Can Yum! Brands Really Double U.S. Taco Bell Sales by 2021?
According to a recent report from Nation's Restaurant News, Yum! Brands management just dished out some intriguing food for thought during their investor meetings last week.
More specifically, analysts from Robert W. Baird and Jefferies Group each issued bullish notes on Yum! stock after the company outlined plans to double last year's $7 billion in domestic sales from the company's Taco Bell subsidiary by 2021.
However, that begs two multibillion-dollar questions: First, is this kind of growth actually possible for Taco Bell here in the U.S.? Second (and more important for you), would investors be wise to buy Yum! stock now?
Given all the negative focus on Yum! Brands' KFC woes in China lately, it should come as no surprise that the company is spending some energy on honing its other brands until the international storm clouds pass.
At first glance, though, for Yum! to double Taco Bell sales in what appears to be a relatively mature market admittedly seems a tad overzealous. After all, Yum! already operates more than 5,700 Taco Bell locations in the United States, and all the company's chains combined only pulled in a total of $13.63 billion in sales during all of 2012.
Is it realistic, then, to expect Yum!'s domestic Taco Bell sales alone to reach $14 billion in just eight short years?
As we take a few steps back to look at the bigger picture, however, this long-term goal is more realistic than you might think.
So what's the master plan to find all this domestic growth?
First, the majority of the $7 billion increase should come by "growing average unit volumes with more menu items and more dayparts." I suppose this makes sense when we remember that the chain can attribute much of its 6% comparable-store sales increase last quarter to its affordable new "Loaded Grillers" menu items, which were created to increase Taco Bell's 1.2% share of the "afternoon snack" daypart.
For all you morning people, Taco Bell will also be rolling out its new breakfast lineup nationwide by the end of next year. And believe me, my local Taco Bells participated in Yum!'s testing round for breakfast, and those early-morning lines were definitely impressive. If all goes as planned, then, Taco Bell may have a fighting chance at wresting away a significant chunk of the morning market shareMcDonald's has so stubbornly held on to for years.
Yum! has also followed McDonald's lead by both working to improve restaurant ergonomics and offering healthier, higher-quality menu items such as the Cantina Bell line. This serves to not only increase average unit volumes, but also improves customer perception of fast-food outfits like Mickey D's and Yum!'s brands. In turn, they're able to more effectively compete with up-and-coming fast-casual concepts like Chipotle Mexican Grill and Panera Bread.
Finally, Yum! is planning to increase its total number of U.S. Taco Bell locations by around 2,300 units to 8,000. Around half of the new units are to be built in smaller towns, between 700 and 800 will go to more traditional suburban markets, and 200 to 300 new locations will be built in urban settings.
Once again, those new unit numbers might sound intimidating at first, but before you go rolling your eyes, remember that McDonald's already boasts more than 14,000 locations in the U.S. alone, or 75% more than the total number of Taco Bells Yum! hopes to have eight years from now.
Foolish final thoughts
In the end, I'm convinced it's not just possible, but more than likely probable that Yum! will manage to achieve $14 billion in U.S. Taco Bell sales by 2021.
When we consider that this doesn't take into account the company's other popular KFC and Pizza Hut chains or its massive potential for international growth, Yum! stock is beginning to look more delicious by the day.
More expert advice from The Motley Fool
McDonald's turned in a dismal year in 2012, underperforming the broader market by 25%. Looking ahead, can the Golden Arches reclaim its throne atop the restaurant industry, or will this unsettling trend continue? Our top analyst weighs in on McDonald's future in a recent premium report on the company. Click here now to find out whether a buying opportunity has emerged for this global juggernaut.
The article Can Yum! Brands Really Double U.S. Taco Bell Sales by 2021? originally appeared on Fool.com.Fool contributor Steve Symington has no position in any stocks mentioned. The Motley Fool recommends Chipotle Mexican Grill, McDonald's, and Panera Bread. The Motley Fool owns shares of Chipotle Mexican Grill, McDonald's, and Panera Bread. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
Copyright © 1995 - 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.