Yum Brands, the owner of KFC, Taco Bell and Pizza Hut, considers annual unit growth something of a birthright.
With four chains and an impressive presence around the world, the Louisville, Ky.-based company typically increases its unit count by about 4% a year and now has more than 50,000 locations total, including 25,000 KFC restaurants.
The pandemic ground that to a halt. Unit count was largely flat in 2020, something to which the operator is not accustomed. And though executives with the company are confident they can return to their 4% goal, they also don’t know when that will happen.
“The question of, can we regain that 4% pace? The answer is certainly yes,” Yum CEO David Gibbs told investors on Thursday. “The fact is that our pipeline was disrupted last year, and we have to rebuild it. So [we’re] confident we can get back to 4% and beyond. Still not at a point where we’re going to commit to a certain timeframe on that.”
To be sure, he said, Yum opened 2,400 new restaurants in 2020, “so it’s not as if the development pace at Yum just disappeared.”
“The challenge obviously was a lot of the closures, which we had good reasons for, and talked about over the years,” Gibbs said.
All of the unit growth problem last year was at Pizza Hut, which has been in the process of a transformation in the U.S. to a takeout-and-delivery concept, while in much of the world the company still has a heavy concentration of full-service restaurants. Excluding Pizza Hut, in fact, Yum generated 3% unit growth in 2020—not terrible considering the pandemic.
But Pizza Hut’s global unit count declined by more than 1,000 restaurants, to 17,639 from 18,703. Many of the Pizza Hut closures around the world last year were of poorly performing restaurants with lower average unit volumes.
Some of that was in the U.S., where the bankrupt NPC International closed some 300 locations before its sale to Taco Bell operator Flynn Restaurant Group (FRG). Executives said that Flynn will work to revitalize the 950 Pizza Hut locations it’s purchasing.
The company has been closing Pizza Hut units “to strengthen the asset base,” Gibbs said. The pandemic appeared to accelerate that effort. “We got a lot of that behind us in 2020,” he said.
Gibbs on Thursday told investors that the sale of restaurants to Flynn should have an impact on the Pizza Hut’s domestic performance. “We expect Flynn’s ownership of these restaurants will make the entire Pizza Hut U.S. system stronger,” Gibbs said.
“Twenty percent of the Pizza Hut stores were in the hands of a poorly capitalized operator previously,” he added. “Now with (FRG Founder) Greg Flynn entering the system, a proven commodity in the Taco Bell world, we know that’s going to be a boost to Pizza Hut.”
As for global development, Gibbs did say that “It’s a challenging environment just to build new stores.”
“There are markets that we want to get stores open, and we’re having trouble getting permits and getting the right people to construct the stores,” he said.
Gibbs added that the company’s change in asset models—such as focusing on Pizza Hut delivery units or KFC drive-thru locations—has operators that build nearly all the company’s restaurants looking at different types of locations.
Mostly, Gibbs said, the interruption from the pandemic could simply take time to recover from, given normal development timelines. “We all know in the development game in retail takes time to build the pipeline,” he said. “but the mood is definitely one of confidence.”
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