Yum! Focuses On Emerging Markets Overseas, Will Sell LJS, A&W

As we went to press Jan. 18, Yum! Brands announced plans to sell its Long John Silver’s and A&W All-American Food Restaurants concepts. The company is in the process of identifying possible buyers for the chains’ 1,630 restaurants, all of which are owned and operated by franchisees. With the company’s sharpened focus on international expansion, “We do not believe Long John Silver’s and A&W All–American Food restaurants fit into our long–term growth strategy,” said David C. Novak, Yum! Brands chairman and CEO. “Accordingly, we have decided to put these two great brands up for sale and we will complete the sale only once the right buyer or buyers have been identified and we can ensure a seamless transition.”

Yum!’s long-term strategy is global in nature. Emerging overseas markets have been overshadowed by Yum! Brands’ success in China, but the company is putting more emphasis on the potential of Yum! Restaurants International. The Louisville, Ky., company, which counts more than 37,000 restaurants worldwide under its KFC, Taco Bell and Pizza Hut brands, told an investors conference earlier this month that emerging markets in Asia and Africa would likely drive 40% of forecasted 2010 profits. Yum! expects operating profits from international operations to account for 75% of the company’s overall profit by 2015, according to the presentation at the Cowen & Co. Consumer Conference in New York.

Tim Jerzyk, Yum!’s sr. v.p.-investor relations, said the emerging markets in YRI’s portfolio would see the potential customer base double to nearly 2 billion by 2020.

YRI projects about 900 new restaurants in 2011. The Asian market is ripe for unit growth, Jerzyk added, citing in particular Indonesia, Malaysia and Vietnam. From ’05-’10, the annual growth rate for system sales rose 21% in YRI’s 800-unit market in Indonesia; sales rose 13% in Malaysia’s 780-unit market and 54% in Vietnam’s 102-unit market. Another bright spot is India, where YRI just reached the 100-unit milestone. “We’re well on track in India to match KFC’s early development pace from China,” Jerzyk said.

Africa will be a major emerging market in the years to come. South Africa, where KFC already enjoys a 44% market share, will be a major base for YRI’s expansion on the continent. “There are a billion people in Africa, and their protein of choice is chicken on the bone,” Jerzyk said. “This market is definitely set up for KFC.”

While Yum! doesn’t expect to match its market penetration in the United States–about 60 restaurants per 1 million people—with other countries, the contrast illustrates the company’s potential for growth. Yum! has 2.7 restaurants per million people in China, 0.2 units per million people in India and 1.7 units per million people in the rest of the top 10 emerging markets.

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