UNIVERSITY OF MUMBAI

PROJECT ON

GROWTH STRATEGIES BY YUM ! BRAND INC.

MASTER OF COMMERCE (ADVANCED ACCOUNTING)

SUBJECT: ADVANCED COST ACCOUNTING

SEMESTER 1 2012-13

In Partial Fulfillment of the Requirement under Semester Based Credit

and Grading System for Post Graduates (PG)

Programme under Faculty of Commerce

SUBMITTED BY

KAKUBHAI EBRAHIM MANNAN

ROLL NO: 10

PROJECT GUIDE

Dr. (Ms. ) Rajeshwary G

K.P.B.Hinduja College of Commerce, 315 New Charni Road, Mumbai

400004.

M.Com (ADVANCED ACCOUNTING)

1st SEMESTER

GROWTH STRATEGIES BY YUM ! BRAND INC.

SUBMITTED BY

KAKUBHAI EBRAHIM MANNAN

ROLL NO : 10

CERTIFICATE

This is to certity that Mr. Kakubhai Ebrahim Mannan of M.Com. Advanced Accounting Semester

1st [2012 - 2013] has successfully completed the project on “Growth strategies by yum !

brand inc.” under guidance of Dr (Ms.) rajeshwary G..

Project Guide -----------------------

Course Coordinator -----------------------

Internal Examiner -----------------------

External Examiner ------------------------

Principal ------------------------

Date: ---------------------

Place: Mumbai

DECLARATION

I Mr. Kakubhai Ebrahim Mannan the student of M.Com ( Advanced Accounting ) 1st Semester (

2012 – 2013 ), hereby declare that I have completed on project on ‘Growth strategies by yum !

brand inc’.

The Information submitted is true and original to the best of my knowledge.

Kakubhai Ebrahim Mannan

(Signature)

ACKNOWLEDGEMENT

The pleasure that follows the successful completion of an assignment would remain

incomplete without a word of gratitude for the people without whose co-operation the

achievement would have remained a distant dream. So I would like to intend my

immense in debtless to all of them who have guided and motivated me through my

research project.

I sincerely thank to all for their valuable contribution without which this project report

would have not reached its goal.

My sincere thanks go to my supervisor Dr. (Ms.) Rajeshwary G., under whose help and

guidance I could successfully complete my project.

I would also like to thank my faculty of Advanced Accounting for grooming me to with

stand the challenges of professional care

INTRODUCTION

YUM! Brands, Inc. (“YUM” or the “Company”) is the world’s largest restaurant company

in terms of system restaurants with over 34,000 restaurants in more than 100 countries

and territories operating under the KFC, Pizza Hut, Taco Bell, Long John Silver’s or

A&W All-American Food Restaurants brands. Four of the Company’s restaurant brands

– KFC, Pizza Hut, Taco Bell and Long John Silver’s – are the global leaders in the

chicken, pizza, Mexican-style food and quick-service seafood categories, respectively.

Of the over 34,000 restaurants, 22% are operated by the Company, 72% are operated

by franchisees and unconsolidated affiliates and 6% are operated by licensees.

YUM’s business consists of three reporting segments: United States, the International

Division and the China Division. The China Division includes mainland China, Thailand

and KFC Taiwan and the International Division includes the remainder of our

international operations. The China and International Divisions have been experiencing

dramatic growth and now represent approximately half of the Company’s operating

profits. The U.S. business operates in a highly competitive marketplace resulting in

slower profit growth, but continues to produce strong cash flows.

The following Management’s Discussion and Analysis (“MD&A”), should be read

in conjunction with the unaudited Condensed Consolidated Financial Statements

(“Financial Statements”), the Cautionary Statements and our annual report on

Form 10-K for the fiscal year ended December 30, 2006 (“2006 Form 10-K”).

Throughout the MD&A the Company makes reference to certain performance

measures as described below.

The Company provides the percentage changes excluding the impact of foreign

currency translation. These amounts are derived by translating current year

results at prior year average exchange rates. We believe the elimination of the

foreign currency translation impact provides better year-to-year comparability

without the distortion of foreign currency fluctuations.

System sales growth includes the results of all restaurants regardless of

ownership, including Company-owned, franchise, unconsolidated affiliate and

license restaurants. Sales of franchise, unconsolidated affiliate and license

restaurants generate

ABOUT YUM ! BRAND:

Yum! Brands, Inc., based in Louisville, Ky., is the world's largest restaurant company in

terms of system units with nearly 38,000 restaurants in over 120 countries and

territories and more than 1 million associates. Yum! is ranked #213 on the Fortune 500

List and generated more than $12 billion in revenue in 2011.  Our brands –

 KFC,Pizza Hut  and Taco Bell – are the global leaders of the chicken, pizza and

Mexican-style food categories.

The Yum! system includes four operating segments: U.S., International (Yum!

Restaurants International), China and India Divisions. Outside the United States in

2011, the Yum! system opened approximately four new restaurants each day of the

year, making it a leader in international retail development.

At Yum! we're building a vibrant global business by focusing on four key business

strategies:

Build leading brands across China in every significant category

Drive aggressive international expansion and build strong brands everywhere

Dramatically improve U.S. brand positions, consistency and returns

Drive industry-leading, long-term shareholder and franchisee value

Results for 2011 once again affirmed our consistent record of success with 14%

Earnings Per Share (EPS) growth, which marks the tenth straight year we delivered at

least 13% growth and exceeded our 10% EPS growth target. For the full year 2011, we

opened 1,561 new restaurants outside the U.S. Importantly, we achieved Return on

Investment Capital (ROIC) of 22%+ and continued to be an industry leader.

We're proud of the unique culture we've built, one that's filled with energy, opportunity,

and fun. We believe in our people, trust in their positive intentions, encourage ideas

from everyone, and have actively developed a workforce that is diverse in style and

background. Yum! is a place where anyone can, and does, make a differe

HISTORY

In October 1997, Yum! Brands was spun off from PepsiCo as Tricon Global

Restaurants, Inc. At that moment we established a singular goal from which we've never

wavered: To be the best in the world at building great brands and running great

restaurants. Over the past 13 years, our success has been driven by our focus on

building leading brands in China in every significant category; driving aggressive,

international expansion and building strong brands everywhere; dramatically improving

U.S. brand positions, consistency and returns; driving industry-leading, long-term

shareholder and franchisee value; and building a unique, fun culture led by people who

love the restaurant business. Along the way, we also broadened our focus beyond our

restaurants to important emerging issues of our global society such as our impact on

people, communities and the environment.

Our Future Back Vision is to Become the Defining Global Company that Feeds the

World through our famous recognition culture, dynamic, vibrant brands everywhere and

a company with a huge heart. From the very beginning, we had a passion to create a

company that would truly be great and lasting. We turned our passion into a roadmap,

one we call the Yum! Dynasty Growth Model, because dynasties endure and lead

through the generations. We believe that our customers' experience will never exceed

that of our team members. For that reason, our Dynasty Model starts with our people.

We know that people don't just play a role in our success - they are the reason for our

success.Our corporate values - what we call our How We Win Together 2   Principles  - are

built around a "People Capability First" philosophy and lay the groundwork for the way

we team together every day. These Principles and our Dynasty Growth Model help

guide and drive our Corporate Social Responsibility  work as well..

OVERVIEW OF YUM ! BRAND

Yum Brands Incorporated (YUM), incorporated in 1997, is a quick service restaurant

(QSR) with over 34,000 units in more than 100 countries and territories. Yum consists of

six operating segments: KF C, Pizza Hut, Taco Bell, Long John Silvers (LJS), A&W all

American Food Restaurants (A&W)and YUM   Restaurants International ( YRI). (Rueter,

2007)YUM also previously known as Tricon understands that successful marketing

strategies are required to remain on top of the competitive market. According author

M. K. Rich, "With the increasing competitive environment confronting businesses on a

global basis and the shrinking availability of investment capitol , many organizations are

looking to strategic alliances to be an instant solution for present marketing shortfalls.

Research has shown that several critical factors must be considered if an alliance is to

be proven in the market place. At the top of the list is compatibility between the two

organizations involved. The corporate cultures should be somewhat compatible if the

interface between the partners is to be effective." (M.K.Rich , 2003) "The basis of the

alliance should center on knowledge transfer as the main reason for its continued

operation. The linkages within the alliance can be unusual and creative provided one of

the two objectives is pursued, increased revenue, or reduced costs." (M.K.Rich

2003)Interclean's merger with Enviro –tech. need to be one of compatibility, to be

effective. Researching both companies to see where the gaps are, and the knowledge

transfer from each company that would fill in the gaps to make Interclean a top

competitive company in its like market.

Recommendations:

Yum! Brands should employ different strategies in its Unites States Division,

International Division, and China Division in order to improve performance and continue

expansion. First, as a general strategy, Yum! Brands should continue to focus on its

Chinese and international markets. Although Yum! Brands could attempt to capture a

larger market share in the United States, it seems that the United States fast food

industry is already well established and difficult to penetrate. Not only has McDonald’s

been able to maintain the largest share of the fast food market for years, but the

industry itself is already oversaturated with thousands of different other brands.

Focusing on the United States division, Yum! Brands should make efforts to sustain its

position as the second leading brand in the United States market. It should focus on

continuing to build its brand reputation. Domestic sales have been declining in recent

years, possibly due to the current economic situation. Yum! Brands is bouncing back

from the recession fairy quickly. To maintain and increase its revenue, it is vital that the

company focuses on sustaining its position in the fast food industry rather than driving

aggressive growth. Investing in fast expansion in the domestic market may actually hurt

Yum! Brands. In terms of geographic location, there would not be a benefit to increasing

the number of restaurants in any given area of the United States as most Americans

already have a McDonalds, KFC, Pizza Hut, or Taco Bell within a few miles radius of

their residence.

In the China market, Yum! Brands should employ a different strategy. The company

should strive to maintain dominance in China as the number one, largest and fastest

growing fast food brand in the country. Compared to the United States, where Taco Bell

is the leading brand, KFC and Pizza Hut are the branches that have been thriving in

China. Yum! Brands also have a first mover advantage as it was the first corporation

to introduce quick service, pizza, pizza delivery, and casual dining to China. It must

maintain its competitive advantage by continuing to grow at a rapid rate. It seems they

have already kept this in mind by pursuing nonstop expansion. Because China has a

huge population, the potential for building a strong customer base is substantial. By

introducing a new brand that sells traditional Chinese cuisine, Yum! Brands can capture

the older generation of Chinese consumers.

Although the company’s strategy in the United States has shifted towards targeting an

older crowd and the working population, consumer tastes in China may be had to alter

from traditional Chinese cuisine. Therefore, Yum! Brands will have more success by

focusing on a new generation of consumers. KFC and Pizza Hut need to establish a

strong reputation with the younger population, which has greater exposure to and

knowledge of Western culture. This will help the company to build up its brand

reputation and recognition in China. A solid brand reputation will allow Yum! Brands to

continue to push forward with rapid expansion and development. Yum! Brands are able

to maintain control over its Chinese restaurant units by limiting the number of franchised

stores. The number of franchises has actually decreased in the past few years, possibly

so that the company can better control its brand impression in a relatively new market.

The company should continue this strategy until it is well established as a leading brand

so that it can maintain the continued expansion of the Chinese market.

In the international realm outside of China, Yum! Brands should continue to push

forward into new growth markets. I recommend India as it represents a significant

opportunity for the corporation. Although it may take a large initial investment and some

losses for the company to penetrate the country and establish a strong brand name, in

the long run, India could be a very important and profitable market. From a religious

view, Yum! Brands have a large advantage over McDonalds in India because its main

food products in its leading brands do not focus on beef products. Since followers of the

Hindu religion considers the cow as a sacred animal, Yum! Brands can potentially

maintain a very large market share from this advantage and block McDonalds from

becoming a top competitor. Regarding all of Yum! Brands divisions, one of the biggest

challenges are health concerns such as obesity. To counter this, Yum! Brands should

introduce a variety of health conscious options into its menus. Although steps have

already been taken towards this objective, Yum! Brands needs to maintain and expand

the health conscious options. For example, I know Taco Bell over the past few years

has added a “Fresco” menu which offers products with less than nine grams of fat by

substituting a mixture of vegetables for cheese and sauces. Also, I know KFC has

added a grilled option for its chicken.

Another challenge for Yum! Brands is the prevalence of diseases and health risks that

are associated to food preparation such as E. coli and Avian Flu. The company should

take further steps to assure consumers that they are buying food products that will not

make them sick. Yum! Brands has already implemented a supplier system to guarantee

animal welfare and food safety. Yum! Brands formed the KFC Animal Welfare Advisory

Council, which researches ways to improve practices towards animal treatment and

advises its suppliers in humane procedures. Also, suppliers are carefully chosen,

evaluated, and rewarded through an internal tracking system. This system sets and

tracks standards of conduct across suppliers to ensure strict food quality and safety. It

focuses on pest control, operations and facility management, sanitation, manufacturing

practices and product protection. In response to the outbreak of Avian Flu, Yum! Brands

has installed strict guidelines in the handling and processing of their poultry. All of the

poultry purchased in China and the United States has not had contact with migratory

birds. The company has also placed biosecurity measures on their suppliers, and

currently conducts regular quality and food safety audits with almost all of its suppliers.

Consumers are probably not aware of the extensive actions taken to ensure food quality

and safety. To make them known to consumers, Yum! Brands should find a third party

sanitation company to conduct random audits at its restaurants. The results from these

evaluations would then be advertised in its restaurants and incorporated into their

advertising campaign so that the consumers can be assured that the food is safe and

clean.

Looking forward, Yum! Brands is in a strong position to maintain foreign expansion and

capture a large share of international market. Despite certain challenges it faces in the

domestic market, the company is financially healthy and should be able to sustain a

stable position within the global fast food industry.

Five Forces Model:

Porter’s Five Force Model includes the following: in the center is competition, on the left

are suppliers, on the right are customers, on the top is substitute products, and on the

bottom is entry barriers.

Competition:

First movers have gained significantly in the competition segment and it mainly is

because of brand recognition and loyalty. There are so many fast food chains,

often located in the same area so competition is hard. To this end, fast food

chains are constantly offering promotions, games, toys, or new menu items. Lots

of advertising is a must in the fast food industry. All of these considered makes

the competition aspect a strong force.

Suppliers:

This industry offers many suppliers so fast food chains have the option to shop

around and find the lowest costs available. There are many different suppliers

that are needed to run a fast food establishment so I would classify the suppliers

as a weak force because of the bargaining abilities.

Customers:

Customers are the most important part of a business so I would immediately

classify this as a strong force. Customers who purchase fast food mostly are

price conscious and have limited time. Therefore, they want convenience, choice,

and quality food and want it cheap.

Substitutes:

Some of the substitutes are pizza shops, delis, full service restaurants, and quick

and easy products from the supermarket such as frozen meals.

Entry Barriers:

This is a weak force because this a maturing market. The costs associated with

market entry are very high and brand loyalty for most customers has already

been established.

COMMITMENT OF YUM ! BRAND

Our commitment to our associates goes beyond just growing their professional skills.

For many of our team members, working in one of our restaurants is often their first job.

So we strive to develop their life skills - foundational abilities such as teamwork,

responsibility, problem solving, positive energy, and a relentless drive to serve and

satisfy customers - so they can grow to their full capability, be successful in whatever

they do, and achieve their dreams.

This commitment to people extends to the communities we serve across the world. CSR

is central to our ability to succeed in the marketplace and to be positive, responsible

corporate citizens. Because we're the largest restaurant company in the world and we're

passionate about helping people better themselves and their communities, we're

determined to address three critical challenges:

The health and nutritional needs of our consumers;

Feeding the world's hungry; and

Understanding and respecting the sensitive environmental and agricultural resources on

which our business depends.

METHODOLOGY

To define the scope of our second Corporate Social Responsibility (CSR) report, we

continue to examine the key areas of impact of our global business operations and

where we have the strongest ability to play a role

Our objectives for this report are to

1. Reinforce our global commitment to Corporate Social Responsibility;

2. Report on our performance to date;

3. Identify our future CSR direction and goals; and

4. Engage in constructive dialogue with our stakeholders.

Our company has a large global footprint that continues to grow. We are excited about

our business opportunities as we expand. At the same time we understand that we have

a duty to improve society and a responsibility to be a good environmental steward.

Through this report we will engage internal and external stakeholders for their

perspectives on our CSR efforts and impact. These discussions will help shape our

actions and communications.

Our approach to CSR is dynamic, global in focus, yet always rooted in a People-First

philosophy. We have worked diligently to understand the many CSR opportunities we

have worldwide, and to develop a strategy and structure to address challenges and

serve the world

Executive Summary:

This case analysis focuses on the strategic business management challenges that

espoused the spin-off from PepsiCo in 1997 which led to the creation of the Yum!

Brand; an independent company that operates under the Tricon Global Restaurant

chain that own and franchised Pizza Hut, KFC and Taco Bell brands worldwide. Yum!

Brand’s global sales from 36,000 outlets totaled US$11 Billion in 2008 (Yum! Brands,

2012). Yum! Brand is a Fortune 500 company that operates in 116 countries. Two units

of the Yum! Brand’s; KFC and Pizza Hut are the Market leader in their own segments.

The main strategic focus of this Organization is on portfolio management in individual

countries with the intent to develop strong market share in a number of high-growth

markets like Canada, Japan, China, UK, Australia, Korea and Mexico. Yom!’s

international strategy is also to capture reasonable market share in the continental

Europe, Brazil and India.

A close examination of the organization’s international strategy shows that Yum! Brands

have tapped into the opportunities offered by different countries by expanding their

investment worldwide and that has significantly increased the group’s profit. By

implication the Yum! Brands have been committed to strengthen their position in a set of

core international markets while also developing new markets where consumer’s

awareness and operation capabilities are weak. This hinges on consolidating multi-

branding as a strategy to future growth.

The key to the success of this strategy is the seamless multi-brand integration. This

basically entails the generation of a cutting edge integration processes to ensure

standardize operation strategies and customization to various market environments

which reinforces the company’s corporate objective of meeting customers taste and

preferences in those markets. David C. Novak is the chief executive officer of Yum!

Brands. He became the chairman of the board on January 1, 2001 and has done

quite impressively in steering the affairs of Yum! Brands..

Situation Analysis

The situation analysis constitutes the conceptual framework of this strategic case

analysis. It encapsulates into the problem and its definitions. The problem in this cases

analysis borders from challenges arising from the environment, industry and within the

firm associated with the application of relevant marketing strategies.

Environment:

The basic problems under this context are general business process conditions

associated with the situation on ground at the time of the spin-off. These problems are

analyzed systematically as the answer to the following strategic questions:

What is the state of the economy?

Before the spin-off that created Yum!, the corporate economy was characterized by

friction between management and franchisees under the old ownership by PepsiCo.

The slow growth rate of the United States population, proliferation of Fast-Food

businesses that has increased the availability of alternative products and intensified

competition coupled with increased cost of labor. I believe these undermined the full

utilization of corporate resources to maximize the full business potentials of the

business environment at domestic and international level. On a wider scope at the

global level the high capital outlays has been a major issue but with franchising many

businesses have been able to expand more quickly, minimize capital cost and

maximize return on capital invested.

What are the current trends in cultural and social values?

The creation of the Yum! Brands and the coming onboard of the new CEO David Novak

ushered in a paradigm shift from the topdown management approach to a new

management philosophy that focuses on providing support to the franchise base. Novak

created a new corporate culture that gave greater independence, resources and

technical support to the franchises. This trend Yum! Brands: Pizza Hut and KFC built

stronger morale and optimizes the corporate social valueof the entire brands.

What are the current political values and trends?

The new trend in management approach created the necessary platform for

optimization of organizational resources to boost morale and motivate the entire Tricon

Group to acquire Long John Silver’s and A&W All-American Food Restaurants. This

provided the launching pad for a multi-brand strategy that created multibranded units.

This strategy attracted larger customer base by allowing the units to offer broader

menu selection in a single location.

Is there any pending federal, state or local legislation that could alter the

environment?

From the available information in this case there is no pending federal, state or local

legislation that could alter the environment.

Any threats to the environment, and therefore the firm?

Basically there are certain threats to the environment which will equally pose threat to

the firm. These threats include:

Competition from rival business chains.

Use of cheaper technology by competitor.

Lower cost advantages from other competitors or imports.

Maturing categories, products, or services.

Deployment of Price wars by competitors.

Product substitution.

These issues analyzed above constitute the basic environment

problem that confronts the Yum! Brands.

RESPONSIBILITY YUM ! BRANDS

At Yum! Corporate Social Responsibility is our commitment to people, the environment

and society as a whole. Based in Louisville, Kentucky, Yum! Brands, Inc. is the world's

largest restaurant company in terms of system units with nearly 38,000 restaurants in

over 120 countries and territories and more than 1 million associates.

We're proud of the unique culture we've built, one that's filled with energy, opportunity,

and fun. We believe in our people, trust in their positive intentions, encourage ideas

from everyone, and have actively developed a workforce that is diverse in style and

background. Yum! is a place where anyone can, and does, make a difference.

The Industry:

The sector a business organization operates in has much influence to the effectiveness

of its operations and its profitability. Yum! Brands will be no exception to this. The

Yum! Brands: Pizza Hut and KFC recession lowered demands locally in the domestic

market while the various wars prosecuted by the United States and its allies pushed up

demands in some overseas market where US Forces are stationed. However, the

intense competition where to many food service chains appeal to the same customers

slowed down growth in sales and profit. To determine the extent of the effect of

the industry environment to these organizations I will like to analyze the following

questions.

What industry is the firm in?

Yum! Brands operates in the fast-food industry which is represented by eight major

segments comprising of sandwich chains, pizza chains, family restaurants, dinner

houses, chicken chains, grill buffet chains, non-dinner chains and other chains.

These segments of the industry provide various fast-food chains the opportunity to

invest and compete.

Which firms are the major competitors in the industry?

A careful look at exhibit 2 of this case on page 593 of Marketing Analysis, 10th Edition

by Paul Peter J & James H.D (2010) suggest that McDonald’s, Pizza Hut, Denny’s,

Golden Coral, Applebee’s, KFC, Panera and Starbucks are the major competitors.

What strategies have competitors been using and have they worked?

The competitors in this industry has applied various competitive strategies which

includes price strategy, promotion strategy and service delivery to develop competitive

advantage. McDonald’s adopted discount pricing, improved service and product quality

to attract new customers and it has been quite successful. Taco Bell improved drive-

through services and introduced varieties of new products. Denny’s opened new outlets

in suburban areas and Yum! Brands: Pizza Hut and KFC small towns and that drove up

its profit from fast food segment to 9%.

What are the relative strengths and weaknesses of the competitors?

The competitors of Yum! Brands have relatively certain strengths and weaknesses that

make the competition in the Fast –Food industry intense. The strengths of Yum! Brands

competitors emanates from the internal weaknesses and threats of Yum! Brands. The

observation from this case study revealed that Competitors like McDonald’s, Denny’s,

Applebee’s and Starbucks has benefited from the Yum! Brands increasing operating

cost due to the following factors which these competitors has tapped into and used it as

an opportunity to develop competitive advantages in such areas. These strengths to the

competitors include:

Higher cheese and gasoline prices.

Competitors Cheaper technology

Lower cost advantage of competitors or imports

Maturing categories, products, or services

Price wars

Product substitution

The biggest strength from the competitors is the ability to mimic Yum! Strategy and

menu items.

On the other hand Yum! Brands have cashed in on their competitors weaknesses to

develop competitive advantage. This weaknesses that Yum! has explored emanates

from the following:

Bad communication.

Diseconomies to scale.

Over leveraged financial position.

Low Research and Development.

Low market share.

Is there a threat of new competitors?

Yum! Brands: Pizza Hut and KFC There are threats to new competition arising from the

preexisting oversaturated market with many players. The degree of rivalry, threat of

entry, and threat of substitutes are all highly related to competition in the fast food

industry. Looking from the competition that already exists, it is fairly obvious when you go anywhere in the United states that the fast-food market is saturated. And since the

Yum Restaurants, Burger King's, McDonald's, and Wendy's are all somewhat equally

strong; it makes the competition that much more deadly that a new

entrant will find it difficult.

Threats:

Food safety outbreaks and diseases hinder sales and growth through negative

publicity.

Nutritional value concerns on publishing nutritional information.

High reliance on China allows the company to be subject to any relevant

changes in the Chinese market.

Changes in foreign currency exchange rates affect sales and profit.

Are there any substitute products in the industry?

The products in each industry segment are close substitutes. The sandwiches served

by each of the companies within the sandwich chain are all the same but with

modifications they become differentiated into various brands. The same thing is

applicable to the chicken menu served by KFC, Popeye’s Chicken, Church’s chicken,

Boston Market and the rest of the other competitors.

Opportunities:

Increase and maintain growth in a rapidly expanding Chinese market.

Penetrate other new growth markets such as India.

Target the youth to build up brand awareness.

Increase the number of health conscious menu options.

How much bargaining power do suppliers have in this industry?

Suppliers do not really have much bargaining power than the Fast-food companies. It is

quit evidenced in this case that supplier power is the only real area of strength for fast-

food companies. The implication of this is that Fast-food companies purchase only the

most basic of food items and have a number of suppliers to choose from when making

purchase decisions. Furthermore, it is necessary to point out that supplier resource, in

the form of the co-operations societies and integrated distribution network that have

been formed over the years, make the process easier and more cost-effective for the

Fast-food companies.

How much bargaining power do buyers have in this industry?

When it comes to buyer power, fast-food companies’ customers are extremely price

sensitive and can easily switch to a competitor at a slightest moment. On the positive

side, there are so many Yum! Brands: Pizza Hut and KFC potential customers that the

loss of any can easily be made up by adding another customer.

The Organization

The organization structure of Yum! Brands is such that supports the objectives of the

business, the management philosophy, financial condition, the organizational structure

and design as well as the corporate culture of the entire Fast-food chain. The

global management strategy adopted by Yum is a transnational management model

that allows the organization to integrate its global business operations through close

corporation and interdependence among its headquarters, operations and international

subsidiaries (franchises) through the use of appropriate information technology platform.

Yum! Through customization of products to meet local demands and preferences

allowed Taco Bell, KFC, Pizza Hut and other franchises to offer product that appeal to

the local market as a part of their menu items. Products like tacos, burritos, gorditas and

chalupas were offered in Mexico as a regular menu items alongside the traditional

Yum’s menu list. This organizational structure is like a hybrid of global and multi-

domestic strategies. Under the organization structure concept the following factors are

carefully analyzed.

What are the objectives of the firm?

Yum! Brands objectives basically reflects its goals to increase its turnover, maintain its

market leadership and deliver products and services that will satisfy the customers.

Yum! Brand commitment seeks to strengthen its position in a set of core international

markets while also developing new markets where consumer’s awareness and

operation capabilities are not strong enough. This hinges on consolidating multi-

branding as strategy to future growth. Yum! Brands: Pizza Hut and KFC The key to the

success of this strategy is the seamless multibrand integration.

What are the strengths of the firm?

In the course of this analysis I found out that there are not many specific resources that

the company has at its disposal. Technically speaking, this is as a result of the

industry which Yum! Brands operate in, which is very fragmented into many segments.

This notwithstanding, the Yum Brands has one powerful weapon that will be sustainable

for many years to come - national brand awareness. As the pioneers and market

leaders in the chicken, Mexican, and pizza segments of the Fast-food chain business,

Yum Brands has been able to trade on its name alone. Consumers are aware of their

product quality (along with the A&W and Long John Silver’s chains) and have

confidence that they will get a similar experience no matter where they are in the world.

Strong bargain power over suppliers is another major source of strength to Yum. This

implies that suppliers who want to land or maintain the big account, have to give the

Yum Brands what they want - at the price they want - or risk losing a major customer.

These two elements of brand image will allow the company to maintain its market

leadership for many years to come. I am quite sure the only way brands as strong as

Taco Bell, KFC, or pizza Hut could falter is through a health scare, merger and

acquisition, bad management, or a significant shift in consumer tastes. A look at the

more general resources at the disposal of Yum Brands shows the extension of the

brand image concept discussed above. To be candid, the marketing clout Pepsi wields

can be compared to only a few other consumer product companies. The implication of

this is that the corporate images of PepsiCo leveraged the Yum Brands and integrate

them into the culture of Pepsi, and more importantly its budget, thereby creating an a

strong economy of scale by its sheer size.

What are the constraints and weaknesses of the firm?

Another general capability that was instilled at Pepsi around the same time as the

commitment to marketing was the aggressive mentality perpetuated by Donald Kendall.

By constantly keeping Coke in their sights, Pepsi earned a reputation as a battler not

content with second place. This aggressiveness worked its way into the Yum divisions

in the form of decision independence for key managers of each division. However, this

aggressive capability will continue to have diminished sustainability as the six divisions

of Yum become more integrated. There are two final general capabilities brought up in

the HBS case that have become less important over time. The first, ability to shift food

preparation up the supply line, will continue to be a sustainable part of the business. By

using more and more prepackaged ingredients, the Yum locations will keep onsite costs

near the lowest possible. However, this once impressive ability has become more

commonplace in the last decade that its relative weight has seriously decreased despite

being sustainable. The other capability, being a "generalist in fast food" (by offering

delivery, carryout, and dine-in), suffers from this same reduced weight situation.

Moreover, it is not sustainable, now that numerous competitors offer similaroptions

Are there any real or potential sources of dysfunctional conflict in the firm?

In every organization there are bound to be conflict and Yum Brands is not an exception

to this. The potential source of conflict should emanate from each subsidiaries or units

prepondence over the rest of other units in respect of strategy initiation and allocation of

resources.

How is the marketing department structured in the firm?

There is no specific structure of the marketing department hence the franchises are

allowed to operate with the Yum’s organizational marketing framework. The Yum!

Brands marketing approach is focused on portfolio management in individual countries.

It’s international strategy is targeted at developing strong market share in high-growth

markets and strengthen its position in a set of core international market through an

aggressive marketing program.

The Marketing Strategy

Yum! Brands developed a set of controllable variables that should be managed to

satisfy the target market and achieve organizational objectives. Based on this case

analysis these controllable variables are classified into product, price, promotion and

place. This strategy is to be driven by the new philosophy of providing support to the

company’s franchise base allowing greater independence, resources and technical

support to the franchises.

What are the objectives of the marketing strategy?

The main objective of the marketing strategy is to generate a cutting edge integration

processes to ensure standardize operations strategies and customization to various

market environments which reinforces the Yum! Brands and its corporate objective of

meeting customers taste and preferences in those markets.

What marketing concepts are at issue in the current strategy?

The marketing concepts that form the core approach of the current strategy are portfolio

management in individual countries, franchise support, aggressive investments in its

primary market and development of new markets where consumer awareness and

operating capabilities are weak.

To what target market is the strategy directed?

The strategy is directed to different level of target markets; domestic and international.

At the domestic market the strategy is based on demographic and social factors. The

demographic target market classification is basically delineated to three segment of the

consumer group; the baby boomers (those between 35 to 50), the generation Xers (

those between 25 to 34) and the Mature group (those between 51 to 64). On the other hand, the target market is classified using social factors like household

factors like marital status, household income, the number of working women and social

attitude or habit. Population and income level is also a strong consideration that Yum

used to formulate their marketing strategy.

At the international level Yum has targeted markets that have reasonable population

that can sustain large operation and generate Hugh volume of sales. The used

international business risks, opportunities available, economic growth rates and how

strong the local currencies are to determine the target markets. Emerging economies

like China, India and Brazil were prominent target market. Other important target

markets are the high growth economies of Canada, Mexico, United Kingdom and

Western Europe.

What competitive advantage does the marketing strategy offer?

Yum! Brands has developed competitive advantage which its have been able to

maintain over the years and that is responsible for the market leadership by their

varioussubsidiaries operating in different segment of the restaurant industry. The strong

brand image has generated much awareness of the numerous products and service the

Yum! Brands offer. The sandwiches, pizzas and chicken dinners are presented in

differentiate manners. Irrespective of any of the subsidiaries in question; Taco Bell, KFC

or Pizza Hut the operations, marketing, and quality of service conform to a single

standard.

Yum! Brands have a seamless integration of its global operation with the flexibility to

allow the members of the chain to meet with local demands, taste and preferences

while maintain the organizational standard and global best practice. The franchise

support strategy has been the main secret weapon of completion the Yum! Brand has

kept from competitors. This as a matter of fact is a big competitive advantage. Strong

bargain power over suppliers is another significant competitive advantage.

What products are being sold?

Technically speaking the products that are being sold include the following pizza,

chicken, sandwiches, tacos (Mexican Cuisine), seafood’s and local cuisines at various

international outlets to meet local demands. However Yum! does not only sale this

products but customize their services to reflect an organizational standard in service

delivery that meet the expectation of customers irrespective of the country where Yum!

outlet is located.

What promotional mix is being used?

Basically, Yum! Brands adopted a multi-promotional strategy whereby a subsidiary of

the group can offer products of other subsidiaries. It must be pointed out that the pizza,

fish sandwiches and chicken dinners are vastly different types of fast-foods products.

These products are delivered using the same concept of primary activity models.

Whether we are talking of Taco Bell, Pizza Hut or KFC the offer A&W drinks and

PepsiCo drinks and other associate companies’ products.

What channels of distribution and marketing strategies are being used?

A thorough look at this case reveled that the main channel of distribution is the various

outlets of the subsidiaries be it KFC, Taco Bell or Pizza Hut. You can easily find a KFC

outlet in almost every Major city in the world. But Pizza Hut modified its channel of

distribution by introducing home delivery services within a certain radius.

The core of Yum! Brands marketing strategy is based on the portfolio management and

franchise support concept. This concept gave franchises more independent, greater

resources and technical support while offering the Yum! Brands the opportunity

to develop new markets internationally and consolidates its global capabilities.

Our ability to make a positive difference in the lives of people throughout the world is

virtually unlimited, and it starts with a clear focus and commitment to getting better. We

have chosen to leverage our clear strengths: our expertise - we like to call it know how –

and our people.

We believe that our strongest impact and contribution to sustainability lies in the critical

parts of our business - the success and diversity of our associates, feeding people,

health and nutrition, our supply chain, the environment, and community development.

These are the areas in which we are concentrating our efforts. We are also driving

stakeholder engagement, systematically involving key internal and external

stakeholders to support and execute our CSR initiatives.

We will direct our tactical efforts in four ways: raising awareness of key challenges;

formal programs and initiatives to address pressing issues and plan for our future;

encouraging and supporting volunteerism: and leading fundraising efforts wherever

needed.

Problems Found in the Situational Analysis

During the course of analyzing this case I discovered some problems that have been

undermining yum! Brands effort to effectively implement its strategies and maintain its

market leadership in all segment of the industry. These problems include the following;

Fierce competition in the industries.

Unhealthy price war strategies by competitors.

Saturated market conditions in the domestic market.

Proliferation of new branches by competitors.

The challenge of global market leadership especially in the high growth markets

and the emerging markets.

These problems have been the major challenges that are affecting the effective

implementation of Yum! global strategy to drive home its paradigm shift in management

philosophy from top-down management system to new franchise support model.

Problem Definition: The main problem faced by Yum! Brands Inc. is a lack of

integration between the brands, which causes further operational and strategic issue for

implementing the company’s current strategy of multibrand operations. This issues with

multibranding have become increasingly acute with the international expansion, which is

not possible unless the brands within Yum! learn to work together and to derive

synergies from joint operations. 

Situation Analysis: The problem of integration is the heritage of the Yum!’s ex-parent

company PepsiCo. Restaurant business was not core for PepsiCo, that is why it was

always treated as a secondary unit, which could only offer benefits to the consumer

goods segment in terms of Human Resource development and cross-selling. All

restaurants operated independently and were responsible for meeting certain financial

targets, which were regularly set by PepsiCo headquarters. It was not uncommon for

the restaurants to engage in competition, thus cannibalizing

the business as a whole. David C. Novak, the current CEO of Yum!, changed the

strategic orientation of the company, after it had spun-off from PepsiCo in 1997. The

main idea behind the new approach was a hybrid model that allowed integrating Yum!

brands by decentralizing brand-specific operations, but consolidating shared services,

such as purchasing and accounting. The new orientation aimed to modify the

organization on the strategy-structure-culture level and to change not only the

operational activities, but also the employees’ mindset. This approach has become

especially important once the company started to pursue multibranding growth, which

required both synchronization of the restaurant operations as well as the joint brand

development and promotion. Although the integration model has been emphasized by

Yum! Since its inception as an independent company, the complexity of the task makes

it the primary issue on the company’s agenda until today.

Strategic Alternatives for Solving Problems

A number of strategic alternative are available to enable Yum! tackle the problems

discovered in this case analysis and move the organization to the next level. Yum!

Brands should introduce organizational wide change and learning to innovate, improve

and sustain competitive advantage. The coming on onboard of David Novak signaled

the beginning of this change management. As a new CEO Novak made some smart

move to create a new corporate culture, resolved the long-standing friction between

franchise and management, and gave strategic direction by introducing a new

management philosophy to increase sale and grow corporate profit.

Another strategic alternative is to tap into the opportunities offered by new markets

taking into cognizance the associated international business risks. Increasing

investment in high growth markets such as Japan, UK, China, Australia, Mexico and

Canada will be a smart alternative.

Selection of the Strategic Alternative and Implementation

Yum! Brands have developed and selected strategies that will help build the needed

capabilities to confront global competition and enable it maintain its market leadership in

some specified segment of the Fast-food industry. Yum! Brands has been committed to

strengthen its position in a set of core international markets while also developing new

markets where consumer’s awareness and operation capabilities are weak. This hinges

on consolidating multi-branding as strategy to future growth. The key to the success of

this strategy is the seamless multibrand integration. This strategy has enabled Yum! to

build the needed capacity to compete effectively at local and global level. Subsidiaries

have customized their products to meet local demands, tastes, preferences and

regulatory requirements of their operating environments but one thing remain the same

throughout the entire organization and that thing is the quality of services. The quality of

services has been the same irrespective of where on earth the subsidiaries operate.

David Novak studied the situation of Yum! Brands when he became the new CEO. He

crafted a strategy that redefined Yum’s management philosophy and developed

framework to implement it. The strategy was to replace the top-down management

model with a more pragmatic approach – the franchise support strategy which will allow

the franchise base more independence, resources and flexibility to manage their

operations effectively within the stipulated guideline of the Yum! Brands. This strategy

was targeted at playing supportive role to the franchises while allowing Yum! enough

resources and capabilities to concentrateMon its global market growth strategies. The

implementation of this strategy energized the generation of domestic (U.S) sales

of $16.3 billion across five brands 2003. The main resultant effect of the implementation

of this strategy is that customers’ responses have been favorable which reflects in the

operation performance of various brands in the chain.

THE FUTURE OF GIVING AT YUM!

We believe that giving back and making a difference in the lives of the less fortunate is

our privilege and our responsibility. The charitable spirit and culture of Yum! directs our

efforts around the globe.

World Hunger Relief is our signature global program to address hunger and

hopelessness. Our partnership with the U.N. World Food Programme has succeeded in

ways we never imagined possible. Through it we have gone beyond making a

contribution to relieving hunger and we have built momentum for ongoing volunteerism

and community engagement globally by giving our associates the tools, opportunities

and encouragement to place themselves at the heart of pressing societal issues.

Since World Hunger Relief movement launched in 2007, more than 1 million of the

Company's employees, franchisees and their families have volunteered more than 28

million hours to aid hunger relief efforts in communities worldwide. The movement has

raised nearly $115 million for the WFP and other hunger relief organizations and is

helping to provide approximately 460 million meals and save the lives of millions of

people in more than 30 countries where hunger is most prevalent.

At the Clinton Global Initiative in 2008, Yum! Brands pledged to do the following over

the next few years: raise and donate at least $80 million to help WFP and others

provide 200 million meals for hungry school children in developing countries; donate 20

million hours of hunger relief volunteer service in the communities in which it operates;

donate $200 million worth of its prepared food to hunger agencies in the United States

and use the Company's marketing clout to generate awareness of the hunger problem,

and convince others to become part of the solution.

Yum! and its brands have been committed to fighting hunger for more than a decade by

contributing on average $50 million worth of prepared food annually to the

underprivileged in the United States. Since the company went public in 1997, it has

donated more than $550 million of its food to hunger relief agencies in the U.S

DATA COLLECTION:

The data needed for the study was collected from the following sources:

METHODS

PRIMARY DATA SECONDARY DATA

A) Primary source ……………………….

B) Secondary source:

The data is collected from the following secondary sources:

1. Annual reports of the yum ! Brands

2. Books (relating to marketing ) and

3. Internet

4. KFC, Pizza Hut.

2011 Financial Highlights

Results for 2011 reaffirmed our consistent record of success with 14 percent Earnings

Per Share (EPS) growth, excluding special items, which marks the tenth straight year

we delivered at least 13% growth and exceeded our 10% EPS growth target.

(In millions, except for per share amounts)

Year-end 2011 2010% B/(W) change

Company sales $10,893 $9,783 11

Franchise and license fees and income 1,733 1,560 11

Total revenues $12,626 $11,343 11

Operating Profit $1,815 $1,769 3

Net Income - Yum! Brands, Inc. $1,319 $1,158 14

Diluted Earnings Per Common Share before Special Items (a) $2.87 $2.53 14

Special Items Earnings Per Common Share (a) (0.13) (0.15) NM

Reported Diluted Earnings Per Common Share

$2.74 $2.38 15

Cash Flows Provided by Operating Activities

$2,170 $1,968 10

Average US Sales per System Unit(a)

(In Thousands)

Year-end 2011 2010 2009 2008 2007 5-year growth(b)

KFC $940 $ 933 $ 960 $ 967 $ 994 (1%)

Pizza Hut 875 855 786 854 825 2%

Taco Bell 1,284 1,288 1,255 1,265 1,147 2%

(a) Excludes license units.

(b) Compounded annual growth rate

United States Sales

(In billions)

2011 2010200

92008

2007

5-year growth(a)

KFC

Company sales $ 0.8 $ 1.0$

1.0$ 1.2

$ 1.2

(11%)

Franchisee sales (b) 3.8 3.7 3.9 4.0 4.1 (1%)

Pizza Hut

Company sales $ 0.4 $ 0.6$

0.8$ 1.2

$ 1.3

(21%)

Franchisee sales (b) 5.1 4.8 4.2 4.3 4.1 6%

Taco Bell

Company sales $ 1.8 $ 1.8$

1.9$ 1.9

$ 1.7

0%

Franchisee sales (b) 5.2 5.1 4.9 4.8 4.4 3%

Total U.S.

Company sales $ 3.0 $ 3.4$

3.7$ 4.3

$ 4.2

(8%)

Franchisee sales (b) 14.1 13.6 13.0 13.1 12.6 3%

(a) Compounded annual growth rate totals exclude the impact of Long John Silver's and A&W.

(b) Franchisee sales represents the combined estimated sales of franchise and license

restaurants. Franchisee sales, which are not included in our Company sales, generate

franchise and license fees (typically at rates between 4% and 6%) that are included in

our revenues

Worldwide System Units

Year-end 2011 2010 (b) 2009 (b) 2008 (b) 2007 (b)

Company 7,437 7,271 7,666 7,568 7,293

Unconsolidated Affiliates 587 525 469 645 1,314

Franchisees 26,928 26,219 25,085 24,225 22,886

Licensees 2,169 2,186 2,199 2,167 2,108

Total 37,121 36,201 35,419 34,605 33,601

Year-end 2011 2010 (b) 2009 (b) 2008 (b) 2007 (b) 5-year growth

CHINA

KFC 3,701 3,244 2,872 2,497 2,140 15%

Pizza Hut 764 642 562 499 404 21%

Taco Bell -- -- -- -- 2 NM

Total China (a) 4,493 3,906 3,453 3,013 2,558 16%

INTERNATIONAL

KFC 8,920 8,554 8,230 7,830 7,394 5%

Pizza Hut 5,383 5,248 5,153 5,112 4,958 2%

Taco Bell 275 262 251 245 238 3%

Total International

14,578

14,064 13,634 13,187 12,590 4%

UNITED STATES

KFC 4,780 5,055 5,162 5,253 5,358 (2%)

Pizza Hut 7,600 7,542 7,566 7,564 7,515 0%

Taco Bell 5,670 5,634 5,604 5,588 5,580 0%

Total U.S.18,05

018,231 18,332 18,405 18,453 (1%)

Total (a) 37,121

36,201 35,419 34,605 33,601 3%

(a) Includes 28 units, 20 units, 19 units, 17 units and 12 units in 2011, 2010, 2009, 2008 and 2007, respectively, for an Asian food concept in China.

(b) Excludes LJS and A&W units sold in 2011

Breakdown of Worldwide System Units

Year-end 2011

Franchised

Company

Unconsolidated Affiliates

Licensed

Total

CHINA

KFC 201 2,913 587 -- 3,701

Pizza Hut -- 764 -- -- 764

Total China (a) 201 3,705 587 -- 4,493

INTERNATIONAL

KFC 7,885 998 -- 37 8,920

Pizza Hut 4,738 592 -- 53 5,383

Taco Bell 237 3 -- 35 275

Total International

12,860 1,593 -- 12514,57

8

UNITED STATES

KFC 4,258 459 -- 63 4,780

Pizza Hut 5,580 479 -- 1,541 7,600

Taco Bell 4,029 1,201 -- 440 5,670

Total U.S. 13,867 2,139 -- 2,04418,05

0

Total (a) 26,928 7,437 587 2,16937,12

1

(a) Includes 28 units in 2011 for an Asian food concept in China.

CONCLUSION

The case of Yum! Brands demonstrated how introduction and implementation of

effective business strategy can help businesses solves performance challenges and

build capabilities to sustain competitive advantage. Yum Brands was committed to

strengthen its market position in a set of core international makes. To realize this, the

new CEO replaced the existing management philosophy with a much better innovating

strategy that was targeted to give more independence, resources and technical support

to the franchise base. The implementation of this strategy empowered the YUM! Brands

to build capabilities to develop new markets, consolidate multi branding, achieve

seamless integration of standardized operations strategies and customization to various

market needs. These strategies reinforce Yum’s commitment to meeting the taste

and preferences of its customers irrespective of their location. The result of this has

been favorable responses from customers which reflect in the operation performance of

the various brands in the chain.