Strategic acquisitions are all the rage these days. Restaurant Brands International is buying up stuff. So is JAB Holding Co. And then there’s Inspire Brands, the Roark-backed Arby’s owner that has made two big deals this year and plans more.
So would Yum Brands join the party? Maybe.
The Louisville, Ky.-based operator of KFC, Pizza Hut and Taco Bell would not rule out the acquisition of a fourth brand.
“You see a lot of people buying brands trying to build scale,” David Gibbs, Yum’s president and CFO, said in an interview Wednesday following the company’s annual analyst day presentation. “But if we have an opportunity to build further scale with an acquisition, we will look at it.”
He also said that if Yum were to buy a brand, it would have to be a sizable one. “We have a very high bar,” Gibbs said.
Yum is subject to periodic acquisition rumors, mostly of it buying a brand such as Subway, Wendy’s or Dunkin’ Donuts, though occasionally someone wonders if 3G Capital would make an unlikely run at Yum.
The company is growing unit count by 4% worldwide a year, and executives believe there’s plenty of growth without making an acquisition. But Yum would be open to such a deal, though the company’s comments seem to suggest that one is less likely.
But that doesn’t mean Yum won’t be active in looking for acquisitions.
Rather, the company could look at smaller, strategic deals such as the one earlier this week, in which Pizza Hut U.S. bought its third-party online ordering provider, QuikOrder. Executives on the conference call suggested they would be open to similar deals like that in the future.
After spinning off its company-owned China operations in 2016, Yum is a 98% franchised brand. It only requires $100 million in capital spending every year, Gibbs said, giving the company plenty of room to make strategic acquisitions that could add capabilities or improve operator economics.
“There may be opportunities to create shareholder value by doing some of these acquisitions,” Gibbs said. By purchasing a company like QuikOrder, he said, the company could spread the benefits to potentially 46,000 locations.
In 2015, Yum quietly bought a marketing strategy firm called Collider that had done work with the company’s Taco Bell brand. “We could justify buying them and scaling that at all our businesses around the world,” Gibbs said on the conference call.
Collider now works with all three of the company’s brands, providing consumer insights. And it has so much demand that it is oversubscribed, Gibbs said, adding that Collider is constantly hiring new employees to meet that demand.
By bringing consumer insights and online ordering in-house, he said, “that eliminates the normal friction” between a company and a third-party provider.
In 2018, that kind of friction can delay innovations and put companies behind their competitors. “By bringing them in-house, we can accelerate changes to our e-commerce platform in a faster, more nimble way,” Gibbs said of QuikOrder.
Then there was the Grubhub deal. As other restaurant companies inked partnership deals with third-party delivery providers, Yum took it a step further and invested $200 million in Grubhub, getting a seat on the company’s board of directors in the process.
Gibbs said the deal has worked out for both sides, enabling Grubhub to expand into markets it otherwise could not have, and giving Yum better terms for its operators. “We’ve made it no secret we plan to look at other unique deals with aggregators to leverage our scale for the best possible terms for our franchisees and for their unit economics,” Gibbs said.
In other words, while Yum may or may not buy a fourth brand, expect the company to remain active on the acquisition front in the coming years.
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