Yum! Brands Pricing Spineometer: 2 of 5 Vertebrae

timjsmith

Tim J. Smith, PhD
Founder and CEO, Wiglaf Pricing

Published December 29, 2023

Yum! Brands, a quick-serve restaurant franchiser known for KFC, Taco Bell, and Pizza Hut, had a positive Q3 2023. Revenue rose 4% to $1.7 billion and earnings before interest and taxes rose 12% to $613 million over the same period last year.

A review of Yum! Brands’ 1 November 2023 earnings call and financial report provided insight regarding the importance of pricing on performance.

David Gibbs, CEO of Yum! Brands, described Taco Bell as having “unmatched menu flexibility, exceptional pricing power, industry-leading unit economics, and world-class franchise partners.”  Little else was stated regarding pricing.

David Gibbs provided a data point regarding mix and its impact on revenue.  “Though Taco Bell featured a great value promotion in the quarter, value purchases remained within range of the brand’s intended 10% mix target.”  It appears most customers of Taco Bell ignore the low-price promotions and consume the rest of the menu.

Given Yum! Brands operations, we would expect between 14 and 60 professionals dedicated to pricing.  Their responsibilities would include price promotion management, equipment pricing to franchisees, and consumables pricing to franchisees as appropriate.  Considering other issues such as the franchise nature of their business, global reach, and industry dynamics, the pricing and revenue management team at Yum! Brands would appropriately be at the lower end of this range.

Research into the investment by Yum! Brands in pricing yielded underwhelming results.  A director and a specialist in pricing or revenue management were identified but otherwise, it appears pricing is managed by non-pricing or revenue management specialists.  Multiple people in data analytics identified pricing as a skill, but data analytics isn’t the totality of pricing nor is it the only source of information required for sound pricing decision-making.

Given the importance and capability of pricing at Yum! Brands as indicated in financial reports, management statements, and our pricing team research, and given their performance, we have come to the following conclusion as of December 2023.

Yum! Brands Pricing Spineometer: 2 out of 5 Vertebrae.

YUM (Yum! Brands, Inc.) was relatively unchanged, rising from 126 the day prior to their earnings call to 126 one week later. FY 2022 revenue of $6.8 billion with a 32% operating margin and P/E ratio near 24.

For FY 2022, a 1% improvement in price would yield a 3% improvement in operating profits holding all else constant at Yum! Brands.

Posted in:
Tagged:

About The Author

timjsmith
Tim J. Smith, PhD, is the founder and CEO of Wiglaf Pricing, an Adjunct Professor of Marketing and Economics at DePaul University, and the author of Pricing Done Right (Wiley 2016) and Pricing Strategy (Cengage 2012). At Wiglaf Pricing, Tim leads client engagements. Smith’s popular business book, Pricing Done Right: The Pricing Framework Proven Successful by the World’s Most Profitable Companies, was noted by Dennis Stone, CEO of Overhead Door Corp, as "Essential reading… While many books cover the concepts of pricing, Pricing Done Right goes the additional step of applying the concepts in the real world." Tim’s textbook, Pricing Strategy: Setting Price Levels, Managing Price Discounts, & Establishing Price Structures, has been described by independent reviewers as “the most comprehensive pricing strategy book” on the market. As well as serving as the Academic Advisor to the Professional Pricing Society’s Certified Pricing Professional program, Tim is a member of the American Marketing Association and American Physical Society. He holds a BS in Physics and Chemistry from Southern Methodist University, a BA in Mathematics from Southern Methodist University, a PhD in Physical Chemistry from the University of Chicago, and an MBA with high honors in Strategy and Marketing from the University of Chicago GSB.