Yahoo Finance’s Brian Sozzi and Alexis Christoforous speak with Yum! Brands CEO David Gibbs about the company’s big earnings beat.
Video Transcript
BRIAN SOZZI: OK, big earnings beat out of Yum! Brands this week. That’s in large part because of a big turnaround at Taco Bell. Let’s bring in Yum! Brands CEO David Gibbs for more on this.
David, always good to speak with you. Let’s start on Taco Bell, same-store sales up 3% in the most recent quarter. Nice reversal from earlier in the year. Talk to me how you’re reinventing the Taco Bell brand. There has been some chatter that you’re now testing bellhops.
DAVID GIBBS: Well, it’s a great story at Taco Bell and an incredible pivot in that business. You know, obviously when COVID hit, our dining rooms were closed, and the way we brought our business to market obviously had to change. They’ve been able to pivot. They’ve leveraged technology and their app to allow customers to digitally order and pay.
Obviously, their drive-throughs has been a huge asset for them, and they’ve been able to leverage those to give consumers convenient, affordable food in a safe and contactless manner. So you’ve seen them sequentially improve, and then this last quarter, obviously, was a strong quarter. In the US, sales were up 4%. Profit margins were near record at 28%. So our franchisees are making money and performing well in this environment, and that’s great for the future for us.
ALEXIS CHRISTOFOROUS: I want to talk about your other brands, KFC and Pizza Hut. You talk about strength in the US markets. Same-store sales for those brands here in the US were strong, but there was a drag on sales internationally. What do you think is going on with those two brands and international markets? And did the coronavirus spiking in certain areas of the world play a part in that?
DAVID GIBBS: Well, certainly, within our same-store sales growth numbers are the impact of closures. So if we have more closures in a certain area, that’s going to obviously depress our same-store sales growth. What you’re seeing, though, around the world as a general trend for us and others in the industry is when our business started out as a primarily off-premise business, we’re able to leverage that and get through this more successfully than in markets where we might have a very big presence with a dine-in business.
But even so where we’ve had dine-in businesses, we’ve made an amazing pivot to really replace the lost dine-in sales through means like delivery, drive-through, and carry out. Just to give you some big numbers, for the quarter, we did about $13 billion in systems sales, about the same as the same quarter last year. Last year, over $4 billion of that was dine-in. This year, it’s only about $1 billion.
So that’s $3 billion that we had to pivot and make up with through delivery, drive-through, and carry out. And so proud of the work that teams have done around the world, because, as you mentioned, in a lot of international markets where the virus is causing more dining room closures, without that pivot we would have struggled more to get through this.
BRIAN SOZZI: David, what are you seeing in the business? Recently, you’re seeing COVID infections continue to increase, and people are now hunkered down back at home, if they weren’t already. What are you seeing in the business?
DAVID GIBBS: Well, certainly, when we talk to consumers, we just fielded some internal research, we’re seeing more acceptance of consumers now that the virus and the impact of it is going to be around for a while. In fact, they say they expect the next year to look a lot like what the environment that we’re in right now is. But they’re also comfortable– we know, a lot more about the virus and how it spreads, and they’re also very comfortable using our restaurants because they know that the protocols that we have in place really present the safest way to get food. You don’t have to leave your car to get safe, affordable food in a convenient, contactless manner, given everything we do to keep the customer and our employees safe.
So there’s this acceptance that this is going to be around. They’re actually– consumers are actually now moving from thinking of food as something that’s fuel or just some comfort, where initially when the virus hit they were very eager to have something like a pan pizza, or stuffed crust, or, you know, some of our traditional indulgent products. Now, they’re looking for food to provide a little more entertainment in their life, because we’re all sort of getting a little bored and stuck at home for the most part, and food can be part of a little bit more excitement in your life, and that’s why you’re seeing things like the Grilled Cheese Burrito at Taco Bell really take off, something that’s sort of a little familiar, but also a fun take on a burrito and providing a little entertainment and something cool to do. So we’re seeing consumer trends evolve as we get through this, and certainly feel like we’re perfectly positioned to meet those, given the great brands we have in product pantry.
BRIAN SOZZI: How– how has the pandemic changed your planning for next year? A lot more people are ordering digital. Does that mean you might pare down the menus further at KFC or Taco Bell? I know at Taco Bell now you have people, employees bringing food outside to people to service their orders. What are some of the changes you’re looking at?
DAVID GIBBS: Yeah, you mentioned the bellhops earlier. I think it’s a cool idea that Taco Bell’s come up with and plays to the trend of customers not only ordering delivery, but also wanting to take the control of their order and coming by the restaurants for what we’re calling contactless curbside. So you can drive up to our restaurants, notify us on our app that you’re in the parking lot, and our Pizza Hut employees, Taco Bell employees will bring food out to your car through those bellhops that you mentioned.
That’s a trend that I think is here to stay. I mean, delivery meets certain customer’s needs, but there is a cost to delivery. Obviously, it’s not free. If somebody wants, you know, perhaps an even quicker access to our food and to do it at the lowest possible cost, just placing the order on the app and coming by the restaurant is a great way to do that.
And for example, at Pizza Hut, we rolled that technology out in the middle of the pandemic, immediately got picked up by consumers, clearly something they were looking for. And within, I think, two weeks we were at 30% or 40% of our orders going out through that contactless carry out channel. So that’s a big idea and one that I think you’ll see stay in the industry and in our restaurants.
ALEXIS CHRISTOFOROUS: David, I know that Yum! Sold its stake in Grubhub for over $200 million. Should we read anything into this? What does it mean in terms of how Yum! Is looking at these delivery services or the delivery space?
DAVID GIBBS: Well, you know, as a restaurant with the largest footprint in the world– the restaurant company with the largest footprint, you know, we thought it was important that we truly understood how the aggregators were going to impact our business and we had some control over that process. So when the aggregator started to become a bigger part of the business, that’s when we made the investment in Grubhub, got a board seat at Grubhub. And that has been incredibly valuable.
You know, we got great terms in our deal with Grubhub so that we knew we could– our franchisees could make money by making that investment when they did orders through aggregator channels like Grubhub. And then, you know, as the environment progressed and we learned more by– with that board seat, you know, we’ve been able to strike profitable partnerships with other aggregators as well. So the sale is just simply realizing that we’ve gotten to a point where now we understand this environment, it’s something that’s helping us in our business, and we have partnerships with multiple aggregators. And we actually made a little money on the sale of the stock as well, so it worked out well from any angle that you look at it.
BRIAN SOZZI: David, real quickly before I let you go, you just dropped The Slab in Australia. You bringing that to the US?
DAVID GIBBS: You know, the great thing about our businesses all around the world, we’ve got what we call test markets. Every country is a test market trying something new. And if it works, we take it and expand it to other markets around the world.
So The Slab is a cool idea. I guess in Australian slang a slab is like a six-pack or a 24-pack of beer. So a Slab for us is a whole bunch of dinner roll chicken sandwiches, I guess, is the best way to describe it. And I know it’s proving very popular there. So stay tuned for seeing how that spreads throughout the world.
BRIAN SOZZI: Heck of a name. All right, Yum! Brands CEO David Gibbs, always good to speak with you.
DAVID GIBBS: Thanks for having me.
