Taco Bell to Make a Big Run Across the Border
Yum Brands is the parent company of KFC and Pizza Hut, two concepts that have largely thrived overseas. KFC and to a lesser extent Pizza Hut have been big winners in China until a recent poultry supplier scare resulted in a hit to traffic at KFC.
In fact, Yum Brands has more restaurants in China -- 6,419 in total, consisting of 4,669 KFCs, 1,397 Pizza Huts and the balance coming from a pair of China-specific concepts -- than the 6,109 Taco Bell eateries it watches over worldwide. That will change in the next few years as more Taco Bells begin popping up overseas, but it won't be easy.
Fast and cheap spins on Mexican staples haven't been an easy sell around the world. It's probably not a coincidence that the two spots outside of the 50 states that have the most Taco Bell locations are Canada and Puerto Rico, and neither place has more than three dozen locations at the moment.
KFC's fried chicken was an easy sell in China, where it's a popular delicacy. Pizza Hut's pies are an established form of food throughout most parts of the world. The global appetite for tacos and burritos isn't as pervasive as we're seeing with pizzas and chicken.
That's a shame for Yum Brands, because Taco Bell has been a star performer since the introduction of Doritos Locos Tacos in 2012. Rolling out tacos served in Doritos-dusted shells has resulted in the sale of more than 825 million units, and earlier this year Taco Bell set itself up for even headier store-level performance with the national rollout of a breakfast menu.
Bell of the Ball
The push to give Taco Bell a bigger stage overseas comes at a challenging time for Yum Brands. The situation in China with consumers staying away from KFC has weighed on its financial performance. Yum has already stopped working with the supplier that got called out in July for its food-handling practices, but the public can be slow to forgive.
KFC had an aggressive promotion on its chicken buckets in China last month, but Yum's latest guidance suggests that KFC will post another double-digit year-over-year decline in comparable-store sales for the current quarter.
Shares of Yum Brands moved lower on Wednesday after warning that earnings per share will climb by at least 10 percent in 2015. That may not sound so bad, but analysts had previously been holding out for a 16 percent boost on the bottom line.
Having so many of its eggs in one basket -- or in this case one poultry bucket -- isn't helping, validating the move to give Taco Bell a larger presence overseas. It won't happen right away; the move will take a few years to play out. However, it's the right time for Yum Brands to see if Taco Bell can give it some welcome geographical diversification.
Motley Fool contributor Rick Munarriz has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. To read about our favorite high-yielding dividend stocks for any investor, check outour free report.