YUM is the world's largest quick service restaurant'company based on number of
system units, with over 33,000 units in more than 100 countries and territories.
The YUM organization is currently made up of six operating companies organized
around the five restaurant concepts of KFC, Pizza Hut, Taco Bell, LJS and A&W
(the 'Concepts'). The six operating companies are KFC, Pizza Hut, Taco Bell, LJS,
A&W and YRI.
Restaurant Concepts
Through its five Concepts, the Company develops, operates, franchises and licenses
a worldwide system of restaurants which prepare, package and sell a menu of
competitively priced food items. These restaurants are operated by theCompany
or, under the terms of franchise or license agreements, by franchisees or licensees
who are independent third parties, or by affiliates in which we own a non-controlling
equity interest ('Unconsolidated Affiliates').
In each Concept, consumers can dine in and/or carry out food. In addition,
Taco Bell, KFC, LJS and A&W offer a drive-thru option in many stores. Pizza
Hut offers a drive-thru option on a much more limited basis. Pizza Hut and,
on a much more limited basis, KFC offer delivery service.
Each Concept has proprietary menu items and emphasizes the preparation of food
with high quality ingredients as well as unique recipes and special seasonings
to provide appealing, tasty and attractive food at competitive prices.
The franchise program of the Company is designed to assure consistency and
quality, and the Company is selective in granting franchises. Under the standard
franchise agreement, franchisees supply capital - initially by paying a franchise
fee to YUM, purchasing or leasing the land, building and equipment and purchasing,
signs, seating, inventories and supplies and, over the longer term, by reinvesting
in the business. Franchisees then contribute to the Company's revenues through
the payment of royalties based on a percentage of sales.
The Company believes that it is important to maintain strong and open relationships
with its franchisees and their representatives. To this end, the Company invests
a significant amount of time working with the franchisee community and their
representative organizations on all aspects of the business, including new products,
equipment and management techniques.
The Company is actively pursuing the strategy of multibranding, where two or
more of its Concepts are operated in a single unit. In addition, the Company
is testing multibranding options involving one of its Concepts and a restaurant
concept not owned by or affiliated with YUM. By combining two or more restaurant
concepts, particularly those that have complementary daypart strengths in one
location, the Company believes it can generate higher sales volumes from such
units, significantly improve returns on per unit investment, and enhance its
ability to penetrate a greater number of trade areas throughout the U.S. and
internationally.
Through the consolidation of market planning initiatives across all of its
Concepts, the Company has established, or is in the process of establishing
in the case of LJS and A&W, multi-year development plans by trade area to
optimize franchise and company penetration of its Concepts and to improve returns
on its existing asset base. The development of multibranded units may be limited,
in some instances, by prior development and/or territory rights granted to franchisees.
Operating Structure
In all five of its Concepts, the Company either operates units or they are
operated by independent franchisees or licensees. Franchisees can range in size
from individuals owning just a few units to large publicly traded companies.
In addition, the Company owns non-controlling interests in Unconsolidated Affiliates
who operate similar to franchisees. Approximately 24 percent of YUM's worldwide
units were operated by the Company, approximately 65 percent by franchisees,
approximately 7 percent by licensees and approximately 4 percent by Unconsolidated
Affiliates.
Most food products, paper and packaging supplies, and equipment used in the
operation of the Company's restaurants are distributed to individual restaurant
units by third party distribution companies. Since November 30, 2000, McLane
Company, Inc. ('McLane') has been the exclusive distributor for Company-operated
KFCs, Pizza Huts and Taco Bells in the U.S. and for a substantial number of
franchisee and licensee stores. McLane became the distributor when it assumed
all supply and distribution responsibilities under an existing agreement between
AmeriServe Food Distribution, Inc. ('AmeriServe') and the Company (the 'AmeriServe
Agreement'). McLane assumed the AmeriServe Agreement, as amended, as well as
distribution agreements covering a substantial portion of the Pizza Hut and
Taco Bell franchisesystem, and, to a lesser extent, the KFC franchise system
simultaneously with its acquisition of the AmeriServe business.
The AmeriServe business was acquired by McLane after AmeriServe filed for protection
under Chapter 11 of the U.S. Bankruptcy Code and a plan of reorganization for
AmeriServe (the 'POR') was approved by the U.S. Bankruptcy Court on November
28, 2000.
Competition
The retail food industry, in which the Company competes, is made up of supermarkets,
supercenters, warehouse stores, convenience stores, coffee shops, snack bars,
delicatessens and restaurants (including the QSR segment), and is intensely
competitive with respect to food quality, price, service, convenience, location
and concept. The industry is often affected by changes in consumer tastes; national,
regional or local economic conditions; currency fluctuations; demographic trends;
traffic patterns; the type, number and location of competing food retailers
and products; and disposable purchasing power.
Each of the Concepts compete with international, national and regional restaurant
chains as well as locally-owned restaurants, not only for customers, but also
for management and hourly personnel, suitable real estate sites and qualified
franchisees.
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