Same-store sales for the first quarter declined 20% in Yum's
China division, including a 24% decline at KFC and 2% decline at
Pizza Hut. Same-store sales grew 1% at Yum's international division
and 2% in the U.S. segment.
Yum CEO David Novak said during a conference call today -- much
of which was dedicated to talking about the China division -- that
beginning the first week of April, publicity surrounding the latest
Avian flu scare in China has had a significant, negative impact on
KFC's sales. KFC in China has been struggling since late last December, thanks in
part to news from China Central Television, which reported that
some KFC suppliers had been using unusually high levels of
antibiotics in its chickens. During that quarter, sales in China
were down 6%.
The company began to see a sales bounce-back around the Chinese
New Year in February, but sales have dropped since Avian flu
concerns surfaced earlier this month. Mr. Novak noted that Avian
flu scares typically impact the business for a few months, but that
the sales drops are ultimately short-lived. Yum last had an
Avian-flu issue in 2005. He added that based on the first three
weeks in April, the China division expects same-store sales to be
down 30% for the month.
Mr. Novak said today that after the chicken-antibiotic news, the
company went on an offensive to restore customer confidence,
launching what he referred to as "operation thunder." As part of
that initiative, the company announced improvements to the supply
chain, such as working with suppliers to "eliminate over 1,000
small and less-modern chicken houses where risk could be the
highest. We want our suppliers to work with the most sophisticated
chicken farms in China." The company launched a quality assurance
campaign that included 30-second TV spots.
Mr. Novak assured investors that Yum is poised to have a strong
2013 despite disappointments, noting that the company's operations
outside of China are solid and on-target.
Taco Bell sees 6% lift in U.S.
In the U.S., same-store sales for the first quarter increased 2%
overall, including a 6% bump at Taco Bell. Same-store sales
declined 1% at Pizza Hut and 1% at KFC, results that disappointed
Taco Bell has been enjoying positive sales since last year. Taco
Bell's U.S. same store sales were up 8% in 2012, when the chain
launched one of its biggest product rollouts ever for the Doritos Locos
Taco. Taco Bell during the first quarter of this year launched
the second iteration of the Doritos Locos taco product line: the
Cool Ranch Doritos Locos taco.
In 2012, the company said it sold 325 million Doritos Locos
tacos; the chain also launched its upscale Cantina menu last year,
though it's unclear how successful that product line is thus far.
It also launched a new tagline, "Live mas," in 2012, and the
company said today that the campaign resonates with consumers,
though did not go into further detail.
"Our new marketing campaign is resonating well with consumers
and the brand is generating lots of excitement in social media,"
said Yum president Richard Carucci. He said the company expects to
sell 100 million Doritos Locos Tacos during the second quarter, and
"this continues to be one of the most successful new-product
launches in our history." Taco Bell has long promoted value, and
Yum noted value as one of its most important aspects to
"In this environment, you win by providing compelling value and
innovation," said Mr. Carucci of the U.S. fast food industry. "In
hindsight some of our competitors did a better job of this and we
did. We expect to fare better the balance of the year," noting that
Yum is particularly excited about the recent launch of KFC's newest
KFC in the U.S. this month launched one of its biggest product
rollouts in decades: Original Recipe boneless chicken. Accompanying that is
one of its biggest marketing campaigns in years --currently
airing-- in the hopes of restoring relevance and bringing in more
customers, particularly millennials, to help boost sales.
Pizza Hut, meanwhile, is currently advertising its Crazy Crust pizza, a product
influenced by some of its products overseas.