Yum! Brands Inc.

A Corporate Do-Over

Marketing of ServicesMarketing of Services

Group - 7

HIGHLIGHTS OF THE CASE

• Positioning of Services in the competitive market

• Designing & managing service processes

• Managing people for service advantage

• Service employees are crucially important in hospitality

Industry

• Service Leadership of Novak & Culture of Yum!

• Strength of Organizations Culture, Performance

Management, Training & Team building

Fact File

• YUM! Brands, Inc., based in Louisville, Ky., is the world's largest restaurant company

• The co. has wide portfolio of 37,000 restaurants in 110 countries under the KFC, Pizza Hut, Taco Bell, Long John Silver’s, and A&W All-American Food Restaurant brands.

• YUM! Brands, Inc. operates independently of PepsiCo, Inc. as of October 6, 1997.

• The company was formerly known as TRICON Global Restaurants, Inc. and changed its name to YUM! Brands, Inc. in May 2002

•  It is ranked #239 on the Fortune 500 List, with nearly $11 billion in revenue in 2009.

• The company has marked a voluptuous EPS growth of 13% in 2009 & exceeded its10% EPS growth target

Yum! Vision & Strategy

• Yum! Brands is committed to continuing the success realized during its first ten years.

• Yum! is building a vibrant global business by focusing on four key growth strategies:

Corporate History

• In 1986 Novak joined PepsiCo. as Marketing Executive for Pizza Hut

• By 1996, Novak had made significant progress, profits & same stores sales were growing at double digit rates

• In 2000 Novak assumed the title of CEO & added the title of chairman in 2001 while Andy Pearson remained on BOD as Founding Chairman

• Novak had strong belief in relationship with its franchise owners & his own employee

• He renamed KFC headquarters as “Restaurant Support center”

• He formed a corporate council including presidents & COOs of each brand plus his own staff

Multi-Branding

• Customers prefer multi-branding over single brands

• It provides them more choice & convenience under one roof

• Hence our KEY CHALLENGE!!– To build operational capabilities to run these

restaurants & keep getting better & better

The Do-over Options

• Model 1 – Decentralization- Each brand standing alone– Similar to PepsiCo.– Overhead cost will be small &savings will be invested in

staff at the brand level for their growth & development

• Model 2 – Complete Centralization –One Headquarter for all brands– Redundant costs e.g. personnel for each brand

reduced, as could travel & facilities cost– Restaurant brands were similar businesses; hence

advantageous to combine functions

The Chosen Hybrid Approach

• Activities critical to brand-that make it unique will be managed from headquarters

– E.g. Marketing & Restaurant operations

• Functions not critical to brand identity to be organized into single “SHARED SERVICES”

• SHARED SERVICES” helped leverage YUM!’s overall size to gain synergies & reduce cost

Key Strategic Initiatives

• Closing 700 underperforming company owned stores (mostly U.S. based Pizza Hut stores & selling off (re-franchising) another 700

• Focusing on increasing lunch time sales at KFC & Pizza Hut; and

• Continuing to grow the international business by focusing on fewer, but fast growing markets

Laying the Foundation

• The essence of the new company was set out by Novak by distributing: – “Our Founding Truths”- Guiding principles

of the company– “How we work Together”- Guidelines for

work place norms– “Our Passion” describing the core values of

the organization as a whole“Novak was very passionate about Yum!’s

dynasty model”

KEY CHALLENGES

• Restaurant design

• Equipment selection & design

• Food holding times

• “Back of the house issues”

• Managing the multi-brand restaurant

• All brands created equals – Menu Complexity at multi-

brand restaurant

Shared Services, Performance Management & Recognition

• Shared services was fundamental design feature of the company

• It took away everything which was a distraction to “identity, heritage & people” however provided synergies

• Each restaurant was rated on CHAMPS Scores – Cleanliness, Hospitality, Accuracy, Maintenance, Product Quality, Speed

• A book titled “Customer Mania! Its never too late to build a Customer Focused Company” was written by Ken Blanchard who was impressed by Yum!’s operating culture & processes

Shared Services, Performance Management & Recognition

“People want to work in a place where they are recognized. We do not make recognition an accident. It is built in to the system” – Novak

• Several Employee recognition programs were implemented– Floppy Chicken Award at KFC– The Big Cheese Award at Pizza Hut

• Every Leader at Yum! was required to create a recognition award tailored to a specific achievement

• Within RSC in Louisville, Kentucky, was the walk of Champions

Training & Coaching of Employees

• The company took special care while recruiting & training its employees

• This was important as employee turnover in fast food industry is as high as 200%

• It was important for a potential hire to get a first hand look at how the restaurant operates

• Team cohesiveness was given utmost importance• The company taught its employees how to exceed

expectations of the customers• Sharing Best Practices was a common feature in Yum!• It taught how to recover when you make a mistake

Training & Coaching of Employees

• Coaching status

– Regional Coaches

– Market Coaches

– Area Coaches

– RGMs

• Coaching did not only occur down the hierarchy

• Restaurant members always list “a sense of belonging & Family” as top reason for staying

• Performance evaluation was done on 360 degree basis & they called it “Voice of the team”

Looking Ahead

• Novak believed in right investment at right place at the

right time- like already done in the fastest growing

economy in the world - CHINA

• Increasing presence in the international market is

challenging-Multi Branding further complicates the issue

• Yum! Is evaluating options for overseas expansions like

purchase of a local brand, moving from quick serve

business to casual dinning, adding a large hamburger

chain to its portfolio etc.

Observations

• The NI of the company has grown by ~ 27% in 2 years

(from 2002 to 2004)

• While the restaurant count of Pizza Hut is increasing that

of A&W, LJS & TACO Bell have reduced

• Total US Sales has increased by $ 2.4 billion (16%

growth in 4 years), the same internationally has

increased by $ 3.3 billion (43%)

Recommendations

• The company needs to pay more attention in

strengthening the Taco Bell, A&W & LJS internationally.

• It can also explore the options of holding the multi brand

outlets concepts in the unexplored markets like India,

where the food culture is vastly going quick to serve

Thank You