Yum Brands at Bernstein Conference: Growth Amid Digital Transformation

On Wednesday, 28 May 2025, Yum Brands (NYSE:YUM) presented at the Bernstein 41st Annual Strategic Decisions Conference 2025, outlining its growth strategies and digital transformation efforts. The company, despite its size, remains focused on expansion, leveraging digital tools and franchise partnerships. However, challenges in certain markets, such as China, present hurdles.

Key Takeaways

• Yum Brands aims for 5% unit growth and 8% core operating profit growth annually.
• KFC International and Taco Bell US are key growth drivers, contributing 82-83% of operating profit.
• Digital transformation through "Byte by Yum" is enhancing consumer experience and operations.
• Taco Bell achieved a 9% same-store sales growth in Q1, surpassing industry averages.
• The company is focusing on expanding its digital and technology workforce.

Financial Results

• Yum Brands targets a long-term growth algorithm of 5% unit growth, 7% system sales growth, and at least 8% core operating profit growth annually.
• Since 2021, the company has consistently achieved 5-6% unit growth.
• Taco Bell US reported a 9% increase in same-store sales in Q1, outperforming the quick-service restaurant (QSR) industry.
• Taco Bell contributes 80% of Yum’s US operating profit.

Operational Updates

• KFC International opens a new restaurant approximately every three hours, while Yum Brands as a whole opens one every two hours.
• Taco Bell International has expanded from 400 units in 2018/2019 to over 1,000 units.
• Byte by Yum aims to improve consumer experience and operations, with early data indicating positive impacts on restaurant-level performance.
• Approximately 500 Taco Bell units have implemented voice AI technology.

Future Outlook

• Yum Brands plans to continue increasing unit count and average unit volumes.
• The company sees significant potential for Taco Bell International and aims to grow Byte’s presence globally.
• AI-driven marketing personalization is being piloted across US brands with encouraging early results.
• Yum China serves one-third of the Chinese population, but restaurant density remains lower compared to the US.

Q&A Highlights

• Discussion on competition in the chicken sector and Yum’s franchising strategy.
• Insights into Taco Bell CEO Sean Tresvant’s brand vision.
• Expectations for unit development outside China and succession planning for the CEO role.
• Balancing research and development investments with cost optimization.

For more detailed insights, refer to the full transcript below.

Full transcript - Bernstein 41st Annual Strategic Decisions Conference 2025:

Daniel Gargiolo, Restaurant Analyst, Bernstein: Alright.

Chris Turner, CFO, Yum Brands: Testing.

Daniel Gargiolo, Restaurant Analyst, Bernstein: I feel like a singer now. Alright. Let’s get started. Good afternoon, everybody. Thank you for joining us.

I’m Daniel Gargiolo, restaurant analyst here at Bernstein. Thank you so much for joining us, and thank you, Yum Brands, for being here today. We have here with us Chris Turner, who’s the CFO of Yum Brands. And Chris joined Yum from PepsiCo where he served as a senior vice president and general manager leading PepsiCo’s retail and ecommerce businesses with Walmart in The US and in more than 25 countries. Prior to that, he was serving as the SVP of transformation for PepsiCo Frito Lay North America business, he was optimizing Frito Lay’s world class direct store delivery capabilities.

And then prior to that, he was a very successful partner at a very small company called McKinsey. And with us also, Tracey Skins is with us. She’s the COO and Chief People and Culture Office at Yum! Brands and Tracey is the institutional knowledge, I should say, of Yum. She’s responsible for leading cross brand collaborations on operational execution, people capability and customer experience imperatives.

She’s overseeing business transformation now and she leads food safety, human resources, equity and inclusions and communication. Previously, as a chief transformation and people officer, she was partnering with the CEO and global leadership team to execute the transformation to become a pure play franchisor in 02/2019. So, Tracy, welcome to the stage as well.

Tracey Skins, COO and Chief People and Culture Officer, Yum! Brands: Thank you.

Daniel Gargiolo, Restaurant Analyst, Bernstein: Alright. Let me get started maybe with a quick opening. Chris, what would you like investors in the room to remember by the end of this conference?

Chris Turner, CFO, Yum Brands: Yeah. Thanks, Daniel. Thanks for having us, and thanks to everyone who’s made time to join us. Look. The Yum global story, I think, is is an amazing one, but our brightest days are actually ahead.

So a few things that I would want people to take away. One, while we’re the largest restaurant company in the world in terms of unit count, we still think of ourselves as a growth company. And we are driving every day to to grow our business. And if you think about our twin growth engines, KFC International and Taco Bell US, which represent 82, 80 three percent of our operating profit around the globe, they are tremendous growth engines with structural advantage. Taco Bell US in q one far outpaced The US QSR industry because they provide an exciting brand, great food and innovation, all at tremendous value.

And that was what consumers needed in q one. KFC International is our leading unit development engine. We open on average over the last few years a new restaurant in KFC International about every three hours. So it’s an amazing growth engine with tremendous franchise partners and great unit economics. So those are our two primary growth engines that we think of ourselves as a growth company.

Second, I’d want them to remember our resilience. So while we think of ourselves as a growth company, our business model is inherently resilient in a volatile world. With four iconic brands, a 50 countries, and a 98% franchise model, that gives us multiple layers of resilience to navigate any sort of macroeconomic environment. And that’s how in the last two years, we’ve delivered 8% core operating profit growth and did that again in q one. The third thing I would say, I want people to remember, is we are transforming the company for future growth.

And Byte by Yum, our digital and technology capability, is probably the best example of that. It is the leading multi brand, multi country restaurant platform built by restaurateurs for restaurateurs. And, we’ve made a lot of progress with Byte, but our biggest days and biggest impact are ahead of us on that.

Daniel Gargiolo, Restaurant Analyst, Bernstein: Great. And maybe let’s dig into this transformation at Yum. Maybe, Tracy, you’ve been part of the company for a long time. So can you walk us through the transformation over time? How is the strategic imperative at Yum!

Over the past fifteen to twenty years and how do you expect this transformation strategy to be evolving in the next five to ten?

Tracey Skins, COO and Chief People and Culture Officer, Yum! Brands: Sure. Well, like you say, institutional knowledge also means you’ve just been around for a really, really long time. So, you know, I joined Yum in February, so it’ll be twenty five years in another month or two. And at that point in time, we were only three years post our spin off of PepsiCo. So, you know, I was I was obviously much, much younger and more junior in the in the organization then.

But I think that that first sort of decade of the February was about you saw us doing a ton of expansion, really driving into international markets. That’s when the China seeds were being planted. Was interesting. Like, growing up in the company when you’re young, you you I worked for the Pizza Hut US business and had friends at Taco Bell US and KFC US, but everything you heard about was international, international, China, China, China. And so I think at that phase, it was how do you become a stand alone company from PepsiCo?

We were saddled with a a ton of debt at the time, but the company was taking off, and the international and China businesses were were really kind of pedal to the metal. I think the first major transformation came, which I worked on in February at the beginning of 02/2014, which in some ways was just the way we run the company. At that time, we were we were geography based. And so you would you would have a CEO of KFC US, a CEO of KFC India, a CEO of KFC China, a CEO of KFC for all the other countries, and they all would have their own ideas about what KFC should be. And at the beginning of 2014, we changed to be brand specific, and I think that was the first pivotal moment of transformation to say there is one Pizza Hut brand, there is one KFC brand, and there is one Taco Bell brand, which was a massive organizational transformation.

You then go a few years forward, and I think this is where our business model changed. In 02/2016, we completed the split. By that time, the company was so large that the way we described it to investors at the time was you really had two powerful, huge companies inside of one company. A China business that was all equity owned, obviously a much higher risk profile to have a fully equity owned business in China, and then the rest of the world, which was at that point 92, 90 three percent franchised if you took out China, and we split the companies. And so that transformation, again, it a business model.

That’s what you’re referring to, to say we are going to be asset light now. So not only did we split the companies in two, we then set off in 02/1718 to become asset light. The rest the equity restaurants that we had, we started to sell them off and say, we wanna be a pure play franchisor, which then led us into around 2020 when we were saying, hey. This is the time that we should start figuring out how to better leverage our scale. This is the start of kind of ’19 when Chris joins us, 1920.

Now we have an asset light portfolio. We don’t spend much capital, but we also don’t do much together as different brands. And that then became what we believe was a disadvantage. Why shouldn’t we be doing more together? We started to look at the D And T area as a place where we travel around the world, and you would see KFC in Asia looking at voice recognition technology and what they could do.

And you’d see Taco Bell in The US doing something, and you started to say, we should really perhaps change the way we operate so that we do these things together and can better exploit our scale. Just a few things happened right around that time, though. You had COVID happen and a pandemic. You then had a war with Russia and Ukraine, and so different things happened. But all along that, despite those crises that were affecting the business, we were sometimes slowly, sometimes quickly behind the scenes working to get to a point that we could really, really leverage the digital and technology capabilities.

And so starting to change the way we operate, having the brands collaborate more together, rationalizing some resources so that we could take the savings and invest in AI, in digital, and technology, doing that, sometimes quietly behind the scenes while we navigated everything else, and that’s what’s brought us now to bite by yum. We’re to a point that the organization operates in a very different way. More than half of our 5,000 employees will be digital and technology employees, which is pretty phenomenal, and yet a lot of that happened behind the scenes for several years, and now we start to see it taking off.

Daniel Gargiolo, Restaurant Analyst, Bernstein: Excellent. By the way, I want to remind everybody if you like to, submit any questions, you can use the Pigeonhole app, and you can visit pigeonhole.@ with passcode sbc2025 to submit any questions. Chris, I would like to go back to your statement. You mentioned that you like investors to remember that or to appreciate that the growth mindset is still out there. Number two, that the business model is built for resilience and then number three, that the digital component has a lot of potential.

As a CFO, what do you think is still underappreciated in the stock today? Yeah.

Chris Turner, CFO, Yum Brands: Look. I I think if I think about the questions that we get from investors and things that people, you know, want to understand, they tie to some of those areas. So if you think about our growth potential, you know, people sometimes say, hey, you got 60,000 restaurants around the globe. Can you really continue to build new restaurants at the clip that you do? I mentioned the new KFC International every three hours.

In total, we open a new restaurant across all of our brands every two hours. And the answer is is yes. There’s plenty of white space opportunity out there. And it’s because our brands, KFC in particular, are just so translatable to consumers in every corner of the world. We have growth minded franchise partners.

And this is really important. Our franchisees are wired for development. We’ve got franchisees who have incredible development capabilities. They’ve got the white space in the markets. And they’re bringing that to life.

So there’s a ton of runway left from a unit development standpoint. A lot of questions on Byte. And I and I think the value of Byte, and the value potential of Byte will continue to come to life over the coming years. We’ve made an incredible amount of progress, but really the value potential we’re only starting to unlock. And I think over the next several quarters and years, we’ll continue to see more of the progress there.

We shared a lot at our Taco Bell Investor Day earlier in the year about the impact that Byte is having at the restaurant level and with our franchisees. Taco Bell US is a place where we’ve implemented a lot of the bike technology, and we shared a lot of information there about how when we grow the digital mix in that business, we see the absolute top line grow. We see the bottom line for our franchisees and our company stores grow. And we even are now seeing better team member experience. So this is technology working with our frontline team members.

So I wanna help people continue to understand the value potential that that Byte can create for our franchisees, but also for Yum. So I think those are are two big things that we need to continue to help people to understand.

Daniel Gargiolo, Restaurant Analyst, Bernstein: Yeah. Maybe let’s let’s go deeper on the first one, and then we’re gonna touch base on the digital side. So as you’re thinking about growing the unit going forward, how much do you think the 5% increase in unit is going to be sustainable beyond 2025? In 2025, you mentioned that you’re still going to be reaching 5% if you’re excluding the one off closures in Turkey. How sustainable do you think that this 5% is going to be going forward?

And specifically, how much reliance on the algorithm do you place on KFC International versus how much growth potential do you see from Pizza Hut and Taco Bell in international markets?

Chris Turner, CFO, Yum Brands: Yeah. So for those of you less familiar with the story, our long term growth algorithm, what we try to deliver over the long term, Adam, is every year 5% unit growth. That coupled with same store sales growth translating to 7% system sales growth. We want that to be the goal in a typical year. All translating to at least 8% core operating profit growth.

And if you think about those elements, ever since 2021, we’ve delivered either 6% or 5% unit growth in each year. And it’s been a tremendous focus for us. But I think we have a competitive advantage in unit development markets around the globe. It’s coupled It’s the things that I mentioned earlier. The white space, coupled with tremendous franchise capabilities.

Know, mentioned that we have When you think of the term franchisees, sometimes you think of small business people. And we have some of those in our system. But about seventy five seventy to 75% of our stores are owned by about 75 of our largest franchisees. Fourteen of those are publicly traded companies. So these are larger, more sophisticated enterprises with a lot of capital to deploy.

And they think through macro volatility in the short term and say, this is an opportunity for us to continue to grow. Yum China has done an amazing job of this as an example. And so it’s that combination of factors that I think gives us confidence that over the long term, we can continue to deliver on that 5% unit growth. KFC International has traditionally been the lead developer, and I think that will continue to be the case. But the the place where there is tremendous untapped opportunity is in Taco Bell International.

So we’ve we’ve had explosive growth there. We had 400 units in 2018, ’20 ’19. We’re now over a thousand units in Taco Bell International. It takes a little longer to bring consumers along in markets around Mexican and California inspired cuisine, and to understand the Taco Bell brand. But we think in the long run, there should be thousands and thousands of Taco Bell international units around the globe.

So that’s one that we’re working to, you know, always accelerate and grow.

Daniel Gargiolo, Restaurant Analyst, Bernstein: And maybe, Tracy, last night you were mentioning the two case examples of The UK versus China. In one example, Taco Bell has done tremendously well. Like in The UK, they really are accelerating the speed of opening. In China, there is a bit of reset moment to maybe shift the strategy of openings as well as operations within the stores. So can you help us understand your learnings in this journey of making a brand which is so California and Mexican inspired to become an international player.

Tracey Skins, COO and Chief People and Culture Officer, Yum! Brands: Yeah. And it and it’s actually my guess is it’s an experience all of us could con could kind of relate to that what we found I mean, first of all, when KFC went into China, it took, for goodness sakes I mean, it took ten plus years to to get it even to a point that then it started cranking. And so, you know, new brands, you know, new foods in different countries takes takes a while. When we first entered Taco Bell into China, I remember being there to the first flagship store, watching it open. And for right or for wrong, it’s normal for our franchisees to to tweak things in in country.

That’s that’s part of you know, they have to have certain standards, but they also make changes. And what we found thus far is that, you know, despite our incredible partnership with Yum China, when it comes to Taco Bell, they’ve made some tweaks to the brand, they’re not fully resonating yet. And so we find ourselves at this reset moment. At the same time, their growth on KFC and Pizza Hut continues, and phenomenal operators there. But I think the Taco Bell brand still has some work to do.

On the flip side, our KFC business in The UK and our Pizza Hut business has always been strong. KFC especially, very strong in The UK. Well now as Taco Bell’s entering, I I think you have a couple different things going on. I think you’ve got some franchise partnerships that are in that market with Taco Bell, perhaps more tell me exactly what to do, and I will do it and not mess with it as much. That sounds very simple, but sometimes that works.

Here’s the answer. Do that. Some really good collaboration with the other franchisees and teams in that market. And Taco Bell seems to be taking off there much more quickly than other places. So we’re excited about that.

And then there is this, we’re seeing it happen in other parts of the world, we’ve had it happening in India and some other places, that Mexican food and the form of Mexican food is not familiar to to everyone. And so there there’s a great couple ads that we’ve done and some work on social media in one of our I think one of our European countries sort of trying to teach people to tilt your head when you bite a taco. Sounds kind of kitschy, but but actually is the type of almost marketing tactics that you’ve gotta have to build a brand from scratch that that no one else has ever seen.

Daniel Gargiolo, Restaurant Analyst, Bernstein: And and, Chris, maybe how how much is the algorithm hinging on a recovery in China? Because one of the questions that investors might be thinking through is, well, so far China has been the biggest developer for KFC. Admittedly, Yum China has been growing units even when nobody expected them to be opening units in the middle of COVID, showing again resilience and commitment from franchisees. How long do you think this could continue if the macroeconomic conditions were not to recover? So and how much opportunity do you see to open in white space outside of China if that were to become the reality?

Chris Turner, CFO, Yum Brands: Yeah. So our, you know, our partners at Yum China are amazing leaders and amazing restaurant operators. And while we have, you know, well north of 10,000 units in China, we’re still very underpenetrated. And and you’ve heard them say on their earnings calls, they’re only serving one third of the Chinese population. If you look at the the density of our restaurant count relative to the consuming class population, it’s only about a a third of where we are in the in The US.

So there’s still tremendous white space for them to grow into. You’re seeing them move into lower tier cities. In Pizza Hut, you know, where they have the traditional format there has been these large dine in restaurants. They’re building more delivery oriented satellite units around those. So lots of remaining potential.

And you’ve heard them talk about having two to three year So the unit economics are there, and that’s why they continue to build in those brands. Now the macros have been more volatile. They’ve talked about the volatile macros and the impact on same store sales growth. We would all love to get to a more stable state there where we’re seeing consistent strong same store sales growth.

But I think if you were to compare how Yum China’s performing on that dimension relative to a lot of its competitors, it is outperforming the competitors in a volatile environment. So they’re they’re doing a a nice job driving the business. And while it has been our primary unit growth driver, we expect to have unit growth in countries around the globe. We typically open in in well over a hundred countries each year. And we talk with our franchise partners.

We want our franchise partners to be what we call three c. And the first is capable. We need them to run great restaurants. The second is being well capitalized. But the third is is what really differentiates us from a development standpoint versus other franchisors is we want them to be committed.

And what committed means in in our language is committed to using some of the profits that they generate from the business to reinvest in unit growth. Because as we have more units, we develop greater scale. Our marketing becomes more efficient. Our procurement and purchasing becomes more efficient. Our technology becomes more efficient.

And so our so there are returns to scale as we grow in markets around the globe. So our expectation is that every market should be should be developing and growing the unit count.

Daniel Gargiolo, Restaurant Analyst, Bernstein: Yeah. And I mean, to be honest, I I found I recently visited Italy, I didn’t think like KFC would be working in Napoli, my home city, and it was actually packed. But

Chris Turner, CFO, Yum Brands: I I was with our partners there last summer, and was on the ground visiting restaurants. It’s super exciting to see what’s what’s happening there. I mean, they’ve gone from below a hundred units. They’re gonna be, they’ve added a lot of units. The AUVs are strong.

The business is strong. They’ve got some exciting flagship locations, I think, that are planned in the future. That’s a very exciting market.

Daniel Gargiolo, Restaurant Analyst, Bernstein: Yeah. And I wonder, you also see the competition stepping up, You see many competitors now, especially in the chicken space, starting to have international vision and be more expansive about the opportunity that they see. Now, you mentioned before the three c and the commitment and how there is scarcity of talent and scarcity of franchisees. So can you help us understand how the evolution of the competition in these different markets could be potentially hindrance to the growth of Yum or whether you think you have a protected, know, defensible structure that will enable you to grow despite the competition potentially rising.

Chris Turner, CFO, Yum Brands: Yeah. Look. We we wanna be laser focused on beating the competition. Everyone at Yum! Wakes up every day and say, do I go win market share?

How am I out competing the the very good competitors we have in each of our markets around the globe? Now when I talked about those twin growth engines, Taco Bell US and KFC International, they do have structural advantage. We talked about Taco Bell as the category of one in The US. They’re by far the largest player in Mexican QSR. Globally, KFC is really the only large scale chicken focused player.

They are significantly bigger than any other chicken focused player from a global standpoint. But we don’t take that for granted. So any time our competitors are moving into new markets, we wanna be there to win the consumers parts and minds, continue to win the consumers hearts and minds. So our team is wired for that. One of the competitive advantages that we have, that I do think gives us a defensible moat, but again, we don’t take it for granted, is our franchising capability.

So if you look at how restaurant brands that have grown from The US to global markets. Really, the only successful ones that have done it at massive scale have done it through franchising. That’s just the case. There’s about five companies that have figured that out. That is a very hard capability to develop.

We’ve been at it. PepsiCo was at it. We’ve been at it for decades and decades. We’ve learned a lot about how to be what we think is the world’s franchisor of choice. And we’ve developed what we think are the best franchise partners in the vast majority of the markets in which we operate.

And I I think as these US brands that have done a really nice job in The US, where we have KFC US is a very small part of KFC Global. For them to expand globally, they’re gonna have to figure out how to do franchising. A lot of them are company operated models in The US. So I think that’s a mode. But again, we want our team showing up and out competing the competition every day.

We don’t take anything for granted.

Daniel Gargiolo, Restaurant Analyst, Bernstein: Can you also talk about the supply chain benefits that you have? You know, the the benefit of scale from a supply chain standpoint, particularly on the procurement side. And then eventually, we’re gonna switch gears onto the digital side as well. So what kind of role does digital have in the ecosystem to protect your strategic positioning? So

Chris Turner, CFO, Yum Brands: this next layer of competitive edge comes from scale. And you’re hitting on supply chain. So one of the benefits of having four brands in our portfolio is we leverage our purchasing scale across those brands. So in The US, we have one of the largest co ops in The US that’s jointly owned by our franchise partners and by Yum! That has a team of professional strategic sources.

This is called Restaurant Supply Chain Solutions or RSCS. So they do procurement on behalf of all four of our brands in The US. So as Taco Bell shifts more into chicken, they’re able to leverage the scale of the chicken purchasing that we do at KFC. Globally, there are a set of categories that have a more global procurement environment. Equipment being an example.

And in those categories, have global, a Yum! Global supply chain team that works with our franchise partners around the globe to take advantage of cross country scale and cross brand scale. So that’s something. And then we have franchise partners who are of a scale that they are developing their own supply chain capabilities that give them a competitive advantage in specific markets. I was in South America A Couple Of Years ago, and I’ve spent a lot of time with this franchisee since then.

Juan Carlos Serrano, the Serrano Group. They now have a number of commissaries that they have built that sit above the restaurants that have chicken processing capabilities, some really interesting ice cream capabilities that give them a cost and service advantage that would be very hard for anybody new to the market to replicate.

Daniel Gargiolo, Restaurant Analyst, Bernstein: Got it. Switching on the other side of the growth engine. Right? So so far, we’ve been talking about international. But Taco Bell has been explosive in their growth.

Looking at the first quarter, they’ve been outpacing pretty much every QSR that is at least publicly traded. So what do you attribute the strength of and the resilience of Taco Bell to?

Chris Turner, CFO, Yum Brands: Yeah. Taco Bell US, one of those twin growth engines. For those who didn’t see the results in q one, put up a plus nine same store sales growth in q one in a really tough environment here, where that was far outpacing the rest of QSR. So what makes Taco Bell work? We call it the magic formula.

And it starts with a a culturally relevant brand, a really buzzy brand. And Sean Tresvant and the the marketing team at Taco Bell do an incredible job of this. They speak to the cultural rebel. Now we serve just about everyone in The US, but even guys like myself, I think of myself in the back of my brain somewhere, hey, I can still be a cultural rebel. And so speaking to the cultural rebel resonates with just about all consumers in The US.

So it starts with that. Second, QSR, you always want craveable food that you feel good about eating. And Taco Bell has an amazing menu. It’s distinctive. You won’t find Taco Bell’s products at any other competitor.

And they have this innovation engine that continues to produce hits. And so you’ve got the the core, but then you’ve got the innovation engine. We did an event in Brooklyn back in February called Live Moss Live, which is our annual innovation event. Think of Steve Jobs releasing back in the day, the next innovation from Apple. This is sort of like that.

Our innovation experts make a big scene of this. You can go find the video online. But the innovation engine keeps, there’s always something new to try at Taco Bell. And then you couple those two or you tie those two things with an incredible value orientation. And you can get amazing value at Taco Bell.

Know, the items at $1, 2 dollars, 3 dollars. We have the craving meals at five, seven, nine. And so Taco Bell is viewed as a place where you can get tremendous value. And you can if you want it. But the magic formula, the way it works, people may come for value, but a lot of them choose to then buy off the core menu or off the innovation menu at a slightly higher price point, still a tremendous value.

And that’s what allows us to have a buzzy brand that grows, but has very high margins for our franchisees and really strong unit economics. So it’s a it’s a really special positioning and formula that Taco Bell has that gives us power. Of course, part of that is based on leveraging Yum’s scale in in purchasing and in technology in a way that further benefits the the bottom line.

Daniel Gargiolo, Restaurant Analyst, Bernstein: And that’s about 80% of people, if

Chris Turner, CFO, Yum Brands: I recall correctly. Right? 8080% of our US operating profit comes from Taco Bell because it’s a it’s a big business. It’s our biggest US business, and we own about 450 of the restaurants there. So we also have the profit stream from those restaurants.

Daniel Gargiolo, Restaurant Analyst, Bernstein: Now how do you how do you think about your positioning versus, say, the burger category over the next five years? Specifically, maybe for Taco Bell.

Chris Turner, CFO, Yum Brands: Yeah. So, you know, I think Taco Bell has a very differentiated differentiated position. And it comes from that category of one, really the only scaled Mexican QSR player. With such an innovative menu, you’re always able to do something different. You’re not constantly you know, people ask us a lot of questions last year about the the burger wars and the price competition.

Taco Bell during COVID never really came off of value. They always had strong value. They dialed back on innovation a little bit Because consumers cared about being able to deliver and delivery capabilities, and running the restaurant safely for team members and consumers. So we enabled that by dialing back on innovation a bit. As we returned to a more normal QSR environment, where many of our competitors in the burger space came off of value and they’ve come back on value, because we never came off of value, what we’ve done is we’ve turned the innovation knob back up.

We need a little more excitement to ensure consumers are still excited about coming to Taco Bell. And so we dialed it up last year, we dialed it up again this year, but we have great operations that allow us to have more innovation while still delivering on a speedy, easy experience for consumers. So I think it’s that differentiation across all of those elements that will allow us to compete very well against the rest of QSR. Great.

Daniel Gargiolo, Restaurant Analyst, Bernstein: And Tracy, you know Sean really well, clearly having hired him. So what do you think he can bring to the table above and beyond the innovation that you think is going be in our three years? So not something that he has already worked on so far, but something that you think is within the possibilities of Taco Bell that we might be exploring say three, five years down the line.

Tracey Skins, COO and Chief People and Culture Officer, Yum! Brands: Sure. I mean, before that, I I just wanna add on to one thing that Chris said when you asked the question about Taco Bell, and, you know, we we talk about this magic formula. We also talked earlier about the resilience that we feel Yum! Overall has. I would just add on to the the Taco Bell answer that it’s the leadership team that provides that has has to be the the magic to the magic formula.

Obviously, you have to have a a a cool brand and and the brand that speaks to the cultural rebel and makes the rest of us wish that we also were cultural rebels, but we’re drawn to it anyway. But it’s the team that does that. And I that doesn’t mean that it’s that exact team all the time. I think it’s an interesting point that Sean’s only been with us a few years. He’s been in the CEO seat for less than eighteen months and was with us before that as chief brand officer for a short time.

But there is enough talent on that team, and they work in a way that they’re able to year after year after year keep that innovation going, move the value dial when they need to, coupled with the franchise base. I really stand by that it’s the leadership of Taco Bell and a lot of other parts of Yum! Too that keep things going. Sean himself, we were very purposeful hiring him. That that might not be a shocker, but we all over the globe, we have strong marketing capability, and that we’ve been known for that for the twenty eight years of Yum’s existence.

But there’s a difference between strong marketing capability and the skill set and, know, in in my kinda layman words, the the brand visionary. Someone that says, I I’m yes. I can adapt to whether marketing used to be done more on television, and now it’s done social media or it’s digital marketing or it’s performance marketing, and someone that really lives and breathes brand. Who is the brand? Who who will be drawn to the brand?

And that’s Sean. In my opinion, personally, the the last person that we had that was really great at that was probably Greg Creed in terms of one of our we’ve got we’ve got him out there. But in terms of the biggest leaders, that was the way that Greg Creed, when he was CEO of Taco Bell and then CEO of Yum, kind of it was all about the brand. And that’s where I think Sean is already helping. We were just on a one of the things we try to do more than ever is to get collaboration going amongst the brands.

So Chris and I were on a call just yesterday talking with the Pizza Hut team about something. Sean was on that call and weighed in with about the vibe and the feel of the brand. And so that’s not necessarily a quantitative answer. I can say, here’s what Sean will do. But you put his capability into the brand, combined with the other great skill sets of leadership team and the rest of the young leaders.

And I think we’ve we’ve really dialed up our sort of brand visionary capability, which is which is needed to stay relevant across the world.

Daniel Gargiolo, Restaurant Analyst, Bernstein: Excellent. Let’s move on to, the second part for investors to remember, which is digital. So, in layman’s word, what do you think is the biggest capability that Buy Buy could be unlocking for franchisees and for consumers?

Chris Turner, CFO, Yum Brands: Yeah. Great. Byte by Yum, as I said earlier, is an integrated suite of technology capabilities that cover all areas of what’s needed to run a great restaurant business. The consumer experience, the franchisee and team member operational experience, and the insights that you can generate leveraging the data. So it’s an it’s an ecosystem where the components of the system work and and and work together as one integrated stack.

We’ve been developing this, and we’ve we’ve decided this year was the time. We’ve made enough progress. Let’s brand it as Byte to help people understand what we’ve what we’ve developed and to kind of understand it as a software as a service capability. We’ve also evolved our organization to be organized as a modern software company, a SaaS company. And we’ve made really good progress in deploying it in The US, and we’re starting to deploy it internationally.

But the most important piece for Byte, the thing that we all look at first, is is it having the intended business impact in markets where we deploy it, and for our franchise partners, and their stores where we’ve implemented Byte. And so we wanna see us accelerate the top line. That happens when you’re providing an easy consumer experience. When you’re able to elevate your marketing because of the the learnings that you have about the consumer base and help deliver for them what they are expecting when they open the app or when they see an advertisement for us in in email or text or even in in broader channels. We wanna make sure we’re lifting the top line.

The way we see that come to life is in higher frequency, greater penetration, and in bigger check sizes. We also want to make sure that our franchisees, even with the cost of the technology, that they’re expanding their bottom line as well. And so we look at how are we making the jobs in the restaurants easier for our team members to operate? Are we helping them be more productive? And we wanna see that translate to restaurant economics.

At our Taco Bell Investor Day back in February, we shared a lot of information. And some of the data that we shared was the correlation between at a store level in Taco Bell US, the expansion of digital mix, and how that correlates to the absolute top line growing at a restaurant level, and EBITDA at a restaurant level growing. So those are the needles that we look at first. Is this delivering on the business proposition in the markets and for our franchisees where we’ve deployed it? As long as we’re doing that, we’re doing the right thing.

We’re delivering on our commitment to franchisees to have leading edge technology that leverages the the scale advantages of the Yum system and helps them do it with economics that just can’t be matched by anyone else out on the market. As long as that’s working, we then say, hey, now we gotta get this across the system. We have to deploy it. We’ve done a good job deploying elements of Byte across The US. We started in international.

But it was at our global franchise convention just last month in April in Sydney, where we have all of our global franchise partners come together that we really did an unveil of the Byte ecosystem. And we do this franchise convention every two years. We talk about our strategy, our brand strategy, how we’re bringing things to life. But this year, it had this element that felt like a big software trade show almost. And so there were opportunities for franchisees to go into breakouts, to touch, see, feel, bite, to meet our team members.

And that generated a lot of interest. And we’ve had a lot of follow ups. We’ve had franchisees who’ve traveled over to Dallas since then, where we’ve gone deep. And now we’ve gotta develop the right plans with our franchise partners to bring this to life in markets around the globe. So that’s the next element is how are we deploying?

Of course, we invested ahead on behalf of our franchisees because we thought that was the right thing to do for the long term. That pressured our g and a line in 2021, ’20 ’20 ’2, ’20 ’20 ’3. But as franchisees adopt, it helps to reduce the burden on the P and L of those investments. Because a lot of the benefits flow to their bottom line. Of course, in many cases, they are already working with third parties in these markets.

So it’s not net new spend in large part for our franchise partners. They’re just moving that to help us offset some of the burden on our for the investments that we’ve made. But that’s one thing that we watch, what we call it bending the curve of the G and A load of the technology investments. And of course, the last thing is we’re just in the early days. As you develop these data assets, you develop the ability to implement new AI capabilities.

We’ve 40 different AI projects. We’re in the very early days of really realizing the tremendous additional value sources that could come from having a business like this.

Daniel Gargiolo, Restaurant Analyst, Bernstein: And speaking of the recouping the initial investment that you made ahead of franchisees, have you already recouped the investment that you made on a cumulative basis or is there more scope going forward for you to see a G and A potential opportunity within the organization? And if the answer is yes, how do you balance between, you know, bringing down to the bottom line and and kind of meeting the 8% plus adjusted operating income growth versus reinvesting in the business?

Chris Turner, CFO, Yum Brands: Yeah. So, go back to where I started on what we want Byte to deliver. It has to improve the business performance in the stores. Lift the top line, drive the bottom line, all in a way with advantaged economics for our franchisees. We want them to have the best capabilities at the best cost available on the market.

So we gotta deliver on that. And again, mentioned that these investments pressured G and A. You saw our G and A grow at a higher rate than you might have expected in those those early years. And it’s become a more normalized rate the last couple of years. This is one of the factors.

As we bend the curve, it’s helping us to sort of manage that line. Now that said, we’ve become a real software as a service provider. And along with that comes the responsibility to always make sure that your technology capabilities are are relevant in the future. We’ve now got teams that are looking three, five years out and beyond, And we have to be investing in those R and D type capabilities to develop the leading edge and stay at the leading edge and ensure that we always have a healthy platform. We’re always delivering day to day in the right way with reliable service to our franchise partners.

So we’re making investments in those areas. But as we’ve become a more digital enterprise, it’s allowed us to operate more efficiently even in legacy parts of the business. So this is really about optimizing our resources so that we’re taking advantage of productivity opportunities where we can, so we continually reinvest in things that will drive long term health and growth.

Daniel Gargiolo, Restaurant Analyst, Bernstein: And how do you think about the balance between building in house these capabilities versus I think you acquired four companies in the process of building Byte. So how did you select what kind of capabilities you were acquiring versus which one you were building? And how do you see the strategy of buy versus build change over time?

Chris Turner, CFO, Yum Brands: Yeah. So we made four small tech acquisitions in 2021. Although the majority of the capabilities, we actually built. You know, Tracy and team helped us hire literally thousands of technology professionals. It’s the largest function internally at Yum by headcount.

So we’ve got a mix of build and buy along the way. But then you also have acquiring just services from other parties. Look, anything that’s really commoditized that isn’t a distinct competitive advantage, where the switching costs are low, we’re probably gonna still buy on the market. It doesn’t make sense for us to go build server farms or things like that. But anything that is central to our competitive advantage or the competitive advantage of our franchise partners, we think it makes sense to own and to control and to have as a part of this integrated system.

In part, gives you more flexibility. When things are integrated imagine new AI capabilities being developed in the future. It’s hard to predict right now. Twelve months from now what what new capabilities will be there. But you know that when they’re developed, you’re gonna wanna be able to integrate them quickly into your tech stack.

Now, if in our 50 countries around the globe, we still have different tech stacks in every one. You’re gonna spend all your time building integration layers and integrating these new products, which would take forever. But if we can get to where we have a more consistent integrated stack, we’ll be able to build those integration layers once that can work and more quickly scale and roll out across the system. So we should we should have a a cost advantage. We should have a speed advantage, and bring more and better capabilities to life across the system.

Great.

Daniel Gargiolo, Restaurant Analyst, Bernstein: Now if we think about the vision that you have for for Byte, I think I recall you mentioned you were like Byte to be in the entire world, maybe except for China. Where do you see the capabilities on personalizations, one on one outreach with consumers today versus your vision? Like, how far along in the journey is buy today?

Chris Turner, CFO, Yum Brands: Yeah. So yeah. We do, you know, we do see, an opportunity with our partners. We gotta prove the business case to them around the globe. I think that our Yum China team, they have an amazing technology capability for a bunch of reasons.

It probably makes sense for that to be a separate technology capability. But we think we can bring bite to scale around the globe. I mentioned not only is it the consumer experience, the operational experience, but also the insights that you generate and how you translate those to better marketing, better consumer experience. We are doing some great work on that front. Our marketing teams have been piloting.

We’ve mentioned on the last couple of earnings calls, AI driven marketing personalization in each of our brands in The US. So we’re still in the early days on it, but the the early read on that is very positive, and we’re excited about it. So I think you’ll continue to see us expand there. You saw us announce earlier this year the first partnership in the restaurant space with Nvidia. And so NVIDIA is our partner on the AI front.

That is unlocking our engineers working with their engineers. We’ll unlock a lot of new capabilities that we’ll bring to life. One of the first places that we’re focused there is on voice AI. Taco Bell has about 500 units that have voice AI deployed. And NVIDIA is giving us another leg of capability there that we’ll be bringing to life.

But the consumer response has been very positive. And one of the most exciting things is our team member response has been very positive. So we actually see in our restaurants where we’ve deployed voice AI, the team member experience improve and turnover go down. It makes the jobs easier and easier to operate, the restaurants easier to operate. And we think it’s that combination of our amazing talent and culture that our franchisees have, that we have in the restaurants, combined with technology that will be the the way forward.

Daniel Gargiolo, Restaurant Analyst, Bernstein: So it looks like from an organizational standpoint, you’ve aligned Bite to be a standalone entity, if you will, or a standalone part of the organization with Joe leading more cross organizational focus. You know, we’ve seen also great result or great interest from your franchisees potentially adopting Byte. We’ve seen, team members, as you pointed out, really liking the by Yum! As a platform. What will it take or what kind of postmark would you need to see in order for you to maybe consider a spin off of And granted, nobody has seen the P and L of Byte, so we don’t know if it makes sense from a shareholder standpoint, but you being the CFO, what kind of leading indicators would you be willing to wait for before saying, yeah, it probably makes sense to see a separate entity outside of the Yum ecosystem and serving more than just the Yum brand.

Chris Turner, CFO, Yum Brands: Yeah. Look. You’re I mean, you’re really dreaming big down the road. Right now, our focus is on serving our franchise partners as well as we possibly can through Byte and ensure that we’re delivering on the business case. There’s a lot of work to be done, as I mentioned, to deploy Byte around the globe.

And that’s our primary focus is taking care of those those franchise partners. I you you said Byte as a standalone. I Byte is still very heavily integrated in our brands. Like there’s a brand component to Byte that is ensuring that we bring Byte to life in a way that is relevant for each of our brands. You know, what a consumer expects in their digital experience in KFC and Thailand is probably very different than what they expect in Pizza Hut in Central America.

So we make sure that that comes to life in a brand relevant way. You know, we we may need to serve some other restaurant companies. We have franchisees who have brands outside of the the core Yum brand. So that’ll be something we’ll we’ll probably need to tackle as we expand around the globe. So I wouldn’t rule out, you know, more and more of that happening.

But right now, ensuring that our franchise partners and our our business today is seeing the benefits of Byte is focus number one.

Daniel Gargiolo, Restaurant Analyst, Bernstein: Excellent. Tracy, you’re in a very tough spot of filling the big shoe of David leaving, you know, retiring I should say next year. So what characteristics do you think that the board might be looking for as a successor of David given the success that he has as a CEO of Yum?

Tracey Skins, COO and Chief People and Culture Officer, Yum! Brands: Well, sure. I’ll say what I can. Obviously, putting a a CEO in to Yum is definitely the board’s responsibility. And and just to that, I I can attest to the fact that they have been diligent in their efforts. They formed a a subcommittee of the board that has been working diligently on this.

And and I feel really good about that, not just as an employee and viewing Yum as my second family, but as a as a shareholder myself. You don’t work somewhere for twenty five years and then think, okay. I’m glad to see them being so careful about it. But this will be the fourth CEO for Yum! After David Novak, Greg, and David.

A lot of the things they’re talking about, obviously big strategic thinking, someone that understands the global nature of our business. One of the reasons that we are so resilient, as Chris said before, is because we operate all over the world, and we operate with multiple brands, and we operate through 1,500 franchisees. That that type of leadership requires a lot of important traits, you know, strategic vision and understanding of all of the different levers that need to be moved around and ability to act with speed. So I’m certainly not at liberty to say here are the exact criteria that the board have listed out. That’s their responsibility.

But I feel satisfied with how cautious and careful the board is being to make sure we get to the very right answer. It’s a great company with an incredibly, incredibly bright future. And whoever goes in, I have I have a lot of confidence that they will shepherd it in the right direction.

Daniel Gargiolo, Restaurant Analyst, Bernstein: Excellent. And, Chris, one final question because we’re out of time. I mean, this is a strategic decision conference after all, so we look, you know, beyond next quarter, next year. But in five years’ time, how do you think Yum! Is going to be evolving?

And do you think that will involve also some additional acquisitions?

Chris Turner, CFO, Yum Brands: Yeah. Well, look, I think the runway ahead for each of our existing brands is bright. And mission one is to continue to drive growth in unit count and in AUVs, in unit economics for our franchise partners. We want them to be just as successful as we are along the journey. And we think Byte and growing Byte is an important part of that.

So those are you know, we’ve got our work cut out for us on that front, but I’m I’m super excited and super confident about the success that we will have on that journey. We’ve always kept our eyes open for potential acquisitions. We added the Habit Burger Grill back in 2020. I think the long term future for Habit is is very bright. So we always keep our eyes open because we we do think scale matters more than ever.

We think technology matters more than ever. And we think talent matters more than ever. And and we we have an abundance of all of those. And so we think brands entering the portfolio could benefit from those things. But it clearly, the bar is high for making any sort of acquisition.

It would have to be a growth unlock. It would have to be a brand that really could leverage those elements of our scale. And there would have to be a very compelling story for our shareholders for us to do that. So we would be very selective, but we always keep our eyes open. But there is amazing white space and growth ahead in our current portfolio for iconic brands.

And that’s that’s what gets us all really excited every day.

Daniel Gargiolo, Restaurant Analyst, Bernstein: Excellent. Tracy, Chris, thank you very much for joining us. And thank you everybody for participating. Thank you.

Tracey Skins, COO and Chief People and Culture Officer, Yum! Brands: Thank you.

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