Business_Analysis_Yum_Industries

Business Analysis Part II: Yum! Brands University of Phoenix MGT 521 Bob d’Alessio Quick Service Restaurant The quick service restaurant industry is highly competitive and saturated. Yum! Brands has .8% of the market share. The quick-service segment faces strong competition from other segments, such as convenience and food stores, as well as the impact of higher energy costs and the economic slowdown on consumers’ discretionary dollars. According to the Restaurant, Food & Beverage market Research handbook there is more than 960,000 restaurant and foodservice locations in the United States. The restaurant share of the food dollar is approximately 48%. The industry employs over 12.9 million people. According to the National Restaurant Association (www.restaurant.org), total restaurant industry sales are projected to reach $631.8 billion in 2012, an increase of 3.5%, or 0.8% on an inflation-adjusted basis. Sales reached $610.4 billion in 2011. The global restaurants sector is fragmented with the four largest competitors McDonalds, Sodexo, Compass and Yum! Brands contributing to competition levels. Yum! Overview Yum Brands is a multinational company that conducts business in over 120 countries. Founded in 1977, headquarter in Louisville, Kentucky it operates franchisees and licensees KFC, Taco Bell and Pizza Hut. Yum is the world’s largest quick service restaurant with over 37,000 units worldwide. Each restaurant is operated by a franchisee or licensee ranging in size from sole-proprietor to large publically traded company. Yum! Brands own non-controlling interest Chinese entities similar to KFC franchises and Little Sheep Limited in Mongolia, China. The China division is based in Shanghai, China and is made up of 4,500 restaurants; Pizza Hut and KFC. Revenues for 2011 for the China Division were $5.6 Billion and operating profit of $908 million. Revenues for the International division based in Dallas, Texas were $3.3 Billion with operating profit of $673 million. The international division is made up of KFC and Pizza Hut franchises, approximately 15,500 restaurants. Domestic revenue from the 18,000 U.S. restaurants was $3.8 billion with operating profit of $589 million in 2011. Revenue Yum’s total revenue increased from $11.3 billion in 2011 to 12.6 billion in 2011, an increase of 1.3 billion or 11% over the previous year. Revenue is not the only financial analysis to use when determining the financial health of a company. It is also important to understand how the company reduces cost. We can use margins to evaluate how efficient the company is at reducing costs. Yum’s gross margin for 2011 was 14.38% slightly below the industry standard of 19.17%. . Management Efficiency It is also important to examine management efficiency. For the 12 months ending Dec 2011 Yum saw an increase a ROE of 72.35% almost double the industry standard. This demonstrates the Yum is increasing its net profit year over year. Solvency with a current ratio of .95 is slightly below industry standards of 1.2, but there is little risk that a quick service restaurant would need to liquidate. There does appear to be some efficiencies that could be gained by improving the turnover ratios that are below industry standards. Inventory turnover is 46 well below the industry standard of 95. However the receivable turnover rate of 50 is closer to the industry standard of 57. YUM' Brands, Inc | | | | |   | 2009 | 2010 | 2011 | INDUSTRY | Liquidity Ratios | | | |   | Current ratio | 0.73 | 0.94 | 0.95 | 1.20 | Quick Ratio | 0.36 | 0.69 | 0.61 | 1.10 | | | | |   | Financial Leverage Ratios | | | |   | Debt to Equity | 3.19 | 2.28 | 1.82 | 2.02 | |   |   |   |   | Profitability Ratios | | | |   | Operating profit margin | 14.67% | 15.60% | 14.38% | 19.17% | Net Profit Margin | 98.80% | 10.21% | 10.45% | 13.38% |   |   |   |   |   | Return on Investment |   |   |   |   | Return on assets | 14.98% | 13.92% | 14.93% | 14.20% | Return on equity | 104.49% | 73.48% | 72.35% | 37.81% |   |   |   |   |   | Management Efficiency |   |   | | | Inventory Turnover | 88.8 | 60.0 | 46.3 | 95.4 | Receivable turnover | 45.3 | 44.3 | 50.0 | 57.8 | Figure 1: Financial Ratios Source: Yum! Brands Annual report Technology YUM! has taken advantage of technology to improve its bottom line through communication, online training, online ordering technologies, digital signage and even automating oil management. Yum’s people first philosophy is demonstrated in the use of technology for training worldwide. YUM! uses an e-learning tool called the “Learning Zone “ to train over 1.4 million employees worldwide. Before the implementation of the “Learning Zone” each franchise had its own set of binders that may or may not have been the current version of processes and procedures used by the company. As a result of better access to standardized training there has been marked improvement in customer service scores in the Pizza Hut division. As Yum looks forward they are looking to merge the learning tool with the current social platform. iChing Yum! franchisees were having difficulty accessing best practices and sharing product innovation across the business. IChing was developed to address the problem. Built using Jive Software’s Social Business Software, it includes wikis, blogs, meeting minutes, project plans and internal websites, along with various kinds of data. One example of how iChing has increased business is the success of the frozen line of beverages called Krushers in India. The idea originated in Australia. The iChing capabilities have made communication easier, faster and bring employees together to share product ideas. Yum! is also using technology to provide faster service for its customers. Order Apps More customers are using phone and internet applications to conduct business. Pizza Hut customers not only can order online they can now order using web enabled cell phones. This helps decrease the traditional pho9ne traffic when callers have the chance of getting a busy signal. Those using self-ordering channels often spend more leading to higher average sales per ticket. It is a win for the business in higher sales and for the consumer a more convenient way to place an order. Digital signage is providing a new and more cost effective way to manage minus. Digital signage allows for a quicker reaction to menu and price changes. TOM KFC has also implemented technology to make handling its fryer oil safer and cleaner. Restaurant Technologies Inc Total Oil Management (TOM) uses a closed loop system that allows for oil maintenance without manually handling the oil. It uses a web based portal to provide managers with reports showing usage, quantities, oil quality, and filtration data. Mangers only need an internet connection to access the information. Competitors Yum!s competitors look to maintain competitive advantage by leveraging technology. McDonalds the industry leader in quick serve restaurants has implemented e-learning to train employees. They were the first to replace cash registers with touch screens. In Europe McDonald’s is planning to install touchscreens and wipe cards to enable customers to self-order. McDonald’s also offers free Wi-Fi to its customers. McDonalds tends to be first mover in the quick serve food industry when it comes to using and implementing new technologies in its restaurants. In a global market technology is essential to creating a dynamic business model. Globalization Globalization has led to growth opportunities for Yum!. Two of Yum’s cores strategies are related to global expansion. “Build leading brands in China in every significant category and Drive aggressive International expansion and build strong brands everywhere”. (Yum! annual report, 2011) In 2011 Yum added 656 new restaurants in its China division with same store growth in sales of 19%. 101 new restaurants were opened in India. Yum has also entered the market in the countries of Zambia, Ghana and Kenya in Africa with plans to enter 7 new countries by the end of this year. Globalization has allowed Yum Brands to grow internationally as the business became sluggish in the U. S. Part of Yum’s strategy is to focus on revitalizing the domestic market by refranchising company owned stores. The ability to grow globally has allowed Yum to offset declining sales in the U. S. market with growth in sales globally. Benchmarking Benchmarking against it competitors McDonalds, Sodexo, and the Darden group Yum can put into place best practices to continue to grow its business. McDonalds is the leader in the quick serve industry. McDonald’s franchises use e-mac digital to purchase everything needed to run the restaurant. UFPC (Unified Foodservice Purchasing Co-op) is the exclusive supply chain management organization for Yum! Brands, Inc. UFPC negotiates volume purchases of equipment, food, packaging, and other supplies from manufacturers and suppliers for purchase by operators and distributors who supply operators. Value meals are a menu option that offers low price items ala cart. KFC, Taco Bell, Pizza Hut and McDonalds all offer a value menu. Employee training programs have been identified as a valuable tool to increase sales and customer satisfaction. E-learning programs have been implemented across the Quick service industry. Conclusion As quick service restaurants continue to grow globally, technology in the restaurant business will be a vital part of reducing cost and appealing to customer needs and demands. If economies continue to struggle quick service restaurants will be affected by shrinking disposable income. A continued focus on price points will enable Yum! as well as other market leaders such as McDonalds to continue to grow revenue with a larger majority of sales coming from international franchises. Quick service restaurants continue to be a good stock investment. References Baker, R. (2011). McDonald's explores digital touchscreens. Marketing Week (01419285), 34(20), 4. Innovation is on the Menu: Technology moves McDonald's forward. (2005). Nation's Restaurant News, 118. MARKET SUMMARY. (2012). Restaurant, Food & Beverage Market Research Handbook, 20-26. Nash, K. S. (2011). Recipe for Collaboration. Cio, 24(12), 17-18 ResLauber, R. (2012). Alone We're Delicious; Together We're Yum!. T+D, 66(4), 42-47. Restaurants Industry Profile: Global. (2012). Restaurants Industry Profile: Global, 1-37. Baker, R. (2011). McDonald's explores digital touchscreens. Marketing Week (01419285), 34(20), 4. YUM! Brands. (2011).  Yum Annual Report. Retrieved from http://www.yum.com Yum financial statements Retrieved fromhttp://finance.yahoo.com/ Appendix A Income Statement | | | | All numbers in thousands | Period Ending | Dec 31, 2011 | Dec 25, 2010 | Dec 26, 2009 | Total Revenue | 12,626,000   | 11,343,000   | 10,836,000   | Cost of Revenue | 9,140,000   | 8,120,000   | 7,934,000   | | Gross Profit | 3,486,000   | 3,223,000   | 2,902,000   | | | Operating Expenses | | Research Development | -   | -   | -   | | Selling General and Administrative | 1,536,000   | 1,407,000   | 1,209,000   | | Non Recurring | 135,000   | 47,000   | 103,000   | | Others | -   | -   | -   | | | | Total Operating Expenses | -   | -   | -   | | | | | | Operating Income or Loss | 1,815,000   | 1,769,000   | 1,590,000   | | | | | Income from Continuing Operations | | | Total Other Income/Expenses Net | -   | -   | -   | | | Earnings Before Interest And Taxes | 1,815,000   | 1,769,000   | 1,590,000   | | | Interest Expense | 156,000   | 175,000   | 194,000   | | | Income Before Tax | 1,659,000   | 1,594,000   | 1,396,000   | | | Income Tax Expense | 324,000   | 416,000   | 313,000   | | | Minority Interest | (16,000) | (20,000) | (12,000) | | | | | Net Income From Continuing Ops | 1,319,000   | 1,158,000   | 1,071,000   | | | | | Non-recurring Events | | | Discontinued Operations | -   | -   | -   | | | Extraordinary Items | -   | -   | -   | | | Effect Of Accounting Changes | -   | -   | -   | | | Other Items | -   | -   | -   | | | | | | Net Income | 1,319,000   | 1,158,000   | 1,071,000   | | Preferred Stock And Other Adjustments | -   | -   | -   | | | | Net Income Applicable To Common Shares | 1,319,000   | 1,158,000   | 1,071,000   | | | | | | | | | | | | | | Balance Sheet | Dec 31, 2011 | Dec 25, 2010 | Dec 26, 2009 | | Assets | Current Assets | | Cash And Cash Equivalents | 1,312,000   | 1,538,000   | 353,000   | | Short Term Investments | -   | -   | -   | | Net Receivables | 398,000   | 317,000   | 320,000   | | Inventory | 273,000   | 189,000   | 122,000   | | Other Current Assets | 338,000   | 269,000   | 413,000   | | Total Current Assets | 2,321,000   | 2,313,000   | 1,208,000   | Long Term Investments | 167,000   | 154,000   | 144,000   | Property Plant and Equipment | 4,042,000   | 3,830,000   | 3,899,000   | Goodwill | 681,000   | 659,000   | 640,000   | Intangible Assets | 299,000   | 475,000   | 462,000   | Accumulated Amortization | -   | -   | -   | Other Assets | 775,000   | 519,000   | 544,000   | Deferred Long Term Asset Charges | 549,000   | 366,000   | 251,000   | | Total Assets | 8,834,000   | 8,316,000   | 7,148,000   | | Liabilities | Current Liabilities | | Accounts Payable | 2,130,000   | 1,775,000   | 1,594,000   | | Short/Current Long Term Debt | 320,000   | 673,000   | 59,000   | | Other Current Liabilities | -   | -   | -   | | Total Current Liabilities | 2,450,000   | 2,448,000   | 1,653,000   | Long Term Debt | 2,997,000   | 2,915,000   | 3,207,000   | Other Liabilities | 1,471,000   | 1,284,000   | 1,174,000   | Deferred Long Term Liability Charges | -   | -   | -   | Minority Interest | 93,000   | 93,000   | 89,000   | Negative Goodwill | -   | -   | -   | | Total Liabilities | 7,011,000   | 6,740,000   | 6,123,000   | | Stockholders' Equity | Misc Stocks Options Warrants | -   | -   | -   | Redeemable Preferred Stock | -   | -   | -   | Preferred Stock | -   | -   | -   | Common Stock | 18,000   | 86,000   | 253,000   | Retained Earnings | 2,052,000   | 1,717,000   | 996,000   | Treasury Stock | -   | -   | -   | Capital Surplus | -   | -   | -   | Other Stockholder Equity | (247,000) | (227,000) | (224,000) | | Total Stockholder Equity | 1,823,000   | 1,576,000   | 1,025,000   | | Net Tangible Assets | 843,000   | 442,000   | (77,000) | | | . | | | | | Statement of Cash flows | Dec 31, 2011 | Dec 25, 2010 | Dec 26, 2009 | Net Income | 1,319,000   | 1,158,000   | 1,071,000   | | Operating Activities, Cash Flows Provided By or Used In | Depreciation | 628,000   | 589,000   | 580,000   | Adjustments To Net Income | (8,000) | (82,000) | (207,000) | Changes In Accounts Receivables | (39,000) | (12,000) | 3,000   | Changes In Liabilities | 253,000   | 165,000   | (157,000) | Changes In Inventories | (75,000) | (68,000) | 27,000   | Changes In Other Operating Activities | 76,000   | 198,000   | 75,000   | | Total Cash Flow From Operating Activities | 2,170,000   | 1,968,000   | 1,404,000   | | Investing Activities, Cash Flows Provided By or Used In | Capital Expenditures | (940,000) | (796,000) | (797,000) | Investments | (81,000) | (62,000) | (139,000) | Other Cash flows from Investing Activities | 15,000   | 279,000   | 209,000   | | Total Cash Flows From Investing Activities | (1,006,000) | (579,000) | (727,000) | | Financing Activities, Cash Flows Provided By or Used In | Dividends Paid | (481,000) | (412,000) | (362,000) | Sale Purchase of Stock | (693,000) | (269,000) | 113,000   | Net Borrowings | (262,000) | 313,000   | (332,000) | Other Cash Flows from Financing Activities | (43,000) | (38,000) | (20,000) | | Total Cash Flows From Financing Activities | (1,413,000) | (337,000) | (542,000) | Effect Of Exchange Rate Changes | 21,000   | 21,000   | (15,000) | | Change In Cash and Cash Equivalents | (228,000) | 1,073,000   | 120,000 |