Yum! Brands Sets Industry Development Record, Doubles Digital Sales In Two Years

A major business lesson learned from the pandemic has been the benefits of scale. Bigger systems are simply better able to protect their bottom lines and continue investing through the worst of times. That lesson was perhaps no clearer than during Yum! Brands’ Q4 earnings call Wednesday morning.

The company set a company–and restaurant industry–record for net new unit growth in 2021, adding 3,057 net new units and 4,180 gross new units to push the system to over 53,000 total units worldwide. This development momentum spanned each of Yum’s four brands–KFC, Taco Bell, Pizza Hut and The Habit Burger Grill–and translated to a pace of about one new restaurant opening every two hours.

“This speaks to the health of our business and … our strong unit economics. Now more than ever, we’re leaning into the structural advantages of our diversified portfolio to fuel growth and deliver strong results,” CEO David Gibbs said during the company’s earnings call.

Digital helped drive those unit economics, with $22 billion in sales coming from digital channels even as dining rooms reopened. This marked a 25% increase over 2020 digital numbers and suggests a permanent shift in consumer behavior.

Digital also contributed to strong same-store sales both domestically and internationally. KFC U.S. experienced a 4% increase in U.S. same-stores sales and 12% on a two-year basis, for example. While the brand has benefited from group ordering occasions and its increasingly popular chicken sandwich (which now accounts for 9% of its sales mix), it is also experiencing a strong tailwind from its digital efforts, like the launch of Quick Pick-up order channel and its fledgling ecommerce platform.  

Meanwhile, Taco Bell, which experienced a same-store sales increase of 8% on the quarter, now generates about 20% of its sales through digital channels.

“These strong digital numbers come as a result of investments we’ve been making and our strategy around digital because we knew it was the future of the industry,” Gibbs said. “Whenever you nearly double your digital sales in two years, I think that is evidence those investments are paying off.”

Yum’s digital efforts have also benefited operations. The company has implemented Dragontail’s artificial intelligence technology in 21 markets, for example, allowing restaurants to streamline their food preparation process and optimize delivery routes for drivers.  

Such operational efficiencies are critical in a challenged environment. Notably, Yum’s strong Q4 and 2021 results don’t negate from those challenges, such as inflationary and labor pressures, which affected the entire restaurant industry.

CFO Chris Turner said the labor shortages have been most pronounced in the U.S. and did lead to some constriction of operating hours across its brands in Q4, particularly in the Pizza Hut delivery business.

Even so, there seems to be a light at the end of the tunnel.

“[Labor] had a small but real impact on sales. We believe we’re past the peak,” Turner said.

Gibbs said a call earlier this week with the system’s chief operating officers supports such optimism.

“It feels like we’re moving to a better place. Some similar themes came up [from that call] of ‘we’re past the peak of Omicron and applications for team members are starting to come back up’ and the challenges on hours may start to abate over time,” Gibbs said. “We’re quite optimistic the business is heading to a better place.”

That said, Yum is forecasting 2-to-3% same-store sales growth for 2022, which some analysts called conservative. Turner notes the forecast comes from “puts and takes around the globe,” as well as lapses and the lingering Omicron variant. Despite such challenges, scale should once again prove to be a major advantage for Yum.

“The benefit of Yum’s business model is how diverse we are. We’re not reliant on any one country, so even with softness in a market like China, we can put up big numbers,” Gibbs said. “Our business model is one franchisees want to invest behind in a huge way and we saw that this quarter in net new units. We have a lot of confidence going forward.”