Yum Puts A&W and Long John Silver's on Block
CHICAGO (AdAge.com) -- Yum Brands, parent company of Pizza Hut, Taco Bell and KFC, today announced it's putting A&W All-American Food Restaurants and Long John Silver's up for sale.
The company said it has been focusing on aggressively growing overseas, particularly in China, as well as improving sales in the U.S. on its three main brands. "Over the past decade, Yum has delivered annual [earnings-per-share] growth of 13%, exceeding our 10% annual growth target . This has been driven by aggressively building restaurants in China and Yum Restaurants International at a pace of nearly four new restaurants every day of the year. We do not believe Long John Silver's and A&W-All American Food restaurants fit into our long-term growth strategy," David C. Novak, Yum Brands chairman-CEO, said in a statement.
According to the statement, when Yum Brands was spun off from PepsiCo in 1998, 22% of its profits were sourced internationally. Today, about 65% of the company's profits are from the China and Yum Restaurants International divisions. Yum said it expects that percentage to grow to 75% by 2015. In the U.S., Taco Bell accounts for approximately 60% of the company's profits, followed by Pizza Hut and KFC.
Maybe a bigger question is, who would want to buy them?
Morningstar analyst RJ Hottovy said that private-equity investors are plausible buyers for the brands. "Since these brands didn't fit into Yum's strategy, they could be seen as neglected. Under private equity they could get more attention and more capital to upgrade their look, making them more valuable."
"These brands have not received a lot of attention and they are not a growth vehicle," said Darren Tristano, exec VP at Technomic. "They're basically non-essential brands. I'd even argue that they're considered step-children." He added that private equity is a recent trend in the restaurant industry, as private equity investors tend to buy brands selling at low prices. "The key is to buy low and sell when the industry is doing better. If you can get a nice price and streamline the costs, then you might be able to build some brand equity."
Mr. Tristano also said that while private equity buyers are more likely, a restaurant company could potentially buy the brands. "It's possible someone may want to revitalize, for instance, the A&W drive-in concept. So someone like Sonic could be a potential buyer."
Yum spends a relatively small amount on marketing Long John Silver's and A&W compared to Pizza Hut, KFC and Taco Bell. According to Kantar, Yum spent approximately $1.1 million on U.S. measured media for A&W in January through October 2010. Yum spent about $1.8 million on A&W in 2009. For Long John Silver's, Yum spent about $23.2 million for the same 10 months. It spent about $27.2 million on the brand in 2009. Overall, the company spent nearly $614 million on U.S. measured media from January through October 2010, compared to about $710.5 million in 2009.
According to Technomic, A&W accounted for about 0.1% of total sales in the limited-service restaurant (including both the quick-service and fast-casual categories) sector in 2009, and Long John Silver's accounted for about 0.4%. Comparatively, Taco Bell made up about 3.6% of total sales for the limited-service restaurant category.