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Yum's Novak Says Col. Sanders and U.S. Franchisees Are Limiting Factors

YUM conducted their Q2 earnings call today. As usual, the story was all about China, the huge amount of profits that China and International (YRI) generate.

U.S. results were down, with all three major brands declining in same store sales (KFC down 5%, Pizza Hut -2% and Taco Bell, down 5%), and  US company restaurant margin for all three brands fell 440 points to 11.7%.

Franchisee profits aren't reported..

The Chinese sales and new store opening results were great. And hats off to YUM for investing there and building the business there. But what about the US?

Much discussion centered on Taco Bell's US weakness and its recovery lag from the "beef problem" as David Novak called it. YUM officials were downcast and couldnt say much about US developments.

David Novak did make two interesting notes, one about Col. Sanders, who sold the company forty-seven years ago and has not been in a management role since. He said:

I think Col. Sanders set the US up with a heritage of small box, chicken on the bone...stay focused on your knitting. And so I do think it is harder for us to transform the brand..

He also noted US franchisees weren't as progressive as overseas:

"so there is a structural issue there...And frankly, we don't have a franchise system that isn't as enlightened as our franchisees are outside of the U.S.

Those are pretty remarkable comments by a franchisor, especially about a founder who left the business 47 years ago. If YUM can't deal with these issues, who can?

See transcript of Q2 earnings call.

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About John Gordon

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John A. Gordon is Principal and founder of Pacific Management Consulting Group, which provides chain restaurant sales, profitability, earnings and economics research and special analytical projects to those in, or who need to know about the restaurant sector.  Among others, we support franchisees and those supporting franchisees.

Gordon has a long background in chain restaurant operations and financial management roles, such as cost analyst, financial analyst, manager of planning and analysis and CFO, and has been consulting since 2000.

He is passionate in providing independent, creative, detailed and useful perspective, with no conflicts of interest. Email him or call (619) 379-5561.