Q1 2021 Yum! Brands Inc Earnings Call
[music].
Good morning, and welcome to the first quarter 2021 Yum brands incorporated earnings Conference call.
All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero.
After todays presentation, there will be an opportunity to ask questions. Please note. This event is being recorded I'd now like to turn the conference over to Gavin Felder, Chief strategy Officer, and interim head of Investor Relations. Please go ahead.
Thanks, operator, good morning, everyone and thank you for joining us on our call today of David Gibbs of Chris Turner, Our Chief Financial Officer, and Dave Russell, Our senior Vice President of corporate controller.
Following remarks from David and Chris We'll open the call to questions before.
Before we get started I would like to remind you that this conference call includes forward looking statements forward looking statements are subject to future events and uncertainties of course, our actual results to differ materially from these statements.
I used to do our best to provide our current thinking about the impact of the COVID-19 pandemic one of our business, but obviously this situation is completely unprecedented and evolving so any forward looking remarks should be considered in light of the uncertainty regarding the severity and duration of the pandemic and the variables that will be impacted as a result, all forward looking statements are made.
Only as of the date of this announcements and should be considered in conjunction with of cautionary statements in our earnings release and the risk factors included in our filings with the SEC.
In addition, please refer to our earnings releases and relevant sections of our filings with the SEC to find disclosures and reconciliations of non-GAAP financial measures that may be used on today's call.
These notes of following regarding our basis of presentation.
All system sales results exclude the impact of foreign currency.
Core operating profit growth figures exclude the impact of foreign currency and special items. All two year same store sales growth figures are calculated using the geometric method.
For more information on our reporting calendar for each markets. Please visit the financial reports section of our website.
We are broadcasting this conference call via our website. This call is also being recorded and will be available for playback.
Please be advised that if you ask a question. It will be included in both of our live conference and in any future use of day recording we would like to make you aware of upcoming Yum investor events and the following disclosures.
Pertaining to outstanding debt in our restricted group capital structure will be provided at the time of the form 10-Q filings.
Second quarter results will be released on July 29, 2021, with a conference call at the same day.
Finally, we will be hosting a virtual KFC global Investor day on Tuesday May 25, 2021 available via webcast on our website stay tuned for more details now I'd like to turn the call over to Mr. David Gibbs.
Thank you Kevin and good morning, everyone. We've had a strong start to 2021 with solid same store sales results on a two year basis at a meaningful uplift in unit development.
This performance is a testament to the incredible focus and dedication of our restaurant teams franchisees and above store leaders around the world who of rising above the challenges presented by the pandemic to unlock new areas of growth such as digital and off premise, while putting the needs of our customers and local communities first I've always believed that our success will come from leaning into our core store.
<unk> and building new capabilities that enhance our ability to grow and the way our business has navigated through COVID-19 has only reinforced this belief this mindset as reflected in our recipe for growth and good framework, which has successfully got at our strategy and we will continue to serve as our North star.
Our recipe highlights our unique strength of the company, notably our iconic brands, our unmatched global scale, our diversified network of highly capable and well capitalized franchisees and our unparalleled culture and talent.
Today, we will discuss our Q1 performance through the lens of this framework and the growth drivers that underpin it and will highlight the specific areas, where we've introduced new capabilities as we look toward the future.
I'll cover two growth drivers, namely relevant easy and distinctive of brands or red for short and unrivaled culture and talent then Chris will share more details of our Q1 results, our unmatched operating capability and bold restaurant development growth drivers and our strong liquidity and balance sheet position.
I'll start with a few first quarter highlights.
In Q1, Yum system sales grew 11% driven by 9% same store sales growth and the addition of 435 net new units during the quarter.
Importantly, same store sales grew 2% on a two year basis, which includes the impact of nearly 900 or about 2% of our stores being temporarily closed due to COVID-19 as of the end of Q1 2021.
This was driven by strong sales performance in North America, the U K, Australia, and Japan, with some offset from COVID-19 related trading restrictions in parts of Asia and Europe.
Notably all four of our brands at a weekly per restaurant sales record in the U S. At least once during the quarter and I'm very encouraged that on a two year basis. Our overall same store sales in the U S increased 10%.
Importantly, each of our brands experienced positive two year same store sales growth on a global basis in open and operating stores. During Q1. This is a great indicator for the strength and breadth of our recovery.
The key focus point for our teams with the continued acceleration of our digital and technology initiatives across the globe, all geared towards providing customers with new and seamless ways to access our brands.
Delivery has been a significant part of this strategy and we now have over 39000 restaurants offering delivery, representing a 16% increase year over year, driven by expanded aggregator partnerships and continued investment in our own branded channels. We.
We had another record digital system sales quarter with over $5 billion about a 45 per cent increase over the prior year.
Now, let's talk about our four brands, starting with KFC Division, which accounts for approximately 48% of our divisional operating profit Q1 system sales grew 11% driven by 8% same store sales growth and 4% unit growth for the Division Q1 same store sales were flat on a two year basis, which includes the <unk>.
Pact of about 1% of our stores being temporarily closed as of the end of Q1 2021.
Globally Kfc's digital sales mix reached a record of 43% during the quarter driven by the rapid expansion of delivery click and collect at the introduction of new channel ordering options.
At KFC International same store sales grew 7% during the quarter same store sales declined 2% on a two year basis, which includes the impact of about 2% of our stores being temporarily closed as of the end of Q1 'twenty one.
We continued to see strength in the U K, Australia, Canada, and Japan during the quarter end saw encouraging results in the Middle East, Mexico and Africa.
Each of these markets performed well above their 2019 sales levels, owing to their off premise capabilities digital strength and impressive product launches like the share box in Japan in the chicken nights promotion in Mexico.
Net at KFC U S. We continued to see positive same store sales with 14% growth in Q1 importantly, same store sales grew 11% on a two year basis. Thanks to all of the teams hard work and building additional sales channels and growing the core business, while adding hyper relevant product innovation, such as the new chicken.
Our sandwiches performing at more than twice the volumes of our prior U S sandwich launches and all of initial indications are that it's highly incremental customers are loving the product in coming back more frequently for us.
In fact, as we've entered Q2 demand for the new Sandwich has been so strong that coupled with general tightening in domestic chicken supply. Our main challenge has been keeping up with that demand.
Moving out of the Pizza hut, which accounts for approximately 17% of our divisional operating profit. The division reported Q1 system sales growth of 7% driven by 12% same store sales growth at 4% unit decline.
Global Q1 same store sales declined 1% of under two year basis, which includes the impact of about 3% of our stores being temporarily closed as of the end of Q1 2021.
Overall pizza at International same store sales grew 8%.
Same store sales declined 7% on a two year basis, which includes the impact of 3% of our stores being temporarily closed as of the end of Q1 2021 importantly.
Importantly, the off premise channel achieved 10% same store sales growth for the quarter similar to KFC, our developed markets with high off premise capabilities digital strength and newsworthy products continued to perform well.
Pizza at U S had another stellar quarter, delivering 23% same store sales growth in the off premise channel with 16% overall same store sales growth overall same store sales grew 8% on a two year basis, which includes the impact of 3% of our stores being temporarily closed as of the end of Q1 2021 and.
Was driven by a combination of compelling value with a 10 dollar tastemaker offer and category, leading innovation with the launch of the unique Detroit style pizza and the reboot of our iconic stuffed crust pizza.
As for Taco Bell, which accounts for approximately 36% of our divisional operating profit Q1 system sales grew 11% driven by a 9% same store sales growth and of 1% unit growth.
Towards the Division Q1 same store sales grew 10% on a two year basis.
The quarter kicked off with the return of Nacho Fries. This time offered in the $5 Nacho Fries box. We also introduced our first digital led product launch with the $5 build your own cravings box available exclusively on the Taco Bell App of web, which drove a meaningful increase in loyalty membership during the quarter.
And finally, our newest brands the habit Burger Grill delivered 13% same store sales growth at 6% unit growth during the quarter Q1 same store sales grew 3% at a two year basis, which includes the impact of about 2% of our stores that were temporarily closed as of the end of Q1 2020, what we introduced our new Patty melt at our <unk>.
Sales growth was aided by reduced government restrictions and government stimulus.
Encouragingly digital sales continued to mix above 40%, even at a dining rooms reopened and we saw a steady improvement in the dine in channel throughout the quarter.
Onto the recipe for growth starting with Red brands, having four brands across more than 50000 restaurants provides us with an enviable platform to understand how consumers are behaving in every corner of the world and to use at understanding to capture future growth in our sales overnight and our brands over time.
In some cases this means strengthening our ability to grow sales at a faster pace and bringing in strong diverse tech talent.
At this in mind that we were excited to close on two strategic acquisitions during the quarter being quantum Inc, and tick tube technologies.
Quantum is a true innovator and marketing optimization with a proven track record of adding significant value and enabling data driven decisions to drive return on advertising dollars and sales increases.
We have seen material improvements in both marketing spend efficiencies at the same store sales growth in our pizza at UK off premise at Pizza Hut, Taiwan businesses as a result of leveraging their tool kit.
And at the end of last year, both talk about U S and KFC U S engage quantum of services on marketing calendar end mix optimization.
<unk> presents an exciting opportunity to expand access by providing frictionless ordering through text social media and other conversational channels.
And literally just a few clicks.
We've deployed their platform at approximately 900, KFC Pizza hut, and Taco Bell restaurants across 35 countries outside of the U S and have been thrilled with the agility and customer obsession of the TIK two clean.
In fact, we have several examples of customers completing orders on the <unk> platform in under 10 seconds, a truly seamless experience.
Beyond their proven capabilities, what excites me most about these acquisitions at the high quality culturally aligned teams, we've brought into our global organization.
This is a perfect segue to our unrivaled culture and talent growth driver given the environment. We've been operating in we've had to find new ways to connect with the people across our vast global business. One way. We've done this through virtual market visits where we virtually walk through of restaurant and connect with team members. The leadership team and I attended for virtual market visits during the quarter.
And Pizza Hut, Japan, KFC Asia, Taco Bell U S in times square and KFC Africa, we each left those meetings energized and proud of how our brands of represented around the world and the incredible people that make it all happen.
Peter I also want to highlight two key actions, we're taking to bring our recipe for growth and good to life on the equity and inclusion front in the U S, where we're taking tangible actions to represent a diverse communities, where we operate by increasing black and latinx employees and leaders in our corporate and restaurant management roles as part of this effort we are proud to partner with one.
10 of coalition of leading companies coming together to Upskill higher end advanced 1 million Black individuals at America over the next 10 years. These actions advance our global unlocking opportunity initiative in the U S and we're looking forward to of working alongside the community of companies and 110 as well as our franchisees to advance equity.
And opportunity.
Finally, as part of our broader strategy to address climate change earlier. This week, we announced our pledge to achieve net zero greenhouse gas emissions by 2050 with of science based target to reduce emissions by nearly 50% across our supply chain and restaurants by 2030 in partnership with our franchisees suppliers and producer.
This is an incredibly important issue to us our customers and other stakeholders and I'm proud of our continued progress in this space.
To wrap up I am encouraged by the momentum in our business as we execute our recipe for growth and good to set ourselves up for the next chapter of growth. Although COVID-19 continues to impact many geographies and make our overall path to recovery uneven I believe at with our iconic brands World class talent inclusive culture and healthy franchise system, we have.
<unk> centre at post COVID-19 World even stronger.
With that Chris over to you.
Thank you David and good morning, everyone today, I'll discuss our first quarter results, our unmatched operating capability and bold restaurant development growth drivers and our strong liquidity and balance sheet position to begin let's discuss Q1.
As David mentioned overall Yum system sales grew 11% driven by 9% same store sales growth and 1% unit growth.
On a two year basis same store sales grew 2%, which includes the negative impact of about 2% of our stores being temporarily closed due to COVID-19 as of the end of Q1 2021.
EPS, excluding special items was $1 seven.
Representing a 67% increase compared to ex special EPS of 64 cents in Q1 2020.
Core operating profit grew 33% in the first quarter. This performance is attributable to a stellar same store sales growth in several developed markets at KFC. The combination of strong sales and restaurant margin growth at Taco Bell end of year over year benefit associated with reserves for.
Franchisee accounts receivable.
Now I'll provide some additional color on several items.
Starting with Taco Bell, we had another impressive quarter of profitability, where company restaurant margins were 24, 1%, representing a one 7% increase over prior year.
As we've mentioned on previous earnings calls, we expect these margins to return closer to historical levels. Later this year as check average as normalized dining room patronage increases and we adjust staffing levels at our restaurant as a result.
During Q1, we continued to see recoveries of amounts past due at KFC International and Pizza Hut U S.
These recoveries resulted in a $6 million net benefit to operating profit related to bad debt during the quarter, representing a $34 million year over year tailwind to operating profit growth as we lapped $28 million of expense in Q1 2020, while we ended 2021.
At $12 million of full year bad debt expense, we had large quarterly swings last year due to COVID-19.
As such we expect year over year operating profit growth to continue to be impacted as we lapped bad debt expense of $13 million in Q2, and bad debt recovery of $21 million and $8 million in Q3 and Q4, respectively.
While difficult to forecast at this point, we don't expect bad debt to significantly impact our year over year operating profit growth on a full year basis.
Most importantly, our franchisees are generally on solid financial ground. Despite the uncertainties caused by COVID-19. We recently completed the restructuring of our largest pizza hut U S. Franchisee NPC that resulted in Flynn restaurant group, joining the pizza hut family we.
We believe our franchisees are well positioned to partner with us as we look to accelerate out of COVID-19.
General and administrative expenses were $206 million, we still anticipate the timing of full year 2021, G&A to be back end weighted as it has been historically.
And we estimate that our consolidated G&A expenses will be slightly less than $1 billion for the full year of 2021 hour.
Our commitment to be an efficient growth company that leverages fixed costs and utilizes our unique scale remains unchanged and we expect our G&A ratio to move back toward our historical target of sustained growth resumes.
Interest expense was approximately $131 million.
An increase of 11% compared to Q1 2020, driven by write offs of historical debt issuance costs and other onetime financing costs associated with the Q1 refinancing.
Capital expenditures net of Refranchising proceeds were $25 million for the quarter as.
As we mentioned on our last earnings call, we believe roughly $250 million in annual gross capex appropriately balances the inherent needs of the business with opportunities to invest in technology initiatives and strategic development of equity stores, we still anticipate at least $50 million in annual process.
It's from Refranchising, which will fund the strategic equity store investments.
As a reminder for 2021, we may be slightly higher than the $250 million gross capex amount to catch up spend on repair maintenance and remodels delayed owing to COVID-19 as well as selective strategic development in the U S. Primarily for the habit Burger grill for which Refranchising proceeds may not.
The fully realized this year.
Now onto our unmatched operating capability growth driver.
With so much of our sales now going through off premise channels. Our operations teams have been laser focused on delivering a fast enjoyable experience for customers.
As a result, KFC U S improved their drive thru speed by nearly 15 seconds in the quarter over last year and Taco Bell U S delivered their fastest average drive thru speed and eight years, while serving a staggering 17 million more cars compared to the same quarter last year.
Accordingly, one third of these additional car served where digital orders, which typically carry a higher check value not to mention an optimized customer experience. Additionally.
Additionally, we continue to make tangible progress on scaling our in house built technology platform <unk>.
During the quarter, we deployed the pickup and delivery ordering solution across all of KFC U S restaurants, including the launch of our first ever custom built KFC app.
Early signs are highly encouraging and this gives us confidence as we look to further optimize and scale of the platform.
Now moving onto bold restaurant development.
During the first quarter, we opened 660 restaurants and closed 225, resulting in 435 net new units, most notably KFC delivered 4% unit growth with strength in China, India, Russia, and Thailand at.
At Pizza Hut, we were pleased to at 71 net new units, reflecting a positive trajectory following the COVID-19 related dislocations and closures of last year.
We still have more work to do and there will be choppiness related to the uncertainty of COVID-19 and our continuing transition to a more modern of state, but we are encouraged by strong unit economics in many markets and are resilient global franchise base.
We are also proud to announce that shortly after the quarter ended we opened our first ever Taco Bell in Malaysia not.
Not only was this the 30 <unk> International market Taco Bell has entered but it was the first market entry, where all training and launch programs were conducted virtually a real breakthrough by the amazing Taco Bell Asia team.
Overall, we are pleased with the momentum at the end of 2020 and into the early part of 2021 and this increases our confidence that we can return to 4% annual unit growth sooner rather than later in 2021, we're optimistic that we will accomplish at least 3% unit growth.
Now for an update on our balance sheet and liquidity position as well as our latest thoughts on capital structure and priorities for capital allocation.
First we ended Q1 with cash and cash equivalents of approximately $560 million, excluding restricted cash consol.
Consolidated net leverage was four nine times, which returns us to our target of approximately five times.
Second we repurchased two 6 million shares totaling $275 million at an average price per share of $106.
Third we executed a series of transactions that added resiliency to our business, while balancing liquidity flexibility and cost during the quarter, we amended and extended our credit facility and refinanced our term loans. We also priced a new Yum brands, Inc. Holding.
Any bond, which closed on April one subsequent to quarter end.
Proceeds from this new bond, which carries a coupon of four 6% to 5% and matures in 2032 will be used to repay $1.05 billion.
525% restricted group notes due in 2026, which we intend to retire later in the second quarter.
All combined the transactions were leverage neutral and importantly allowed us to boost liquidity lower interest going forward and extend maturities.
As always we will continue to look for opportunities to further optimize our capital structure, depending on market and business conditions.
Lastly, our capital priorities remain unchanged at <unk>.
And the business maintain a healthy balance sheet pay of competitive dividend and return the remaining excess cash flows to shareholders via repurchases.
With that operator, we are ready to take any questions.
We will now begin the question and answer session task.
To ask a question you May Press Star then one on your Touchtone phone if at all.
Using a speakerphone please pick up your handset before pressing the keys to withdraw your question. Please press Star then two please limit yourself to one question.
Our first question comes from David Palmer from Evercore ISI. Please go ahead.
Thanks.
I'll try to squeeze in at two part question.
Yeah, just really about the U S brands.
For KFC and Pizza hut.
Im, particularly curious about pizza hut, but both of those brands have had a pretty good run during COVID-19, but they've also been doing some pretty good stuff on the marketing front lately.
New management and the like.
I'm wondering how you feel those brands are set up for post COVID-19 do you think they could Latin near flat coming out of this as they lap some of these kobe comparisons and I think particularly with regard to pizza hut I think people are curious about the health of that system and obviously its a long way away way is now.
Turns of 2019 at franchisee profitability at the unit closures over any sort of feelings about the long term health of that business. Thanks.
Yeah. Thanks, Dave.
Youre right KFC and pizza hut of done a tremendous job navigating this tricky environment over the last year, but very importantly, they.
They've done a great job setting themselves up for future success.
A lot of that.
You mentioned good marketing the rollout of the KFC Sandwich I mentioned it in my prepared remarks, but.
Bears repeating that has been a very successful launch with.
With a great product that really is the winning product in the category and we're excited about the impact of that'll have along with secret recipe price that rolled out in the quarter, but pizza specifically com.
A comment about health is also well put.
Pizza hut franchisees over the last year, given the success they've had the ability to close some of the underperforming dine in stores that we have been trying to get out of those all of those moves together have strengthened their financial condition in a very big way.
At some up for much better growth going forward a big part of that is just the ownership of MPC, which we also mentioned Greg Flynn and his organization taking over a good chunk of the Pizza Hut U S stores is a huge positive for the brands, they're great restaurant operators, great businessmen that has great team underneath him.
<unk> knows how to run restaurants, as well as anybody in this country and very excited about the impact he will have taking over those stores and improving their operations fixing up the assets and growing the business.
Our next question comes from John Glass from Morgan Stanley. Please go ahead.
Thanks, and good morning.
It was good to hear that unit growth is now sort of within the historical range, 3%. This year, perhaps on the path back from 4% can you just drill down a little bit one just by brand. How you think that plays out obviously you have led with KFC, but maybe there are some other opportunities within.
The other two brands this year.
And also just thinking out over the next two to three years historically led with KFC, but as there is COVID-19 changed when you thought about the growth opportunity for the other two brands and maybe the balance of growth is going to be different going forward than it has been historically.
Yes, Thanks, a bunch of good question on development and as we said we were encouraged by the momentum at the end of last year and the momentum in Q1.
Our expectation for all of our brands is to be growing units and that's been our history.
We will continue to be our expectation going forward.
KFC, we think.
<unk> has historically been strong and we wanted to continue to be strong.
But we have high expectations for Taco Bell Pizza hut and the habit.
Common across all of them as we think strong franchisees.
Strong unit economics.
Debt improve as the business rebounds from COVID-19.
Continued brand love from consumers and ability to serve them on and off premise basis, plus you're seeing us now integrate digital into the formats and so post COVID-19.
Optimized formats and each of those brands.
And so that coupled with our very strong development teams we think.
Supports us on that trajectory back.
And so we have.
The expectations that we see strength across all of the brands going forward from a development standpoint.
The next question comes from Dennis Geiger from UBS. Please go ahead.
Great. Thanks for the question and wondering if you could talk a little bit more about about Taco Bell and some of the brand strength and the franchisee strength that you've seen in recent quarters, David I think you've talked about some of the key drivers of strength in this most recent quarter just curious on the go forward some of the drivers Youre. Most excited about whether it's digital the loyalty program that you touched on.
How that new product pipeline looks and just as we think about the reopening developments and dynamics going forward and some of the headwinds mainly from competition reopening, but also for Taco Bell at kind of late night coming back maybe breakfast coming back at curious if you guys could speak to some of those tail winds as well. Thank you.
Yes.
Talk about I think there is excitement across the board for everything they've done over the last year under Mark King's leadership.
Great talent that we have at the <unk>.
And with our franchise partners one of the strongest franchise systems, you'll ever find.
The International Development story is one that bears mentioning in terms of the opportunities. We have there we're starting to see ourselves get to scale in some markets. We always know that when we get to about 100 units in a market. That's when you really can start to unlock development leverage marketing dollars to really create a virtuous cycle at a better unit.
Economic play, we're starting to see that happen in a few markets around the world and I think we're excited about the upside there, but even in the U S. We also are leaning more into development of the unit economics look great right now the opportunities in the U S real estate landscape her there and our franchise partners are financially healthy and eager to go after them and <unk>.
With our team and picking the right opportunities at <unk>.
Make money for them.
Yes, we have made over the last year on digital is also an important part of the Taco Bell story.
We're coming out of 2020 with a great loyalty program and a lot of loyalty members that progress was made last year as we increased our digital sales.
At lays the foundation for more success going forward. We did this for the first digital only promotion of the five dollar create your own box. It's a great example of how having that digital business increase and gives us new tools to grow sales.
So I think the brand is really hitting on all cylinders.
Product innovation is there.
Once again, they've got something out of price for the quarter.
I've got all of great pipeline of stuff coming down the road.
The future per Taco bells of incredibly bright with accelerating development growth strengthening brand of great leadership team Great franchise partners.
The next question comes from David Tarantino from Baird. Please go ahead.
Hi, Good morning, I wanted to come back to your outlook for.
Unit growth and I guess, if I look at the first quarter I think 435 net openings of the highest you've achieved.
And perhaps at least 10 years, according to my model, but.
I'm wondering if there was anything unique to the quarter that that would have driven that strength.
And if you can comment on how that strong start sort of <unk>.
Quarter kind of translates to share your guidance of at least 3%, but not perhaps getting to that 4% run rate.
That would be helpful. Thanks.
Yes, David Good question. If you look at Q1 I think of couple of things stand out we had we had strong gross openings.
Which were in.
In particular, driven by a few key markets.
In Asia.
But general.
And openings across the board.
You saw in the U S.
<unk> closures and in general in the Pizza Hut global system fewer closures than we had last year, which as we said in the prepared remarks, we think reflects a bit of of turn there. Although there's still a lot of work to be done on the asset transformation and there's still going to be choppiness.
From a unit standpoint in the Pizza hut system.
And so those are kind of what drove the shape of development in the quarter as we said theres still a lot of uncertainty going forward, where if you get outside of the use of the COVID-19 situation in certain countries is still very dire and that leads to.
Some unpredictability, that's why we're not yet ready to commit to exactly when we can get back to the 4% number but we do have enough confidence as we look at the current pipeline to.
To say that we think will be at the 3%.
Number at least this year, but again, we've still got a fair bit of uncertainty out there given the global situation.
The next question comes from Sean <unk> from Jpmorgan. Please go ahead.
Thank you Chris I think you touched on it briefly in your prepared remarks, but at ticket drove the majority of quick service comps.
2020, just speaking for the category what can you take at being hugely positive end transactions generally being negative.
Can you comment.
I guess for the whole team.
Lots of maintaining that ticket as traffic returns or should we by definition would be looking for.
At positive transaction environment, perhaps of at least partially offset by negative ticket environment.
And if you could talk about maybe some experience that <unk> seen in markets that have been reopened the longest in terms of that take of traffic dynamic if theres any differences in those markets at had been opened the longest relative to national average.
Yeah. It's a good question, John and I will just obviously with 290 brand country combinations. It varies a lot of this varies by each one of those but in general.
We are seeing as markets reopen.
Ticket come down a little bit but.
The thing that determined a lot of our success going into this was our ability to serve family meals and serve larger tickets of the brands that had those options like KFC buckets and pizza hut.
Meals for sharing tended to do better and we're not seeing that all go away I think as you think about the things that happened during COVID-19 accelerating trends, which ones of those are going to be sticky I think we expect that ticket will come down from where it's at but I don't know that its going to return to at all levels.
And we think that's good at the same thing could be said for some of the digital business of the increases that we've had in digital that's going to be stickier and stay in our business even in the U S. As we see day.
Joining rooms reopen we're not seeing for example of decline and Taco Bell's digital business.
So we're holding onto those gains so it's probably fair to expect ticket to start to moderate.
But I don't know that its going to return to pre COVID-19 levels.
The next question comes from Jon Tower from Wells Fargo. Please go ahead.
Awesome. Thank you I appreciate it I was just hoping you guys can fill it at a little bit on the recent tech investments I know David you had mentioned that quantum has been at a couple of markets. So far at ticked up if I'm, saying the name correctly has been at about 900 stores outside of the U S. So I'm curious to hear what you expect these platforms to deliver and how you expect.
To spread across the globe.
What sort of unlock youre expecting per sales and maybe perhaps dig into what youre seeing in those stores, where the technology has been deployed versus stores, where that hasnt been the case and if there is any incremental investment perhaps on on head count in order to see this opportunity scale up across the globe.
Great Great question. So we're excited about both of these acquisitions. If you think about the key areas of our technology strategy. They tied to two of those key areas one being our E Commerce and technology platform. So took enhancers that by giving us one more way.
Okay.
One more channel.
Customers to easily access our brands.
Through.
Channels like Whatsapp, social media text messaging, we've had really good success with it in the nearly 1000 stores, where we've already used.
And we have high expectations for that team to continue to bring on new markets.
And expand within each of the brands around the globe. We think it's a great customer experience really easy to reorder just a few seconds for those customers. So we're excited about what it does on the platform. If you didn't think about another key area of our technology strategy, which is.
Data and analytics and our ability to drive insights quantum fits squarely against that it brings a new capability in house debt.
Many of our markets around the globe of used to optimize their marketing investments and so we're excited that theyre now continuing to serve more and more of our businesses internally. Both of these we think are high return there on the smaller side, but high return at.
Acquisitions and <unk>.
Importantly, they create a competitive advantage and the reason we decided to requirements. There is also the scale of economies that come from being able to apply their capabilities across the breadth of our global business.
And just one thing to expand on the return fees. We're buying these companies in order to improve our capability and provide services to our franchisees at the lowest possible cost that are really unique proprietary capabilities that we would have they're not designed to drive of profit for yum that we want to provide them at the lowest cost to our franchisees the return free.
<unk> come through top line growth in our franchise units, which leads to more royalty income. We think we've really got a great model here, where we do these smaller acquisitions, but we can scale of them across the world.
Almost no impact on our P&L.
Italy and then the return comes from growing sales at units improving franchise economics, which we all know is a virtuous cycle, which leads to more development and health of your franchisees.
Really our number one goal.
Our next question comes from Brian Bittner from Oppenheimer. Please go ahead.
Thank you good morning.
As you.
Analyze your different regions in the country combinations for specifically for the KFC portfolio outside of the U S. Where are you in fact seeing store level volumes, having the biggest outperformance versus 19 levels and on the flip side, where are you seeing the biggest underperformance versus 2019.
<unk> just so we can maybe better understand what market recoveries are needed to drive a further acceleration in this positive two year trend that youre starting to see.
Sure. Good question, Brian I think all of this is actually fairly intuitive where were seeing ourselves successful is for the most part in developed markets.
The U S, Canada, Australia the U.
UK for KFC, where they're ahead of the curve a little bit on vaccination of keeping the virus under control people are back trading and where our business is going into the pandemic had skewed more off premise to begin with and had well developed digital and tech.
<unk>.
So that trend is continuing for.
All of the markets really I think that's something that we're pleased with where we were going which usually we're a little bit ahead in developed markets versus emerging markets is on point for this environment.
Conversely, the markets that are struggling are the ones.
Perhaps where we had skewed more dine in going into the into the pandemic and where we have maybe government action that is limiting our ability to trade. For example, some markets I think in India of we've got to close our stores now at three o'clock in the afternoon, that's obviously going to have an impact on our business.
So at less mobility leads to less sales, but we know that those situations.
Work themselves hopefully out of sooner.
Sooner rather than later, which is why I think long term, we're still very confident in the international business returning to even stronger growth.
Okay.
Our last question comes from Sara Senatore from Bernstein. Please go ahead.
Thank you just a quick follow up can all of your question and then another end up with that technology.
All of with John's question about that acquisition Greg.
Could you maybe talk about give some context in terms of.
At the success or what you've seen from previous acquisitions, I think like click order a.
A couple of years ago, and just maybe how your technology strategy has or Hasnt changed as you think about selling.
First of buy and then any color you can give on on loyalty.
For Taco Bell of line of Pizza Hut Heck of a loyalty program anything you can tell me about your frequency what that looks like when people join our average.
Just as loyalty programs become more pervasive I'm trying to think at they're still having some kind of.
Impact on thank you.
Yeah. Thanks, Sara I'll take the first part of your question on technology.
If you think about it we do ask ourselves the question of.
Should we build the capability in house should we acquire at and bring it in house or should we contract with an external provider and we run that test and we think about gosh, we should have at in house of it as a strategic competitive advantage.
With high switching cost and we need to have that in house. We then assess our ability to develop at versus the speed of integrating and the.
<unk> to attract or find a great candidate to acquire all of it.
Our ability to develop in house is terrific right now with quite Johnson coming on board over a year ago, plus the strong technology teams that we have at each brands and Thats, where you saw the success with the launch of our KFC U S ecommerce platform, which will continue to expand to other parts of the business.
Total quantum acquisitions for the reasons, we talked about earlier, we think it was the right thing given that we've already seen the success and the impact they had on our system to bring those in house and then we've got plenty of examples of where we contract with service providers, where it's either of less strategic capability or the switching costs are low.
So that's how we think about that and again as David said, we drive return from these primarily by driving system sales growth and creating better unit economics for our franchisees, which further development in the long run yes.
Past acquisitions that we've done like quick order have really paid off not only at being done at a pizza at acquisition, but leveraging the talent and some of the IP across other brands. So this thing is really.
Got all sorts of synergies and benefits as we make the right acquisition. We've also done acquisitions outside of Tech like we bought collider of consumer insights company that has been enormously helpful. In us navigating the marketing environment, all around the world and making sure we stay connected with consumers.
Collider in particular is really excited about of the.
The acquisition, we did with quantum which will help them come.
Come up with insights on the marketing side, and then implement those insights of most efficiently using quantum's algorithms. So a lot of this stuff is going to start to create even more synergies as we put the.
What we believe is going to be.
Greater tech team in the restaurant industry together on the loyalty side clearly the move to digital that we're seeing with the consumer but with our consumer base really enables us to leverage loyalty at an even bigger way of Pizza hut, which is at a loyalty program for quite some time now continues to see more and more of their.
Business going through that loyalty program driven by frequent users of the program. That's why I mentioned earlier I was so excited about seeing Taco Bell launched their loyalty program would be hard to do when they're digital mix was pretty low now that they have a much bigger digital mix that's of great backdrop for us to engage with loyalty on our Taco Bell come up customers.
Just as we would expect we're seeing those customers coming back more frequently.
Cited about the program.
At giving us a new channel to communicate with them market to them and grow the business.
I guess as.
As of the last question I'll, just wrap up by saying, we're all quite excited about Q1, but we know there's a lot more work to do.
I think at what you saw in Q1, just demonstrates the resilience of the business, how we're coming out of the pandemic and a lot of markets that are now getting to the other side of this stronger with a better foundation to grow evidenced by the development progress were made in the quarter, but we all know this is a journey. We haven't reached the finish line, we're not doing of victory.
Events, but we are very excited about the future I appreciate everybody's time today and look forward to talking to you on our next call.
This concludes today's conference you may now disconnect.
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Uh huh.
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