Yum! Brands: A New Competitive Edge

Yum! Brands: A New Competitive Edge Olivia Harbaugh, Debora Ortega, Matt Martin

New Mission Statement

We are committed to continuing the success of our globally recognized brand by focusing on benefiting our customers, employees, and the development of society. By providing quality foods and services to satisfy our customers' needs, we are confident we will accomplish this. Although our headquarters are located domestically, we deliver products to over 130 different countries and cultures. We strive to reach our markets through the most current technological resources while continuously working to become more environmentally friendly.

Executive Summary

Our strategy is to create a quick and easy breakfast menu for the KFC division domestically.
NPV : $9.43 million
IRR : 22.76%
Cost of Capital : $88,356,859

Matrices Analysis

SWOT

One of Yum! Brands' most important core competencies is their strong brand image.
This core competency is a huge factor in their sales, which, unfortunately have been going down domestically.
We need to get the brand back into consumers' minds with something fresh and new that will revive the brand.
Throughout our research, we saw a huge demand for breakfast and snacks domestically.
The millennial generation goes to quick service restaurants for a fast and easy breakfast, and Yum! Brands is missing that mark within their KFC division in the US.
McDonald's, Starbucks, Bojangles and many other competitors are meeting these needs for consumers.
Because of the highly competitive nature of this industry, KFC cannot afford to ignore something of this magnitude that the public is craving.

IFE & EFE

Yum! Brands scored 2.56 in the IFE matrix and 2.53 in the EFE matrix.
These scores show that Yum! Brands is responding to existing opportunities and threats in their industry at an average rate.
This pointed us to believe that the company is not capitalizing on the same opportunities as their competitors.

IE

We split our IE matrix into the company's 5 divisions: Yum! China, Yum! India, KFC, Taco Bell and Pizza Hut.
China is the strongest division in the company.
The KFC division is the second largest source of income for the company, and it falls into quadrant V.
We saw this as an opportunity for growth in the areas of market penetration or product development.

CPM

Our competitors for our CPM were McDonald's and Starbucks.
Yum! Brands scored 2.93, McDonald's scored 3.31, and Starbucks scored 2.85.
This, again, showed us that while Yum! is certainly staying competitive in their industry, they are not performing as well as their top competitor, McDonald's.

Space & Grand

Our Space Matrix showed us that Yum! Brands falls into the Competitive quadrant.
This also directed us towards market penetration or product development for our strategy.
Our Grand Matrix showed us that the majority of Yum! Brands' divisions fall into quadrant I.

SWOT Bivariate

SO : Shift toward automation; Expand into Africa
ST : Acquire JustSalad and multibrand with other Yum! Brands
WO : Create a breakfast menu for the KFC division domestically
WT : Offer fresh, local ingredients starting at all locations domestically

QSPM

Our primary strategy is to create a breakfast menu for the KFC division domestically.
Our secondary strategy is to shift toward automation.
Primary strategy : TAS of 3.86
Secondary strategy : TAS of 2.47

Ratio Analysis

Liquidity - deteriorated in the last 3 years
We need to increase our liquidity by decreasing our costs and debt while increasing our revenue.
Leverage - rapid increase over the last 3 years
We are within industry averages for the most part in our leverage but it is crucial that we lower our debt.
Activity - overall steady increase in that last 3 years
We need to be increasing our inventory turnover at a much faster rate.
Profitability - steady increase in that last 3 years
We are well within industry averages but we must become more profitable to remain competitive.

Research Analysis

Industry research based on demand, consumer tastes and preferences, and Yum! Brands' competitors.
We found that consumers have been eating out less since the recession.
This is a good sign for quick service restaurants, as they are affordable and convenient.
We found that even though overall fast food sales are declining, the breakfast category is thriving.
Millennials want quick and easy breakfast items that they can hold in one hand.
There is also a huge demand for chicken in the US market.
Because of these factors, we decided to formulate our strategy around creating a quick and easy breakfast menu for the KFC division in the US.

Strategy Implementation

We are forecasting a 23% increase in revenues in KFC's 4,338 domestic stores.
We based our costs off of Taco Bell's growth rates from 2014 to 2015, as they released their breakfast menu in 2014.
We estimated our increase in cost of labor: $100 million per year.
We estimated our increase in cost of food: $200 million per year.
Our cost of capital will be about $88.4 million, all laid out in the first year of implementation.
Marketing: $65.43 million
$15,000 per store for local and in-store marketing
A national television ad (~$355,584)
Training: $1.97 million
Two hours for every existing employee
New Hires: $20.96 million
Hire 4 additional employees per store

Analysis of Implementation

NPV : $9.43 million
IRR : 22.76%
We are financing through our existing cash and cash equivalents in 2016.
$49 million increase in net income in 2016, $50 million in 2017, and $50 million in 2018.
Our liquidity is not expected to increase with this strategy.
We are expecting to see a slight increase in our leverage.
Our activity ratios are expected to increase considerably.
Overall, our profitability is also expected to increase.

A Need, Not Just A Want

This strategy highlights consumers' need for convenience.
Customers feel that fast food saves them time and, therefore, has become an indispensable part of their morning routine.
Research has shown that people likely eat the same thing every morning for breakfast. If we become part of customers' routine, our sales will be driven by these "regulars".
Breakfast is often skipped because it is inconvenient; we want to turn breakfast into a convenience for our customers that won't waste their time.