U.S. operations of KFC and Pizza Hut are facing ongoing challenges
Yum Brands Faces Challenges in U.S. Market, Reports Q2 Results
Yum Brands, the parent company of KFC, Pizza Hut, and Taco Bell, reported a mixed performance in the second quarter of 2022. While digital sales surged and Taco Bell showed growth, the U.S. sales at KFC and Pizza Hut declined due to a combination of market challenges, operational issues, and competitive pressures.
The U.S. same-store sales for KFC and Pizza Hut dropped by approximately 5% each, according to various sources. This contrasted with stronger international performance, particularly for KFC in China and other markets, which helped Yum Brands achieve modest global growth for KFC overall.
The decline in U.S. sales can be attributed to several factors. The competitive and market landscape in the U.S. saw a sharper decline in traffic or sales volume at KFC and Pizza Hut locations. Yum Brands has also made leadership changes at KFC and its U.S. business recently, possibly indicating efforts to address sales performance issues. Additionally, Pizza Hut's profitability was negatively impacted by timing of technology spending and franchise-related expenses.
Other major fast food chains like Chipotle and McDonald's also reported challenges in the quarter, suggesting wider macroeconomic or market pressures affecting the industry around this time.
Despite the challenges at KFC and Pizza Hut, Taco Bell's same-store sales grew by 4% in the second quarter, representing 82% of Yum's U.S. profit. Yum Brands reported a 10% increase in revenues to $1.9 billion and a 2% increase in net income to $374 million in the second quarter.
David Gibbs, CEO of Yum Brands, stated that the current consumer environment is softer globally, where value matters. He cited an "insufficient value message and a competitive value landscape" as the cause of transaction softness at Pizza Hut in the second quarter.
In an effort to address the challenges at KFC and Pizza Hut, the company plans more marketing in the coming months to continue building on the sales improvement observed in June at Habit. KFC is also planning to open more locations of its chicken tenders concept Saucy in Orlando later this year.
However, Yum stock was down nearly 3% in morning trading on Tuesday, reflecting investor concerns about the performance of KFC and Pizza Hut in the U.S. market.
[1] Yum Brands Q2 2022 Earnings Release [2] Yum Brands Q2 2022 Earnings Call Transcript [3] Yum Brands Q2 2022 Investor Presentation [4] Yum Brands Q2 2022 Earnings Supplement [5] Yum Brands Q2 2022 KFC International Operating Review
Habit Burger & Grill Struggles in Q2
In a separate development, Habit Burger & Grill, another brand under Yum Brands, reported a 4% decline in same-store sales in the second quarter. Despite the challenges, Yum executives attributed the weakness at Habit to a soft consumer landscape, but they also stated that sales improved in June with new marketing.
Digital Sales Surge at Yum Brands
In a positive note, digital sales now account for 57% of Yum Brands' total sales, up seven percentage points compared with a year ago. This growth in digital sales demonstrates the company's success in adapting to changing consumer preferences and leveraging technology to improve the customer experience.
- The financial struggles at KFC and Pizza Hut, two restaurants under Yum Brands, can potentially impact the overall lifestyle and food-and-drink business of the company, as seen in the Q2 results.
- Yum Brands, a business with various restaurant chains, has been heavily investing in digital technology to enhance customer experience and finance growth, a move evident in the surge of digital sales, currently accounting for 57% of the company's total sales.
