Yum! Restaurants has clearly segmented the market with KFC and Pizza Hut. It is now ready to experiment with Taco Bell
After fried chicken, pizza and pasta, Yum! Restaurants International, the Indian arm of Yum! Brands Inc, wants to tickle the Indian palate with Mexican fast food such as burritos, tacos, quesadillas and topped nachos. Having tasted success with KFC and Pizza Hut, it is all set to roll out its first Taco Bell restaurant, where half the menu would be vegetarian, in Bangalore by October.
“It will have fare that will be a contrast in texture and flavours, and will strike a chord with the youth who always seek something new and drive the eating-out segment,” says Yum! Restaurants International (Indian Subcontinent) Managing Director Niren Chaudhary.
Chaudhary plans to promote Taco Bell’s fare as a new taste and urge audience to think beyond burgers, in line with Taco Bell’s international sale pitch. But is it scalable? Ernst and Young Partner and National Leader (retail and consumer products practice) Pinakiranjan Mishra says: “Mexican food is extremely big-city oriented. Being a relatively new taste, it will have a niche appeal for now.”
Taco Bell prices will be similar to KFC’s and will include the chain’s trademark crunchwrap and grilled stuft burrito. To find out how consumers take to its Mexican menu, the company will observe them closely at Bangalore before rolling the chain out pan-India. In the company-owned store, Yum! will tweak the taste and prices on consumer feedback. Bangalore will be the litmus test for Taco Bell.
Fried chicken
Bangalore was also the city that Yum! re-launched KFC in 2004. It had come under attack from the Swadeshi lobby when it first entered the country in 1995. Things have taken a turn for the better in its second innings. Chaudhary claims the chain has seen an outstanding year, having grown in excess of 20 per cent. KFC has 52 outlets and 18 more will come up by the end of the year. It is present across all formats — high-street, mall, airport and drive-through. The chain sees 1 million footfalls every month. The average ticket size is Rs 70-100.
Next year could be one of blistering growth for KFC: It plans to double the number of outlets to 100 by the end of 2010. That is on the supply side. On the demand side, it has begun to use the mass media. The company has, in fact, set aside 5 per cent of its sale revenue for brand promotion. KFC’s last campaign was with Sri Lankan cricketer Muttiah Muralitharan who licks his fingers in the thick of a match because he has had a KFC meal. The ‘Finger-lickin’ good’ campaign, claims the company, led to a 35 per cent increase in sales.
The company is clear about KFC’s position in the market — between fine-dining restaurants and street food. “It pays to be in the middle of the pyramid. During a slowdown, diners don’t reduce their frequency of eating out but opt for quick service restaurants that have smaller bill sizes, while during boom-time, consumers upgrade from the unorganised sector and eat out at the organised quick service restaurants,” says Yum! Director (KFC marketing) Unnat Varma.
KFC has also introduced a range of chilled beverages called Krushers in three variants: Crunchy, smoothies and sparklers. The range exceeded KFC’s expectations and brings in about 10 per cent of its total sale. “We are looking at it as a liquid snack and hence it is served with a thick straw,” says Chaudhary. A large chunk of the organised quick service restaurant market comprises snacking and hence the focus on this segment. McDonald’s, KFC’s competition and the market leader in the fast food category, has also begun to tap one such snacking category — the breakfast market — with a brand new morning menu. Chaudhary adds, “We want KFC to be relevant the whole day. So, while we already cater to lunch and dinner, we wanted to strengthen our snacking portfolio.”
Pizza and pasta
Yum!’s growth in India is anchored by Pizza Hut. “What works best in the quick service restaurant space is not just what one consumes, but also service and strong marketing that highlights the best deals the chain has to offer,” says Technopak Advisors Associate Vice-president (hospitality) Lokesh Kumar.
In May and June this year, Pizza Hut repositioned itself as a casual dining restaurant with its expanded menu that went from listing around 30 items to offer 75 food options across 40 stores. Yum! Director (Pizza Hut marketing) Anup Jain says, “Pizza Hut’s casual dining is defined by choice when ordering, unlike that of fast food dining that is defined by speed and value.” A typical Pizza Hut meal can see diners spending 35-35 minutes for a multi-course meal, with ticket sizes that run up to Rs 600. With this in mind, Yum! revamped the ambience and service at Pizza Hut. The staff has been retrained, and the décor, right from lighting to cutlery and crockery, made more imaginative than that of a fast food chain. In the next 18 months, Pizza Hut plans to add another 20 outlets.
Right moves
How Yum! fares in India may not be fateful yet. Sales in the US and other markets have declined, which growth in China could not offset. So its revenue in India, from a quick-service restaurant (QSR) market worth all of Rs 8,000 crore, could emerge as a mere blip for Yum! Brands Inc which clocked revenue in excess of $11 billion in 2008 from over 36,000 restaurants in over 110 countries. In India, Yum! has grown 20 per cent in the last one year.
The challenge, according to Mishra of Ernst & Young, is the low average bill size in the Indian QSR space. A longer menu and more stores could increase the size in the days to come. While Yum! is keen to add more vegetarian options at KFC and look beyond pizza and pasta for Pizza Hut, for now its focus seems to be expanding its footprint in the cities it is currently present in. For example, KFC, which is present in 12 cities with 52 stores, will enter only two new cities but add 18 more stores this year. “Opening more stores will add to its top-line. If the stores are in the cities the chain is already present in, then it makes sense because it can leverage the existing supply chain,” says Mishra.
All told, Yum! plans to invest Rs 150 crore over the next two years to grow KFC and Pizza Hut. Chaudhary explains why scaling-up is a priority: “We need to strike a balance between variety and complexity. Our internal estimates tell us that with our current menus and their varieties, it would be good to scale up.” Yum! will be helped by the decline in rents in high-streets (by 10 per cent) and malls (by 15 per cent). None of Yum!’s stores has had to shut shop during the slowdown, the company claims. Each KFC store takes Rs 2-2.5 crore to set up, while Pizza Hut stores require Rs 1.5-1.7 crore. (KFC requires more expensive equipment and has to provision for more seats.) All the stores, the company claims, make profits. While store profits are easier to achieve, the supply chain and human resource costs often delay an organised fast food chain’s profits. McDonald’s, claims Managing Director McDonald’s (West and South) Amit Jatia, has already broken even this year. “We make up with our sheer volumes and our strong supply chain which facilitates the low prices at our stores, what might be missing in per footfall margins,” he adds.
Yum!, on its part, has not always had it easy. While KFC fell prey to anti-multinational sentiments in the initial years, Pizza Hut had been viewed as expensive early in its life-cycle. Ready with its third chain, Taco Bell, Yum! will be keeping its fingers crossed to see whether the consumer laps up its Mexican platter or not. McDonald’s remains unfazed. “The market (organised QSR) is still nascent and more players would only help to expand the market, be it in malls or high streets. However, specialised chains are not a competition for us because we operate on a different price scale altogether,” feels Jatia. “Until Taco Bell gains in scale, it would not be possible to gauge its relevance. For now, it might act like two-outlet strong chains which are popular in single cities. For the next five years, the chain will continue to be specialised one,” observes Mishra.
