Improving Sustainability: Yum Brands
Business Sustainability is often defined as the process by which an organization manages its financial standing, social risks and opportunities. In short, sustainability is the process through which a company handles its entire business and the influence of its decisions on financial standing, community and the environment. However, in the context of this paper, we believe that this definition is more of a theoretical concept because in a more pragmatic way, sustainability is all about surviving the shocks by sculpting the organizational policies and connecting them to a healthy social, economic and environmental system.
Henceforth, in order to discuss one such brick-and-mortar retailer that successfully improved its sustainability impact, we have chosen Yum Brands Inc., a brick-and-mortar fast-food retailer that owns restaurants such as KFC, Pizza Hut and Taco Bells. Before leaping into the discussion as how the company is improving its sustainability and what more steps it can take to further improve the sustainability, we will give a brief introduction about the company and will then unfold the events that tarnished the company’s sustainability pool.
About the company
Founded in the year 1997, Yum Brands Inc. is one of the leading fast-food retailer and is a fortune 500 corporation. The company was formerly known as TRICON Global Restaurants, Inc. and changed its name to YUM! Brands, Inc. in May 2002. By the end of 2015, the company operated 41000 restaurants in 125 countries with sales volume above$127 billion.
Events affecting sustainability
Headquartered in Kentucky, Yum brands Inc. is one of the leading fast food retailers around the globe and owner of popular brands such as Pizza Hut, KFC and Taco Bells. While the company operates stores around the world and has presence in 125 contries, however, a bulk of its sales is sourced from China. By the end of 2013, China accounted for 35 percent of the total operating profit of Yum Brands. In fact, Yum brands was the first major western fast-food company to start its operation in China, opening its KFC restaurant in Beijing in 1987 and then establishing the brand around the country and Asian sub-continent. In China, YUM brand operates 4400 KFC stores alone.
However, a food scandal exposed in December, 2012 shook the company’s strong brand equity in the Asian subcontinent that had been established over the period of twenty-five years. A leading TV channel in China exposed that how a major supplier of meat to KFC in China is supplying rot-meat to the fast-food chain and is also falsifying the expiration date on the products. The video also showed the supplier using meat fallen on the floor. The company did apologized to its Chinese customers and pleaded innocence in the whole matter. Soon after, the poultry supplier to the company was also booked for using excessive antibiotics in the products supplied to KFC restaurants. While YUM brands was quick in taking actions and ceased to source the meat from the detained supplier, however, as soon as the news broke out, Chinese consumers had lost their faith in a company which once promoted its products as ‘’Finger Liking Good and perfectly safe to eat’’.
As expected, this unforeseen incident left a deep dent into the sustainability pool of the company by affecting its sale and image amongst the community. During January, 2013, KFC sales were down by a massive 41%, while same store sales down by 6% in the fourth quarter of 2012-2013. Another brand owned by the company, Pizza Hut, also witnessed a 15% decline in sales during January.
Soon after, the company released an official statement as part of which it decreased its earnings estimates. Yum brands also launched an aggressive marketing campaign to restore the customer confidence and to shake off all the corporate hubris from falling over it. However, Chinese customers do not seem to be in a mood to forgive the company after negative publicity stemming from the food supply controversy. As a result, despite consistent efforts by the company, sales figures from China are not improving and the mishap continues to prevail even after three years of the controversy. Quarterly earnings released during July, 2015 confirmed that relative to the previous year, net income of the company was down by 30%, while Chinese division witness a 12% decline in same-store sales with KFC witnessing 12% decline in same-store sales and Pizza Hut saw same-store sales falling by 4%.
The bearish trend continued further and by the time of release of next quarterly earnings released in October, 2015, the company was witnessing no improvement in its Chinese division and in an official statement released by the company, it trimmed its EPS growth rates to low-single-digit percentages.
Improving sustainability
i) Stakeholder Engagement:
The customers and the community are important stakeholders of a company. Henceforth, the food supply scandal has affected two important stakeholders and it had become extremely important for the company to find a common ground and take decisions by involving stakeholders in the process. Understanding the importance of stakeholder engagement, the company has already taken some commendable efforts for the US division and results are phenomenal. On the other hand, consistent failure in Chinese division and the need to focus on remaining global empire has forced the company to announce split-off of the Chinese division.
a) Brand restructuring in the United States
In the United States, KFC has witnessed a 8% growth in same-store sales figure during 2015 while it plunged to 15% two-year earlier. Here are the steps taken by the company to improve sustainability in the United States:
-Revival of brand mascot, Colonel Sander:
Understanding the relevance of the brand mascot, Colonel Sanders, which the company had not used in their marketing campaigns for past 21 years, has been introduced to the customers and this has allured the customers back to the KFC brand. The new advertisements featuring Norm MacDonald and Darrell Hammond as Colonel Sanders have revitalized the brand amongst the brand and KFC as a brand is benefiting from the mouth publicity.
-$5 ‘Fill-up’ meal
In addition to revival of brand mascot and creating mouth publicity amongst the customers, the company has also launched its $5- Fill-up meal that include an entree, a drink, several sides, and a dessert. Moreover, customers are also being presented with five different ‘Fill-up’’ combos featuring chicken tenders, chicken breasts, pot pie, and other options. All these meal options have added a tremendous boost to the momentum raised by re-introduction of brand mascot.
-New and renovated restaurants
Both, franchised and company owned restaurants have been given a facelift either in the form of renovation or a new construction with fancy interiors and eye-catching exterior designs. Below is a sample of new exterior of a KFC outlet :
-Improvised menu and speedy delivery
Amidst all the focus on reviving the KFC brand, the company had lost its focus on Pizza Hut chain. This had pushed the Pizza Hut towards a struggle too with flat sales figures since past two years. Henceforth, in order to improve the operational performance of the brand, the company has now introduced new flavors and premium ingredients along with the improvised delivery channel.
-More Taco Bell restaurants
During all the struggle in Chinese division and lost focus on other brands, Taco Bell was the only brand that was performing consistently well throughout. Now, as part of their sustainability improvement program, the company has now signaled towards opening 100 more Taco Bell Cantinas in the United States.
b) Split-of Chinese Division
Though stakeholder engagement demands that in order to achieve higher sustainability, the company should understand the needs of their stakeholders , however, doing so, it should consider the benefit whole of the stakeholder community and not focus endlessly on just one division for an infinite time. It is very much evident that Yum Brands made commendable efforts to revive their brand in China, but it never achieved the set targets. Moreover, with the Chinese economy on a bearish trend with lower consumer spending, the company does not foresee any strong performance and as part of improving their sustainability performance in remaining geographic locations, it has finally decided to split-off the Chinese division while eyeing modernize restaurants and improving operations across its three main brands in the rest of its global empire.
In addition to above decisions, the company can also improve its sustainability through the following means:
ii) Reporting and Disclosure
There is a high probability that the Chinese supplier of meat was able to deceive the company because of lack of measurement and controlling procedures. Every organization should understand that the measurement and control of the business inputs and then their reporting should be at the heart of the entity.While measurement and control can ensure that all the business inputs are according to benchmark parameters, reporting of these measurements will bring in transparency with the outsiders. Henceforth, Yum Brands should adopt Global Reporting Initiative as part of its plan to enhance the sustainability.
iii) Setting sustainable development policies
With Chinese division finally headed for split-up, the company should focus on setting sustainable development policies and communicating the same amongst its employees also as what are the expectations of the entity from its workforce as the entity leaps towards improved sustainability. Since the board of directors are the sailors of the company and decides all the priorities, they should be actively involved while drafting the sustainable development policies. Some of the immediate policy inclusions, which we can suggest, are:
Analyzing the social impact of our product offering and the inputs we use to produce those products. Performing a life cycle analysis will bring in effectiveness into the business operations.
Complying with all the applicable legal and regulatory requirements related to all of our businesss process. This also extends to the backward integration, i.e. suppliers of inputs should also be required to follow and comply with all the applicable legal and regulatory requirements
Establishing a formal environmental protection plan and setting benchmark goals to access the success of the program
Performing supplier audit every quarter to ensure that the stakeholder is complying with all the quality parameters and legal as well as regulatory requirements.
Working as advocates with our suppliers, customers and business partners to jointly achieve the highest possible sustainability
Extensive reporting of corporate sustainability along with financial reporting to bring transparency for the stakeholders
Conclusion
We strongly believe that our suggestions for improving sustainability will be useful for YUM Brands to rejuvenate its brand position, however, what is more important is that the company should adopt such measures with a consumer-centric approach as this will help the company to recreate the ‘’Finger Licking Good Taste’’aura again amongst the KFC’s and other brand patrons. At the same time, keeping a close check on all the suppliers is also the need of the hour. The company may hire an independent forensic auditors to screen the workplace practices of the supplier. However, while taking such stringent actions to improve the sustainability, the company should take their suppliers into the confidence by explaining the importance of such actions as part of the entities effort to enhance the sustainability.
References
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