In recent financial updates, Yum Brands Inc., the parent company of renowned fast-food chains like KFC, Pizza Hut, and Taco Bell, reported its earnings that fell short of Street estimates. Showing a worrisome sinking trend, the fast food juggernaut also reported same-store sales declines across multiple brands.
A closer look into Yum Brands’ earnings report showed adjusted earnings per share of 87 cents on revenue of $1.44 billion, a clear shortfall of the expected earnings per share of 95 cents on revenue of $1.45 billion projected by analysts.
Yum Brands attributed this disappointing decline in profits largely to the same-store sales decline of its chains KFC and Pizza Hut. Same store sales, often regarded as a crucial indicator of a company’s health, are sales at all store locations that have been open for at least one year.
Starting with KFC, despite having a global footprint, the restaurant chain witnessed a 2% drop in the same-store sales internationally. The U.S.- based stores, although performed better relative to the international ones, could only muster up a mere rise of 1%, falling short of the projected 3.4%. Such sideswipes are not only alarming for the brands individually, but also command serious contemplation for Yum Brands as a whole.
Moving on to Pizza Hut, the decline in figure is even stark. Same-store sales for Pizza Hut dropped by a substantial 6% globally. The US market, which commands a considerable share in the brand’s total sales, registered a drop of 3%, sharply missing the anticipated decline of 0.6%. This is a significant fall for the pizza chain, which had been trying to refurbish its image and drive in more customers with a new menu and marketing initiatives.
The saving grace amidst this otherwise somber financial report was Taco Bell, the only one to post an increase in same-store sales out of the three major brands. It reported an increase by 4%, outpacing the projected rise of 2.8%. Despite this positive development, Taco Bell’s performance couldn’t compensate for the losses incurred by KFC and Pizza Hut.
One key aspect behind this underperformance of both KFC and Pizza Hut, according to market analysts, may have been the aggressive competition in the fast food industry, intensified by the on-going pandemic. Customers are increasingly leaning towards brands that offer fresher, cheaper and speedily delivered food, something both KFC and Pizza Hut have struggled with recently.
Furthermore, the impact of COVID-19 could not be ignored as it has been crippling restaurant operations worldwide, with stringent lockdowns and reduced consumer spending marking the industry throughout most of last year.
Going forward, Yum Brands’ strategy to improve sales across its portfolio involves augmenting digital capabilities and innovation in food and technology. However, given the current challenges, it would require more than just targeted strategies for Yum Brands to bounce back and beat the odds in a continually evolving market circumstance.
