- Yum Brands— the parent company of KFC, Taco Bell, and Pizza Hut — has "relaxed" its criteria for acquisitions and is more willing to consider adding new brands to the portfolio, according to Wells Fargo analyst Jon Tower.
- Tower said in a note on Thursday, following a meeting with Yum executives, that the company's tone on mergers and acquisitions "appears to have shifted."
- The fast-food industry is seeing massive consolidation, with Yum Brands' David Gibbs telling Business Insider last December that the "restaurant industry is becoming all about scale."
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Yum Brands — the parent company of KFC, Taco Bell, and Pizza Hut — appears to be increasingly open to buying more fast-food chains.
Wells Fargo analyst Jon Tower said in a note on Thursday, following a meeting with Yum's new CFO Chris Turner and other leadership, that Yum's tone on mergers and acquisitions "appears to have shifted, in our view."
"While the company is still looking for enablers for the system (i.e., QuikOrder, Collider) and business conversions (i.e., Telepizza and Rostiks ), YUM sounds more willing to consider adding to the portfolio over time," Tower writes. "Throughout our conversations over the years, management often dismissed portfolio additions for any business that competed head-to-head with the global quick-service leader (MCD) or did not have an international presence."
Now, Tower states, Yum Brands' criteria has "relaxed," assuming four things:
- The potential acquisition fits within Yum Brand's network.
- It is "economically attractive."
- It would benefit from Yum's "competitive advantages."
- It has the ability to "grow globally in a relatively asset-light manner"
Last December, Yum Brands' David Gibbs told Business Insider that the"restaurant industry is becoming all about scale." Gibbs, who was the company's president and CFO at the time of the interview, has been tapped to be promoted to CEO in January 2020.
At the time, Gibbs told Business Insider that while brands were "constantly" presenting themselves to Yum in hopes of being acquired, often the "distraction" of a new brand was not worth Yum's investment.
"It would have to be a brand … that fits in with our growth drivers, that could be a big developer, that has a distinctive, relevant brand, that could grow same-store sales growth in the long term," Gibbs said in the December 2018 interview.
"If a brand fits all of our criteria — a lot of which I can't share for strategic reasons — then yes, we would go do an acquisition and be excited about it," Gibbs continued. "And we're always looking at them."
Yum Brands isn't the only company looking to consolidate. In recent years, expenses such as the rising cost of labor and volatile food prices have cut into chains' margins.
Operating a profitable restaurant is getting "tougher and tougher,"Mizuho analyst Jeremy Scott told Business Insider in January.
Consolidation is "kind of the natural instinct when you're going to have such rising prime cost pressure," Scott said.
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