Running Head: YUM BRANDS SITUATIONAL ANALYSIS

Running Head: YUM BRANDS SITUATIONAL ANALYSIS

 

Yum Brands Situational Analysis

 

 

 

Yum Brands Situational Analysis

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Yum Brands Situational Analysis

Introduction

Yum! Brands, Inc., has its headquarters at Louisville, Kentucky United States. The CEO is Greg Creed as of 2015 to present. This company is an international umbrella company that has the following subsidiaries under its wings; Taco Bell, KFC, Wing Street, and Pizza Hut. All these brands operate under Yum! Brands except in china where Yum China runs them. At this point, it is clear to see that Yum! Brands mainly focus on fast food and the main competitors, also deal with fast food; such as Mc Donald’s. This company has been declared a Fortune 500 company, in addition to having a spin-off; PepsiCo that started in 1997. This paper will be looking at the situational analysis of Yum! Brands that will help in understanding the external and internal environment of this brand to understand its capabilities.

Background Data on Sales & Costs

The sales of Mc Donald’s and Yum brands have not been that different for some few years now. The two companies have been competitors for a long time, and it is only fair to have them head to head in the market capitalization. As stated, before these two companies are both International giants in the fast-food industry. According to the NYSE as of August 30th, 2019, the market capitalization of Yum Brands was at 35,53 Billion dollars, and on the other hand, Mc Donald’s had a market capitalization of 165.54 billion dollars. Which is not a bad thing the gap may be a representation of how Yum Brands is not as “ancient” as Mc Donald’s. The good news is that the growth Index of Yum Brands is excellent and within no time will the brand catch up to their fierce competitor Mc Donald’s.

This is also as a result of the strategy the two companies have adopted of late. The de-risking approach, which means using refranchising to drop their ownership of restaurants around the world. This has technically reduced their operational costs, and overall costs while on the other boost earnings per share growth. Another factor is that there is a growing free cash flow, whereby Yum Brands is leading; which in return it gives the chance for both companies to make investments that are aimed at growing their restaurants, technically this is why these two companies are head to head, that will give us a transparent background of their performance in this situational analysis.

At the same, it is crucial to recognize that Mc Donald’s has more returns of about of 41.2% while on the other hand, Yum Brands have gained a 30.3% in the previous year up to date. This is to add to the fact that both of these companies have outperformed the fast-food industry in the margin of 14.4% in the same period. The EBITDA ratio presents vivid valuation and earnings of the two companies. Typically, it is usually the more appealing company is the one which shows a lower EBITDA. Thus, both of these brands are overvalued based on the overall industry EBITDA of 13,8. However, Mc Donald’s holds the lower EBITDA value between the two at 16.1 and 19.8, respectively (Zack equity research, 2017).

Competitors

There are a lot of competitors in this industry; the like of Wendy’s, Papa John’s, Del Taco, Quiznos and Mc Donald’s. But the focus will be mainly on Mc Donald’s since they are almost head to head in all aspects of the company and business in this industry. This segment will be looking at the advantages that Yum Brands had over the competition and what makes them a worthy competitor and a threat to a huge brand such as Mc Donald’s.

What makes Yum brands stand out is the three brands, being the owner of the big three brands in the world, KFC, Pizza Hut, and Taco Bell. These three brands have established themselves solidly in the fast-food industry, as compared to Mc Donald’s that is competing with the same brands. Another competitive advantage is the China dominance; following the creation Yum China has made this brand dominate china with KFC whereby it presents non-vegetarian food in this market. About this, Yum brands have the massive operation in highly populated markets such as China and India. Whereby also in India there is, Yum India responsible for all the franchises, whereby Pizza Hut and KFC are the major brands in the Indian Market. The fact that they are capable of getting the outside markets with more than one brand in the market is what makes this brand so fierce and competitive. With this in mind, it is a clear indication that the company has an expansion advantage, whereby smaller brands don’t pose any threat to this brand. Only huge brands such as Dominos and majorly Mc Donald’s to go against the Yum Brands (Bhasin 2019).

But at the same time, there is an aspect that leads Mc Donald’s to give Yum Brands a stiff competition. Every company has its weaknesses, and that is where they lose their competitive advantage. When it comes to quality, it somehow lags behind KFC, and that is where it fails, as KFC has managed to the quality world through the one system of operation worldwide instead of having different branches. Whereby this comes with the problem of customer service, which cannot be compared with the KFC customer service, which is much better, these are some of the issues that cause the Yum Brands to lose their competitive advantage, but overall, they a worthy competitor with largest brands in the hospitality fast food industry. The appropriate thing to do is to take of the flaws mentioned above, and it will have a better capitalization in the years to come. This is because matters like quality and customer are aspects that can be fixed if the management is willing.