra't.rb' 1 12002): e.
L S. Hum..'Back lo thc Future, R.naurdflri + Irtr;rrriod5. liluly 2003,20.
l8 I'lcDon.ld s Rctorrr Rccord Ocrol:cr Srlcs Up r8,x, and
Iurrhcr Srcfs in Rrvilaliz:rion Irlan, l,rcss litl$rc.http://wwr*.mcdonalds €onr /(o r po ra rc/prc'r/fin!n-cial/2001/l 1072001/indcx html, 25 Novcnrbcr 2001.
19. Yuml Brands lnc., A\nual Rcpon fu 2002., Tri.on ClotelRcsrauranrs, A,xra? R.po lot 2001.