By: Chris Vasil
Pizza Hut YUM is testing beer delivery in Phoenix as a first step in would could become a major push into alcohol. Six-packs of Anheuser-Busch InBev (NYSE:BUD) brands will cost $10.99.
The Yum Brands YUM -owned chain plans to add wine delivery in January. The alcohol delivery test is due to be rolled out in other cities in 2018.
On the logistical end, participating Pizza Hut stores will need to have a liquor license and employ drivers of over the age of 21.
On a broader scale, Pizza Hut is looking for ways to take back market share from Papa John's International (PZZA) and Domino's Pizza (DPZ).
Everyone Needs What Yum! Brands, Inc. Is Selling:
One of the best pieces of investment advice I ever read was in Peter Lynch's must-read book, One Up on Wall Street. He said to buy stocks in companies that you know.
This does not mean to just buy up stock in every company that produces a product you use, but to think about how and why a certain company might have success for the long term. For me and my stock advisory newsletter, The Liberty Portfolio , I ask if a given product "is fundamental to the human experience, something that has become so intertwined in our DNA that we could not do without it." Those are the stocks to consider, and Yum! Brands, Inc. YUM fits the bill.
YUM stock is actually the holding entity of three famous fast food brands: Pizza Hut, KFC, and Taco Bell. These three brands alone cover a massive 44,000 stores in almost every country on earth - 135 of them in all.
YUM Stock Based On a Necessity:
So why is this triumvirate of food brands so darn important? Here's my thought process about a product being "fundamental to the human experience."
Everyone needs food. That's why they call it "food." You can't live without it. You may want to, in order to lose weight, but food is a necessity. It isn't just a staple. It's a requirement. YUM stock will always do well because Yum Brands sells food.
There are many kinds of food, but certain kinds of food are also necessities. Yum Brands makes meals. Not only that, they are meals that one can eat and - largely because of the fat and protein content - make you feel reasonably full.
See, the difference between necessity food and snack food is that the former has some kind of foundational nutritional value. It won't win any nutrional awards, but it is enough to get people by. In fact, some of the offerings at Taco Bell (lighter menu, salads), at KFC (grilled chicken), and even Pizza Hut (protein in the meats and cheese) are quite reasonable from an intake standpoint.
It isn't just people in the low-to-middle income brackets who consume YUM stock foods. According to the CEO, half the U.S. population eats Taco Bell once a month, and the average person comes in every 11 days. Yet when we look at the very broad picture, as indicated by a recent study, fast food serves every demographic.
Of the richest 10% of Americans, 75% report eating fast food at least once every 21 days. Those numbers increase as one moves down the income scale. Of the poorest 10%, 81% report eating once every three weeks, and 85% of the middle percentiles do as well.
I should also point out that the speed with which the food is delivered and consumed is also a major part of YUM stock and the performance of YUM stock price over the years.
Bottom Line on YUM Stock:
Time is money. That's true for everyone, and for parents, even more so. What we've learned from decades of fast food service, and what the film The Founder dramatizes, is that food that is of at least a certain level of quality, delivered at a reasonable price, and delivered quickly, holds tremendous value for people all over the world.
Finally, consider this: Fast food and YUM stock continues to do well despite the obsessive focus on healthy eating that has consumed the nation for the past 20 years.
As for YUM stock itself, you can't go wrong buying and holding it for the very long term. I am price conscious, though, and buying YUM stock at 18x on 6% growth gives me heartburn. Personally, I would wait for a broad market correction.
YUM YUM has over 43,500 restaurants in more than 135 countries and territories. Through the three concepts of KFC, Pizza Hut and Taco Bell (the “Concepts”), the Company develops, operates or franchises a worldwide system of restaurants which prepare, package and sell a menu of competitively priced food items. Units are operated by a Concept or by independent franchisees or licensees under the terms of franchise or license agreements, which require payment of sales-based fees for use of our Concepts' brands. The terms "franchise" or "franchisee" within this Form 10-K are meant to describe third parties that operate units under either franchise or license agreements. Franchisees can range in size from individuals owning just one restaurant to large publicly-traded companies.
Most restaurants in each Concept offer consumers the ability to dine in and/or carry out food. In addition, Taco Bell and KFC offer a drive-thru option in many stores. Pizza Hut offers a drive-thru option on a much more limited basis. Pizza Hut typically offers delivery service, as does KFC on a more limited basis primarily in China.
Each Concept has proprietary menu items and emphasizes the preparation of food with high quality ingredients, as well as unique recipes and special seasonings to provide appealing, tasty and convenient food at competitive prices.
The franchise programs of the Company are designed to promote consistency and quality, and the Company is selective in granting franchises. The Company utilizes both store-level franchise and master franchise programs to grow its businesses. Under store-level franchise agreements, franchisees supply capital – initially by paying a franchise fee to YUM, by purchasing or leasing the land, building, equipment, signs, seating, inventories and supplies and, over the longer term, by reinvesting in the business. Franchisees contribute to the Company’s revenues on an ongoing basis through the payment of royalties based on a percentage of sales (usually 4% - 6%). Under master franchise arrangements, the Company enters into agreements that allow master franchisees to operate restaurants as well as sub-franchise within certain geographic territories. Master franchisees are responsible for overseeing development within their territories and collect initial fees and royalties from sub-franchisees. Master franchisees often pay royalties at a reduced rate to the Company. Our largest master franchisee, Yum China, pays a 3% license fee on system sales of our Concepts in mainland China to the Company.
The Company believes that it is important to maintain strong and open relationships with its franchisees and their representatives. To this end, the Company invests a significant amount of time working with the franchisee community and their representative organizations on key aspects of the business, including products, equipment, operational improvements and standards and management techniques.