1、YUM! BRANDS 2003 ANNUAL CUSTOMER MANIA REPORTYUM! BRANDS 2003 ANNUAL CUSTOMER MANIA REPORT Power Yum! ofAlone were delicious. Together were Dear Partners, Dear Partners,Dear Partners, Im pleased to report 2003 was a year where Im pleased to report 2003 was a year whereIm pleased to report 2003 was a
2、 year where we showed the underlying power of our global portfolio of leading restaurant brands. With continued profitable inter-national expansion led by dynamic growth in China, combined with strong momentum at Taco Bell in the United States, we achieved 13% earnings per share growth prior to spec
3、ial items.This growth was achieved in spite of a challenging worldwide environment which included war in Iraq, SARS in Asia, and a generally soft economy the first half of the year. Highlights include over $1 billion in operating profit, over $1 billion in cash from operating activities, and nearly
4、$1 billion in franchise fees. In so doing, we once again achieved one of the industrys leading returns on invested capital at 18%. After paying off $2.6 billion in debt the past six years, we now have the power of an investment-grade quality balance sheet. Given this strong performance and increasin
5、g financial strength, our share price climbed 42% in 2003, and our annual return to shareholders is 14% since becoming a public company in 1997.Going forward, we are quite confident we can continue to achieve our goals of growing our earnings per share at least 10% each year. We have three powerfull
6、y unique growth opportuni-ties that differentiate us from our competition. After reading this report, I hope youll agree that we are NOT YOUR ORDINARY RESTAURANT COMPANY.Let me explain why we think so.#1. Driving Profitable GLOBAL Growth On the international front we have an undeniable competitive a
7、dvantage and undeniable growth opportunity with two global brands, KFC and Pizza Hut. This year we set another record as we opened 1,108 new restaurants outside the United States. Thats the third year in a row weve opened 1,000 or more.Yum! Restaurants International is now our largest and fastest gr
8、owing division, generating $441 million in operating profit and 22% growth in 2003. To put this in perspective, the inter-national team contributed $172 million in 1997, excluding charges for facility actions.The root of this exciting growth stems from the competitive advantage of the tremendous inf
9、rastructure we already have in place. Today, we have strong local teams around the world, operate in over 100 countries with established supply chains, and have nearly 600 interna-tional franchisees.Table of Contents Table of ContentsTable of ContentsInfcInfc Dear Partners Dear Partners Dear Partner
10、s7 7 Yum! Dynasty Model Yum! Dynasty Model Yum! Dynasty Model8 8 8 Global Powerhouse Global Powerhouse Global Powerhouse1010 Yum! Restaurants International Yum! Restaurants International Yum! Restaurants International continues to be our Growth Engine! continues to be our Growth Engine!continues to
11、be our Growth Engine!1212 Brand Power x5 Brand Power x5 Brand Power x51414 Taco Bell Taco Bell Taco BellThink Outside the Bun Think Outside the BunThink Outside the Bun1616Pizza Hut Pizza HutPizza Hut Gather Round the Good Stuff Gather Round the Good StuffGather Round the Good Stuff1818 KF KF KFC Wh
12、ats Cookin C Whats CookinC Whats Cookin2020Long John Silvers/A&W Long John Silvers/A&WLong John Silvers/A&W2222Power of Choice Power of ChoicePower of Choice2424Customer Mania Power Customer Mania PowerCustomer Mania Power2626 100% CHAMPS with a Yes! 100% CHAMPS with a Yes! 100% CHAMPS with a Yes!28
13、28 Running Great Restaurants Running Great Restaurants Running Great Restaurants2929 Yum! At-a-glance Yum! At-a-glance Yum! At-a-glance3030 Global Facts Global Facts Global Facts3131 Unit Information Unit Information Unit Information3232 Power of Results: Power of Results: Power of Results: Yum! Fin
14、ancial Highlights Yum! Financial HighlightsYum! Financial Highlights3333 Financials Financials FinancialsInbcInbc Power of Giving Back Power of Giving Back Power of Giving BackWe thank our friends from PepsiCo who invested billions of dollars to establish the global network we inherited for both KFC
15、 and Pizza Hut. The happy reality is that it would take years of investment for any of our competitors to reach our size and scale (with the obvious exception of McDonalds, which already makes $1.6 billion outside the U.S., demonstrating the size of the prize).Our plan is to leverage our big scale m
16、arkets. We have 11 countries and franchise business units that have almost 500 restaurants or more. Were continuing to focus our international company operations investment in seven of these countries that account for over 70% of our international operating profit. Our franchise and joint venture pa
17、rtners are driving system growth by opening more than 70% of our new international restaurants. Importantly, our franchisees are using their capital, not ours, to grow their business since we strategically elected not to invest in our franchisees real estate, like some other franchisors do. We love
18、the high return franchise business!The silver bullet in our portfolio has to be China. What a business and what an incredible opportunity! KFC and Pizza Hut already have 1,000 and 120 restaurants in China, respec-tively. We have a senior tenured team that has worked together for over ten years, buil
19、ding the business from scratch to where we now make $157 million in operating profit, up 42% versus a year ago.In addition, we have the unique advantage of owning our own food distribution system that gives us coverage in every major Chinese province and access to almost the entire 1.3 billion popul
20、ation. We also have one of the largest real estate teams of any retailer in the world that opened up 270 new restaurants in 2003. Our China operations are also best in class, with a highly educated workforce (64% of the restaurant general managers have at least a college education, the rest are plai
21、n smart!). We estimate there are 450 million urban customers who can afford our food in the fastest growing economy in the world. KFC is already the Chinese customers favorite brand and Pizza Hut is the number one casual dining chain. We just opened a Taco Bell Grande dine-in format that is off to a
22、 great start. The Chinese love our food and we love China. Ive said it before and Ill say it again, there is no doubt in my mind that one day we will have more restaurants in China than we do in the U.S.Left: Seventeen years after openingthe fi rst KFC in China, Yum! Brands celebrated the opening of
23、 its 1,000threstaurant, located in Beijing.Right: KFC in China gathered all of its 1,000 Restaurant General Managers together as part of its Annual Convention to mark the 1,000th restaurant milestone.Were continuing to focus our international company operations investment in seven countries.1. 1.Abo
24、ve: The United Kingdom, one of our key high-growth markets, accounted for $97 million in operating profi t in 2003.We are now the leading global developer of new We are now the leading global developer of newWe are now the leading global developer of new restaurants. Weve created the equivalent of a
25、 new division in China, which recently opened its 1,000th KFC and made $157MM in 2003.The biggest short-term international challenge we face is turning around our Mexico business. We have nearly 500 restaurants in Mexico that only made in total about $10 million in 2003, which is well below expectat
26、ions. The good news is we have a talented team working hard to turn around same-store sales in this tough macro environment. In the meantime, we have temporarily pulled back on new Mexico development while we rebuild our existing business. We have so many profitable growth opportunities in other cou
27、ntries that we can turn off the capital faucet in a country, like Mexico, when we have a significant downturn and readily redeploy that capital in other markets. We want to continue to add at least 1,000 international new units each year AND we want to do it profitably. Consider this: excluding Chin
28、a, we only have 6,000 KFCs and 4,000 Pizza Huts compared to the 16,000 units McDonalds has in international markets outside of China. With this kind of opportunity, we believe that we can continue to profitably grow at our 1,000+ new unit pace for many years without being heroic or foolishly chasing
29、 numbers.Our most significant longer term challenge is developing new markets getting to scale in Continental Europe, Brazil and India. This is tough sledding because building consumer aware-ness and acceptance takes time. It also takes time to build local operating capability. Our approach is to be
30、 patient and ever mindful of our overall profitability and returns. The promise is obvious.Here are key measures for international: 15% operating profit growth per year, at least 7% system sales growth before foreign currency conversion, 1,000+ new units outside the U.S. and 20% return on invested c
31、apital.In the U.S., Taco Bell is now the second most profitable QSR brand and just celebrated hitting the $1 million mark for average unit volumes. In 2003, company same-store sales were up 2% on top of 7% growth the previous year.This result is coming from steadily improving operations and exceptio
32、nal marketing. Taco Bell is now ranked #2 in QSR Magazines Annual Study for overall drive-thru service. And Taco Bells“Think Outside the Bun” advertising campaign and strong new product pipeline is among the best in the industry.Our biggest disappointment in the U.S. this year was negative 1% and ne
33、gative 2% company same-store sales growth at Pizza Hut and KFC, respectively. However, 2003 was a year of steady progress at Pizza Hut as the brand showed positive same-store sales growth seven of the last eight periods in 2003. Most importantly, the Pizza Hut team laid a strong growth foundation fo
34、r this year and beyond. The brand was repositioned to target the heart of the pizza category focusing on the family and the primary decision maker, Mom.We want tocontinue to addat least 1,000 new unitsoutside the U.S., each year, and do it profitably.Top: Pizza Hut Korea President In-soo Cho serves
35、up some of the new menu items in the worldsfi rst Pizza Hut Plus, which opened in Seoul during 2003.Bottom: A new, 70-item menu high-lights the worlds fi rst Pizza HutPlus restaurant in Korea. In addi-tion to the usual array of pizzas, therestaurant features a wide varietyof appetizers, salads, past
36、a and beverages. 2. 2.We are the leader in the chicken, pizza, seafood & Mexican quick service categories.A new advertising campaign, “Gather Round the Good Stuff,” was launched and is gaining traction with customers. The new product pipeline has been rebuilt with a record number of product and conc
37、ept tests.Pizza Hut is also steadily improving its operations and is the first one of our brands to achieve team member turnover of less than 100% for the full year 99.6% to be exact (the industry average is nearly 200%).While KFC is incredibly strong internationally, it is clearly our biggest chall
38、enge in the U.S. We are, however, confident the new management team we put in place is taking the right actions to turn the brand around.We plan a major relaunch of KFC in the second half of 2004, featuring a new menu board that features a roasted line of new products and everyday value meals. We ar
39、e also emphasizing the fact that our chicken is brought to our restaurants fresh, not frozen, every day.Just as importantly for KFC, we are making steady progress in speed of service as we roll out the same drive-thru program that worked so effectively for Taco Bell. One big advantage we have is the
40、 ability to spread our best practices.Key measures in the U.S.: At least 7% operating profit growth per year and at least 12%same-store sales growth. #2. Multibranding Great Brands Our goal is to be the best in the world at providing branded restaurant choice. We have category-leading brands that ar
41、e highly successful on a stand-alone basis. As a result, we are structured with fully staffed marketing and operating teams who wake up every single day focused on driving each brands differen-tiation, relevance and energy. Given the power of these individual brands, we have the opportunity to liter
42、ally change the quick service restaurant industry as you know it today by offering two of our great brands in the same restau-rant we call this strategy multibranding. Multibranding gives us the competitive advantage of branded variety. It is already a big business for Yum!, accounting for 12% of ou
43、r U.S. traditional restaurant base and generating almost $185 million in U.S. company store profits and franchise fees. Our learnings this year make Multibrandinggives us the competitiveadvantage of branded variety.With the acquisition of A&W andLong John Silvers in 2002, we tripledour multibrand po
44、tential in the U.S.No one else has our brand portfoliopower.3.We are more confident than ever that multibranding is potentially the biggest sales and profit driver in the restaurant industry since the drive-thru window.us more confident than ever that multibranding is potentially the biggest sales a
45、nd profit driver in the restaurant industry since the introduction of the drive-thru window.We started with combinations of KFC/Taco Bell and Taco Bell/Pizza Hut Express. We learned that we were able to add significant incremental average sales per unit, dramatically improving our unit cash flows. O
46、ur franchisees then pioneered multibrand combinations of KFC and Taco Bell with Long John Silvers, the countrys leading seafood restaurant, and A&W All American Food, which offers pure-beef hamburgers and hot dogs along with its signature Root Beer Float. Based on outstanding customer feedback and r
47、esults, we acquired Long John Silvers and A&W in 2002. With this acquisition we tripled our multibranding potential in the U.S. We can now open high return new restaurants in trade areas that used to be too expensive or did not have enough population density to allow us to go to market with one bran
48、d. With multi-branding, we believe we can take both KFC and Taco Bell to 8,000 units in the U.S. compared to the over 5,000 each we have today. As we expand, we expect to take volumes to an average of at least $1.1 million per restaurant.One of the most exciting learnings we had in 2003, is that Lon
49、g John Silvers is performing even better than expected we call it our hidden jewel. Thats because there is no national fish competitor in the QSR industry and consequently there is pent-up consumer demand for seafood. In addition to outstanding sales results with KFC and Taco Bell, we have created a
50、 Long John Silvers/A&W combination that allows us to expand into “home-run” trade areas where we know demand is high and KFC and Taco Bell are already there. The results have led us to a “fish first” strategy with the goal of making Long John Silvers a national brand.Im also pleased to report that w
