Yum! Brands, Inc. (YUM) Earnings Call Transcript & Summary

I guess we can get started. Good morning, everybody. My name is Danilo Gargiulo. I'm the new analyst, a restaurant analyst here at Bernstein. Now I know judging from the number of coffees circulating that, I'm probably going to have a tough job this morning. But I'm delighted that I'm joined here by Yum! Brands CEO, David Gibbs, who's going to make this conversation far more interesting and exciting than having just me on stage. Yum! Brands is the largest restaurant brand in the world. They have over 54,000 restaurants operating in 155 countries. They are using a very asset-light franchise model to operate there for, I would say, one of the most iconic brands in the world, such as Taco Bell, Pizza Hut, KFC, Habit Burger Grill. And David has been at the company for over 30 years, appointed CEO in January 2020. And prior to that, he was the President and COO. And before that, he was the -- so from 2016 and 2019, he was the CFO and President of Yum! Brands and I would say maybe the mind behind the development plan and development strategy and the refranchise strategy that Yum! has put together over the past few years. So David, thank you so much for joining us.

Yes. My pleasure to be here.

Thank you. Well, before we actually get started, a quick reminder for everybody here in the audience that you can submit your question through the Pigeonhole app. If you do so, we're going to make this conversation even more interactive. David, let me start with a maybe a reflection on the pandemic. Now clearly, as consumers, we have changed the way that we are interacting with restaurant brands, and we are 2 years into the pandemic. So given the global nature of your business, what kind of consumer behaviors do you see sticking? And which ones do you feel are transitory and why?

That's a good question we get a lot. The reality is that the consumer habits that were sort of the result of the pandemic that we attribute to the pandemic were trends in the business that were already there. So there were trends towards consumers looking for more ease, more digital ordering, more off-premise. These were things that were happening anyway. And thankfully, in our business, we've been working on solutions for that, making big investments in tech that paid off really well in the pandemic. So I don't know that there's a lot of things that are going to reverse. When you can provide a consumer an easier experience, they're going to stick with that. In fact, in our Q1 results, we talked about the fact that we set a new digital sales record. We also set a new digital mix record. So not only are the sales numbers climbing, but the mix, the percentage of orders that are being ordered digitally is climbing as well. And that's despite the fact that in Q1, we saw a climb in our dine-in business. So customers are returning to the restaurants, but they're still using digital solutions. In the restaurants now, in Taco Bell, for example, we have kiosks where you can place an order. And frankly, it's easier to place an order in a kiosk than it is at the front counter with an order taker because you get exposed to the whole menu, you can navigate it the way you want to, you can go into the menu items that you're looking for customized without the pressure of somebody standing behind you or anything else going on. So I think all of these trends really are here to stay. Now I wouldn't call them permanent because digital is constantly changing. With the definition of a digital order, it might -- that might involve voice ordering in the future, which is not a big part of our business today. So we're not going to go back to the old days, but the business is going to keep changing and what consumers want and the way we can serve them from a value and convenience standpoint, which is what our industry stands for, it will continue to evolve.

And maybe let me go a little deeper on this question on the digital space. So if I recall correctly, about $6 billion of sales were digital in Q2. And it's about 15% year-over-year growth and approximately 40% of your sales. But this is obviously like a global average. So can you help us understand how the digital consumer differs between the maybe U.S. consumer versus the international consumers? How -- if you were to decouple this 40% mix maybe between the different brands or between the different type of cohorts of consumers, can you help us have a better understanding of where digital is going?

Yes. It's a great point. When we put out a number of 40%, there's a lot behind that. And it's not as if every restaurant, all 54,000 restaurants, are mixing at 40%. Some are probably very close to 0. Some are close to 100%. Our China business, for example, as they've discussed in the earnings calls, probably north of 90%. But yes, we have other businesses that structurally don't lend themselves as much to a digital transaction. A great example of that is Taco Bell, where the vast majority of the business goes through the drive-thru. Their speed of service at the drive-thru is incredible. And the ease of pulling up, placing your order and then getting it 3.5 minutes later is -- that's not a problem that needs a digital solution as much, although you can place your order on the Taco Bell app. You can pull up to the drive-thru speaker and just mention your name and the order will already be in the system. So there is still some convenience benefits there, but not nearly as much as, for example, in the pizza category where you place your order on the app and you get the food delivered and you don't have to deal with trying to explain to somebody on the phone that you want extra pepperoni on half the pizza and not on the other half. So the numbers really vary all across the world. KFC, for example, KFC U.S. is about 10% digital, but as I said, KFC China is closer to 100%. But interestingly, the U.S., probably mix is around 40% and international mix is around 40%. We just get there very different ways. And I think it shows the opportunity that we have at Yum! to continue to drive digital throughout all parts of our business. I mean our mission is really 100% digital at the end of the day. And I imagine we'll get there at some point in the not-too-distant future. And all -- that has all sorts of benefits for us and our franchise partners. The economics of a digital order are better for them. They're saving on labor, and they're getting a more -- and for the customer, it's a more accurate order. It's an easier way to order. And typically, the average check is higher.

Right. So you mentioned some of the benefits that are obviously translating into consumer factions toward the brand. And clearly, the digital strategy empowers the exceptional experiences that you're talking about through your RED brands. I'm just wondering your recent acquisitions, how do they fit into your digital strategy? What kind of -- maybe if we also put like financial lenses on it, what kind of complete expectations did you have, maybe complete or productivity enhancement expectations that you have? And what have you captured so far? Where are you expecting the next 12 months to lead you?

Yes. You're referring to these acquisitions that we've done, a series of smaller acquisitions in the tech space to improve our capability. Obviously, a company like ours, we have a lot of different paths to build our digital capability. We could build it internally, hire a whole bunch of grads and build up our own skill set. But we have a unique -- we sit in a very unique position in the restaurant industry. We're the largest restaurant company in the world. We're in more countries than anybody else. And we have digital partners all around the world that help us in different parts of our digital ecosystem. So we get a lens into what works best that nobody else has. We can find some little company based in Vietnam that does one thing particularly well. And we did, and we've actually bought that company. And then we've been doing a series of those kinds of transactions to piece together the best capabilities no matter where they are in the world. We can go find them, and we can do these acquisitions at a relatively low cost and add talent versus trying to start from scratch and build it internally. That strategy has worked incredibly well for us. And we think we have a unique -- not many people could do that because not many people would be able to kick the tires on all these companies the way we have. So we've pieced together all these different capabilities, imagine we'll continue to do more of these acquisitions. Each one has a -- brings a different skill set to us that we think will be a proprietary competitive advantage for us and our franchisees. And I can tell you, when we sit back and reflect on it, there's not one single acquisition we've done that we regret. Every one of them in some way or another has had benefits beyond what we even thought about. And as far as quantifying the financial impact, everyone has a different impact in a different way. Quantum, for example, helps us optimize our media spend. So right now, $675 million of our media spend is going through their algorithms in various markets around the world to make sure that we're getting the biggest bang for the buck. We worked with them when they were an independent company. We saw the impact it would have on sales. We get a clear sales lift when you put their AI models on to your media spending model and fine-tune it. So there's sales lifts from every one of these, but all very different. Obviously, Quantum is totally different than Dragontail, which is a back-of-house efficiency tool that shortens up the amount of time it takes to deliver a pizza, for example. And we know that there's clear benefits from that. Every minute you shave off a delivery time is a customer that's happier and coming back more frequently.

Great. And maybe since we are at the Strategic Decisions Conference, so what are some of the most futuristic items that we can expect in your digital agenda? I mean yesterday, we had a panel on metaverse, and I know that Yum! has also been investing in the metaverse. So I'm just trying to understand, 5 years from now, how is the digital space going to be different for Yum!?

Obviously, I'm a little bit limited in sharing all of our internal company secrets. But what I can say is behind the scenes for the last few years, we have shifted an enormous amount of G&A and resources to digital and technology. And we've done that without coming out and saying our G&A is going to go up 20% this year because we got to make an investment in tech. So I'm really proud of the way the team has navigated this environment and been able to figure out areas of our old world spend that we can pull back on while investing in digital and tech. A good portion of the company -- we just had a leadership summit of the top 250 leaders in the company. The #1 represented function of those 250 leaders was technology. There were 7x as many technology leaders in the top 250 at this conference than there was just a few years ago, the last time we had the conference. So that's one thing that I don't know that people appreciate is how much has gone on behind the scenes to transform ourselves into sort of this modern technology company. Part of that is we've started up an innovation team, an innovation lab. And they are working on a lot of the things that you might imagine when it comes to automation and voice and vision technology. Just to give you a sense for what I'm talking about, we do have operating in some stores the ability for cameras to detect when an employee puts -- forgets to put tomatoes on a taco, and the employee can get alerted to that. Is that rolling out tomorrow in every store? No, that's going to take a while to perfect things like that. But there's lots of work going on behind the scene. Vision -- and voice obviously is a big opportunity in terms of labor. So I'm excited about what all this means for the future of our company. And we're truly just getting started, but we've got a great foundation. With our scale, this is back to one of the things we always talk about. These scale benefits have always been huge. They're even bigger in a world that's very tech dependent. And we can scale. We bought Habit Burger Grill, for example. We discovered some technology that they had that actually made sense for some of our other brands. So that wasn't part of the math of whether we should buy Habit or not, but that's certainly been a financial benefit to us because of our scale.

Got it. And if I capture one of your statements correctly, you said something that was maybe not as appreciated was kind of your digital strength. What are some of the other underappreciated assets that you think or underappreciated parts of the business that you think we might benefit from understanding better?

Look, I mean, you guys see it. We keep announcing these record numbers in new unit development. Last year, we opened over 4,000 gross units. There's no formal records of this, but we can't find any record of anybody else doing anything close to that in the restaurant industry. And the beauty of development is you have vision into what it looks like several years ahead because you're planting the seeds now for stores to get open. And unlike same-store sales, I mean, it's not here today and gone tomorrow. When we build a new store, our success rate is very high. Those stores are open for 20, 30 years. So I'm sure we're getting credit for that ramp-up in development. But to me, it still seems like a story that's probably not fully appreciated and the opportunity that we have ahead of us. I imagine people want to see us prove that time and time again before we get full credit, and that's fair. But the unit economics, I think the last few years because of the move to digital because of the move to off-premise, our brands being there for consumers during a very difficult time, I think our business has gotten stronger. Unit economics for franchisees are generally better around the world. All of that bodes pretty well for a continued rapid pace of development expansion. I think people struggle with, wow, you got 54,000 units, how many can you have? We can have a lot more.

Great. And maybe let me go on to some of the questions that are popping up. As you're speaking about development, people are asking -- they're asking, does franchising margin pressure hurt unit growth? So what's your view on that? And there was another question which is what might accelerate unit growth above your long-term unit growth guide above 4% to 5%?

Yes. Well, on the first question, do margin pressures hurt unit growth? Of course, they do. If our franchisees aren't making great returns on the units that they're building, we're not going to build any stores. That's why I think in some ways, the development numbers are a great indicator of the health of our business because I talk franchisees voting with their money that they want to expand our footprint, right? They're not going to do that just because we ask them to. They're going to do it if the returns are there. In certain markets right now, obviously, that we're having more inflationary pressure than others, the U.S. being one of them. But I'll just point back to our last earnings call, Taco Bell in the first quarter of 2022 had margins that were almost identical to their margins in the first quarter of 2019. So there are pre-pandemic margins and there are post-pandemic, inflationary pressure, rising food costs, all the things that we're all reading about and all worried about, we were able to produce the identical margins on a higher sales volume. So those franchisees are making more money. I'm not saying it's easy to do that. You can do that when you have scale when you have pricing power and you can pass along the pricing pressures to consumers in a way that still keeps us a great relative value. It's a little bit harder for our other brands to do that because for Pizza Hut and KFC, their average ticket tends to be a little bit higher. So it's a little bit more of a challenge to provide offerings at the low end for consumers that are under price pressure. But also, we've seen time and time again that they have that capability to pivot. So of course, margins have to be good for franchisees to build. And for your second question, I guess can we continue to do this or what -- if we can take it higher.

What could accelerate exactly?

Like any time I get questions on accelerate, I just want to level set. There's no part of our guidance -- you guys are all probably familiar with our guidance for our long-term growth algorithm, there's no part of that, that we're not trying to push higher. There will never be a day, at least as long as I'm with the company, that we won't be trying to come up with solutions for how do we accelerate any part of that guidance. Now when we'll come out with revised guidance that's higher, that's a different story. But sure, we're always looking at ways to accelerate development. One of the things we've learned from the pandemic is that we can probably cut costs on the boxes that we're building because of the shift to off-premise. If we can preserve sales volumes and do that with a lower cost asset for our franchisees, we can all see how that would lead to a faster pace of development. But we -- the opportunities for us to grow are there. Sometimes -- and I fall victim to this myself sometimes. You live in the United States, it's a very mature QSR market, you look at our brands just through a U.S. lens and then you miss 90% of the growth story because it's -- the opportunities outside the U.S. are enormous. I mean Taco Bell's -- you've seen from the international numbers set a record last year for international development. We're confident that, that kind of acceleration at Taco Bell is going to continue. It's really sort of turned the corner and starting to get to scale in a number of important markets and proving that it has all the strength and brand appeal to consumers to be another powerhouse brand just like KFC and Pizza Hut.

Great. And maybe let's build on Taco Bell because there is another question coming from the audience, which is for Taco Bell, what's your strategy for brand development in addition to international markets?

In terms of the brand itself, I mean, the beauty of the Taco Bell brand, and this is true of a lot of all the great brands in the world, is they have flex to go in a lot of different directions. And the Taco Bell brand actually in the U.K., for example, is a huge delivery brand. Like the delivery business looks like a pizza business. And we saw that with KFCs we expanded around the world. In some markets, we would be a bone and chicken business. In some markets, we would be tenders and the sandwich business. Great brands have the strength to expand in lots of different directions. So look, the model that we have for Taco Bell in the U.S. is slightly different than the model that we're using internationally, how we position the brand with consumers. And that's always been the hallmark of Yum! is that the reason why we're so dominant in emerging markets is we run a little bit more of a decentralized business. We give our teams a little bit more flexibility with our brands to adapt them to local taste. That's why we have such a dominant lead in emerging markets over anybody else in the QSR industry. We're able to get into those markets quicker and be more -- and recognize the local needs and adapt to them. So I can't give you one answer about Taco Bell. I can tell you that it is an amazing brand with -- all you have to do is look at the love that Mexican pizza has had in the last couple of weeks when we brought it back. It's an amazing brand with rabid fans and the ability to flex in lots of different formats. And I think if you look carefully what's going on now around the world, you can see we're really starting to plant our flags in a number of countries and establish a long, long, long runway for growth for Taco Bell International.

And maybe if we can go deeper on this point. So I think your strategy in approaching international growth has probably changed over the past few years and that you're trying to gain scale in selected countries. You're trying to go deeper with a minimum viable scale. So can you help us understand a bit better how you're planning to scale internationally? And again, particularly for Taco Bell, what kind of complementarity in consumer flavors are you seeing? And how are you planning to scale out of kind of the major countries that you're in today?

The benefit we have, of course, is that we think we're one of the world's experts on taking U.S. brands, Western brands, and expanding them to international markets. Think about all the lessons we learned as we took KFC from Kentucky all around the world, Pizza Hut from Wichita all around the world. So we're applying all those lessons to Taco Bell. So we have a road map. And what we've learned is when you get to scale in a market, for larger markets, it's usually like 100 units or something. There's something magical about that, that in consumers' minds, now you can be more of a top-of-mind brand. You get the marketing dollars from those units contributing to your marketing budget to do more interesting and creative things to build the brand. So we have had a focus on getting a few individual markets to that tipping point. They had some contest with marketing dollars. And Julie Masino, who runs Pizza -- the Taco Bell International business, is really creative on that. And the franchisees responded. And I think what you're seeing now is we -- in those few markets where we've gotten to the tipping point, we're really starting to see much improved unit economics for the franchisees and how they see the way forward. One of the great parts of the Taco Bell International stories, we just signed a deal with China to dramatically ramp-up the pace of Taco Bell in China, which I'm really excited about. You can imagine the future for that brand there where Western brands generally tend to do pretty well. So we're following the road map that we've created at Pizza Hut and KFC in terms of how we're expanding the brand, and it's working, the best way to say it.

And maybe -- before, there's a couple of questions on kind of the rebound of international markets. But before we go there, maybe to set the stage, over the past couple of days, we've been hearing macro outlook that range from, there's a hurricane coming, all the way to there's no evidence of softness in discretionary spend. And you just mentioned sometimes we look at the world with our U.S. lenses, but you are very -- in a very privileged position of operating in 155 countries. So can you help us understand what's going on in the consumer space? Where do you see the consumer stronger or weaker than you think that the market is expecting today? And perhaps if you can give a nuance about kind of the U.S. consumer versus international consumers, where are they in the journey today?

Yes. Obviously, it's a broad question. There's a lot there. And I tend to not want to predict the future because I think we've all probably learned in the last few years, we're going to be wrong. So much of how things have played out in the last few years has probably gone against most predictions early on in the pandemic. But as far as where we're seeing things maybe differently than the world is predicting, the economists are predicting, there's been a lot of discussion about softness in Europe from -- as a result of the war in Eastern Europe. You saw in our Q1 numbers, we haven't seen anything like that. Our European business is doing quite well. Similarly, a lot of concern about the U.S. But again, Taco Bell, which is the vast majority of our U.S. business, put up a strong number in the first quarter. So I think maybe some of the concerns about the U.S. and Europe are probably a little bit overblown right now. But that doesn't mean I won't be back on an earnings call talking about challenges in U.S. and Europe later in the year because I just think these things are very hard to predict. I found this to be one of, by far, the most complex environment to navigate for a company like ours for multinational. There's so many different variables that are changing all at the same time. I mean just take the U.S., we'd like to simplify the whole story into, well, like the high-income consumer is fine and the low-income consumer is pulling back. I think that's there's probably evidence of that happening. But beneath the surface there, there's a lot more going on than that. I mean the low income -- there are some low-income consumers, I saw some stats, the bottom 25% of salaries are up 10% versus pre-pandemic. So these people have a lot more money -- some people have a lot more money in their pocket, particularly if you're like in an entry-level role where entry-level wages went from $8 to $15. So some of those low-income consumers probably aren't pulling back as much as some that were making the same wage that we were -- they were before the pandemic and just lost the stimulus money. For them, you could see this would be more of a problem. But even consumer patterns, work from home, what has that done to our restaurants and how we market to consumers and think about the different channels in our business, this massive increase in off-premise. I mean there's a lot of stuff to process, and I think it's a little dangerous to just oversimplify it to like we lost a low-end consumer. I think there's more than that going on.

But you mentioned there is a lot of pressures in the system, especially for your franchisees. If you think about kind of the deliver pressure, the inflationary pressure, the commodity pressure, various lockdowns still happening today across -- the war in Ukraine and so on and so forth. So if you were to remove maybe one of this pressure from a pure economic standpoint, okay, I'm not talking about the human aspect of it, just from a pure economic standpoint, which one is creating the highest pressure from an EBITDA standpoint to Yum! So if you were to remove one of the biggest pressure that you're seeing in the system, which one would you pick?

That's actually sort of an easy question because the only thing I think that you listed that would be out of our control would be a lockdown. Like if a government locks down a city or a country and people can't leave their apartments or restaurants can't operate, obviously, we get harmed. And we're seeing that to some degree, and we have been seeing it in China, another coming out of that. When things are out of our control, that's a problem. And that has -- the impact of what's happened in China has had a pretty big impact on us even though we've continued to deliver strong profit growth over the last few years. The fact that our Chinese units -- average unit volumes are well down from pre-pandemic obviously takes a toll. So lockdowns are a problem. Everything else, we can react to. Supply chain, we're the largest restaurant company in the world. We have scale. We can -- we haven't seen supply chain take our business down in any way. Inflation, we are always going to be a relative value even if we price up for inflation and pass along those impacts to consumers, just like I mentioned in the Taco Bell Q1 numbers. I mean you throw anything at us, our team knows how to react to it and how to go find the savings to cover it and keep the business profitable. I think that's one of the other things to one of your earlier questions was what's underappreciated about Yum! Here we are post-pandemic, we just made it through the ultimate stress test for our business with flying colors. And I don't know if people realize how much safer an investment that makes us and what that says about the long-term strength of the business.

Great. And maybe following on one of the questions that we had from the audience is, when do you expect emerging markets to rebound to their post-pandemic run rate?

Well, that really is a market-specific question. If go back and look at our Q1 numbers, India obviously has come back very strongly, and we're really excited about what's going on there. But -- and China has not. So there are 2 emerging markets, but 2 vastly different results. One of the things I'm excited about for the future is we track the difference between our developed market performance and our emerging market performance. And through most of the pandemic, developed markets were outperforming emerging markets for all the reasons that we might suspect, more government assistance, managing through the pandemic in a more orderly fashion. But then -- so what we're seeing now though is some of the -- that gap was pretty big, developed markets were outperforming emerging in a pretty big way. But if you start to now peel apart our results and pull out China, for example, which is still on the other side of this but the markets that have come back are strongly outgrowing our developed markets now. So we're starting to see that turn. And given that we have a pretty big presence in emerging markets, we see that as a potential tailwind for us as we go.

What kind of downside risk in terms of like same-store sales are you expecting in China if these lockdowns that you cannot really control keep happening?

Yes. I wouldn't forecast that same-store sales in any one market. But -- and the beauty of our China business is it's publicly traded to companies. Many of you know, they release lots of information on what's going on there. But I mean at the end of the day, we're seeing this in market after market around the world. Emerging markets that got hit hard with COVID and really struggled come back strongly when they get to the other side of it and get the pandemic under control in their market. That's good for us.

Great. You also talked about the different pricing points, and you mentioned how Yum! is well positioned to react to any inflationary pressures that you may see in the system. So the question is, how are consumers perceiving today Yum! brands from a pricing standpoint compared to maybe your competitors?

Well, look, we think we have been taking the biggest market in the U.S. with the most inflationary pressure. But we think we have a competitive advantage here. We have a co-op. For those that aren't familiar with our structure, we have a co-op in the U.S. that does all of our purchasing. So we aggregate all of our brand volumes together. When we buy cheese, we're buying cheese for all of our brands. That gives us an enormous advantage in terms of supply chain. So if there's an environment where it's an inflationary environment that's harming the industry, you've got to believe we're going to navigate that better given that we've got the largest purchasing co-op and the scale in our purchasing to make sure that we come up with solutions that minimize how much of that cost we have to pass along to consumers. But we do have -- when we have to pass along cost to consumers to keep the unit economics whole, we have found that we can be smart about that. Obviously, there's very sophisticated folks and models that we use to figure out how to do that in a way that gives those consumers that want great value that on our menu gives others that are less price sensitive options that makes sense for them. And when you piece it all together, the history has shown in the QSR industry and for our brands, we can navigate inflationary times without putting a major dent into our unit economics. Over the long run, there might be a quarter where you have bad margins and then you take pricing and then you recover from that. But over the long run, I don't think there's anybody panicked about inflationary pressures in our industry. Remember, food cost makes up 30% of what we sell. In other industries, the inflationary pressures might hit 60%, 70%, 80% of what they sell. So to pass along an increase on 30% of your menu isn't as challenging.

And so you mentioned the strength of your scale, and the supply chain is one of the factors that you're deploying to help your franchisees. I'm wondering what other elements or what other support that you're providing to the franchisees to essentially maybe push back a little bit on the -- on some of the pressures that they're seeing in the macro environment, especially from wage inflation and commodity inflation? So how are you helping your franchisee base?

Yes. I mean look, our whole reason for being at Yum! Brands, as you mentioned earlier, we transformed the company into an asset-light model. We only own 2% of the stores. We are a franchisor. We are the largest restaurant company in the world. We believe we're the best franchisor in the world. We're a world-class franchisor, and everything we do is to support our franchisees. If their unit economics don't work, if they're not making money, if they can't pay their bills, then we're dead. So all of our corporate team wakes up every single day working on how do we support our franchisees better. And it's in every part of the business. I mean loyalty programs, just to pick one thing. Like what are we doing to help the franchisees make more money? Well, we know if we get customers on loyalty programs that they buy more frequently, and that's a sales driving tool. Typically, it's a digital program, so they order digitally. I mean everything about the customer and the loyalty program is fantastic. So you guys saw us, if you hadn't caught it, we did this Taco Lover's Pass for $10 and get taco a day for a month. That drove enormous movement into our loyalty program at Taco Bell. It's really helpful in getting people on that program now so we can market to them and continue to drive sales. But it's in every part of the business. We're working with the franchise community to figure out how to continually refine our business model so that it's the most profitable model that we can have at the restaurant level.

Great. And maybe switching on to the menu itself. So one of the questions that was asked by the audience is post-pandemic, and I will argue maybe started even before the pandemic, there is a secular trend toward healthier food. So the question that the audience was asking is, how are you positioned to capture the kind of this macro trend or, I would say, long-term trend of moving toward healthier food options? And then there was one more question, still on menu items, which is what is the yummiest new product introduction across the brands and geographies that you're planning to launch?

Well, as far as consumer trends, obviously, a big part of what we do is constantly responding to consumer trends. We have brands that are all 60-plus years old, including Habit, yet they remain young brands at heart because they're constantly evolving to meet consumers' needs. In fact, one of the -- we talked about acquisitions in the tech space. What we didn't talk about is one of the first acquisitions we did was a consumer insights company called Collider, which has been an amazing acquisition for us. It's mostly PhDs and PhD dropouts that help us understand changes in consumer behavior. And we kept their office separate. We kept their names separate, even though we bought the whole company. They continue to work with outside clients, some of the biggest companies in the world. But we own them, and they work with our franchise organizations around the world. They're nonprofit basically. They don't -- so the franchisees get this amazing talent without having to pay a premium for it. And they help us understand consumer trends. So trends like how consumers want to eat. It may be plant-based, for example. It's obviously something that a lot of people are talking about. We did a partnership with Beyond Meat to help make sure that we were leaning in on our front foot and understand that category really well and what that might mean for us down the road. Some of you probably remember, we've done some launches. We have plant-based -- we have Beyond Meat Pepperoni at Pizza Hut. We have -- we did some things with KFC that were oversubscribed. So we've had some excitement in that space, and that's obviously something that we'll continue to work on as it evolves. But we're constantly evolving our menu to meet consumers' needs. As far as what products we have coming down the road that I'm really excited about, well, if I told you that, then there wouldn't be as much excitement when they launch. But I don't -- I think everybody in this room would probably agree, there's always something new coming from any one of our brands at any point in time, and it's always pretty cool and exciting. We brought back Mexican Pizzas. As you guys probably read about, and that got a lot of buzz. But there's more stuff down the road that I think it's going to be sales driving and brand building.

And I think we talked a bit about Taco Bell and KFC today. I don't think we touched deeply on Pizza Hut and Habit Burger. So maybe let's go into Pizza Hut. What's your strategy to remigrate the brand internationally and domestically?

Pizza Hut is obviously the iconic pizza brand in the world. It was a leader in the dine-in space for so many years. And then the category changed and became more off-premise. And when you add scale like Pizza Hut with the foot -- the dining footprint that they had, you just can't change overnight to meet that change in consumers' needs. But we -- the pandemic has given us an opportunity to accelerate the shift from dine-in assets to more delivery and carryout-focused assets. And we closed a whole bunch of dine-in stores in the U.S. that needed to be closed. So we've really retrenched, and the brand is in a much better shape in terms of the foundation and the asset base and the way forward through technology and through off-premise. So I think we're all very excited about the future pizza. We have a new President -- a new CEO at Pizza Hut, Aaron Powell, who's doing a fantastic job rallying the team around the world around the single vision, which was harder pre-pandemic because there was still a lot of dine-in holdouts. And I think people have seen the future, back to my earlier comment, that pandemic just accelerated trends that were already going on. There was a trend towards off-premise. Being in the dine-in pizza business while still there's plenty of pockets where that works, overall, we have to be the leader in the delivery and carryout space. And I think Pizza Hut is on that path now.

And it's the same trend happening also in China because the positioning of Pizza Hut in China is quite largely differentiated compared to the rest of the world. So is the same kind of trend toward moving to off-premise happening in China as well? Or do you see a different market?

I think the Yum! China team has talked about on their earnings calls that they have a strong dine-in business, but they've now started to supplement that with a delivery carryout business. So they have 2 types of assets in the market, and those assets are fueling a lot of their growth as they picked up the pace of building Pizza Hut units. So just like the rest of the world, I think there's room for dine-in and there's room for delivery and carryout. And there's no reason why we can't dominate in both. Pizza Hut actually is the largest, I think, casual dining chain in the world if you count our dine-in restaurants, but we also want to be the largest delivery carryout restaurant.

And we are maybe in the still relatively early days of Habit Burger Grill within your system. Obviously, your intention was to scale the brand on a national level. But you're having to start almost from scratch regarding having to build the muscles and the franchisee connections to make the brand actually bloom on a national basis. So 2 questions. Number one, how is this early development going? And number two, are franchisees buying into the Habit Grill story?

The one thing I'll say is you said national, it's actually global. Our ambition is to take the brand global, right? We wouldn't buy a brand if we thought it just had a future in the U.S. since we're mostly an international company. And we wouldn't buy a brand if we didn't think you'd at least had the potential to get to something like 10,000 units because, otherwise, it's not going to be meaningful in our portfolio. So have it passed those screens before we bought it, they already had a presence in Asia that was starting. So they're off to a good start there. And they had -- they were a California brand, but they had started to come eastward and had some success with that. So we saw that they had the potential to be more than just the regional California brand that they had been for many years. Obviously, we closed that transaction, I think, in March of 2020 and then the world changed. And it was a business that had 65% of its business was dine-in, believe it or not. So buying something in March of 2020 with 65% of the dine-in didn't feel really smart at the time. And of course, we couldn't have anticipated that when we struck the deal. But now in retrospect, it's really fascinating. It's maybe our most -- our biggest success story. They've been able to pivot and replace all of that lost dine-in sales that at least happened early in the pandemic with off-premise sales. They've got great technology. They have kiosks in almost all their stores. They've embraced delivery and carryout model. And their sales volumes are back to and above 2019 levels, even though their dine-in business hasn't come back in any way to the old levels they have. So that's got us really excited. I mean this is a brand with a really strong top line, and we do have a lot of interest in the franchise community. We've selectively led in just the best franchisees from the other Yum! Brands into Habit. I think they're happy now that they've become Habit franchisees and want to further expand. But this is a long road, like this is a bet that we're making for several years out. It's not something that's going to impact the Yum! profit story in the next year or 2. In fact, it will probably be more of a profit-neutral initiative as we continue to invest in it and expand it. But we couldn't be more excited about the future of the brand. It's on trend with consumers. Back to your earlier question, they serve Ahi Tuna sandwiches and salads. So you can get what -- anybody can get whatever they want, an indulgent burger or a better-for-you meal. I think Habit has it all. And we're really pleased with, in the toughest of times, how they've made it through the last few years.

Right. And at the beginning of your answer, you mentioned when we bought it, we couldn't have anticipated the pandemic happening. I'm now wondering what opportunities do you see today that you didn't see 2 years ago?

For acquisitions or for Habit?

For acquisition in general.

Yes. One of the other reasons we bought Habit was I had a personal belief that Yum! doesn't need to do large-scale acquisitions. What makes sense is something like have it that can be scaled. We want to buy the growth. We want to -- we don't want to buy an existing asset base. And then if you plug something like Habit into our system and get the benefit of that purchasing co-op I was talking about earlier, get the benefit of all of our industry know-how, how to take Western brands, international markets, all the things that we've been talking about this morning, that we could really unlock a lot of value. So this was a test case for that approach. We think it's worked reasonably well a couple of years in, in a very crazy environment. So I think that's sort of our sweet spot. I'm not saying we wouldn't do something wildly different than that. But our sweet spot is probably taking a smaller chain that we think has global appeal and then plugging it into our system, our access to our franchisees, access to our purchasing scale, access to our technology and unlocking a lot of growth opportunities for us. So up until recently, valuations for a lot of other companies have been very high. Maybe in this environment, there might be more opportunities like Habit, and we're always kicking the tires on things. But I always come back to, we don't need to buy anything to be a fast-growing company. We're already that. You're seeing it in the net new unit development with our existing brands. Our existing brands have long runways for growth everywhere. Even in the U.S., when we think about how mature and crowded the QSR industry is, we only have 4,000 or so KFCs. KFC hasn't really meaningfully grown their footprint in the U.S. over the last few years. It just flipped to positive unit growth last year. KFC unit economics are good. We've got a strong franchisee base. That business has had several years of strong sales growth. I mean there's no reason why new KFCs that we build in the U.S. are very high volume. Like everything that you would want to see to be able to grow KFC in the U.S. is there today. So that's a huge opportunity. Nobody is writing reports about that and nobody is counting on that as part of Yum!'s growth story. But I think you'll see that in almost every market around the world. We've got opportunities to grow our existing brands everywhere. So we don't need to do an acquisition. But certainly, what we've seen from Habit would indicate we could do more and be successful.

Great. So I have 3 final questions in the spirit of long-term decision-making at the Strategic Decisions Conference. So let me start with where do you see Yum! being different 5 years from now?

Well, I don't know about different, but we're going to be a lot bigger if we keep growing at the rate that we're growing at. And I guess the differences will be the business is clearly on a path where technology is becoming a bigger and bigger and bigger part of what we do. And so some of the things that we talked about today will probably be moved from ideas into action in our restaurants. So I think it will be more of a tech-driven business. I think our menu will continue to evolve to meet consumers' needs. And I think our scale will be even bigger. And we're probably -- 5 years now, we probably will have done another acquisition versus today. I think that the tech capabilities that we're building, a lot of the tech companies that we've acquired have outside customers. So we've encouraged them to keep their outside customers because we think that helps keep them sharp. They learn from doing -- working on other businesses. It's a source of revenue. We charge the outsized customers more than we would charge ourselves internally on transfer pricing. So that works for us for a lot of different reasons. So there's probably a world in which that outside customer piece is a little bit bigger part of Yum! in 5 years and maybe even become something meaningful.

Great. Then what is the hardest choice you think you're going to be making over the next 5 years?

The hard choices that you make if you're running a company in our industry or if you're running a company like Yum!, generally, you have to do with short term versus long term. And we saw a lot of that during the pandemic, right? You're worried about profitability. When it hits, sales are down. The business is under stress. But you got to make the right long-term decision. So when the pandemic hit, we told our franchisees, we know your businesses are stressed, you're what matter to us, we're going to give you a grace period on royalties. We were the first person to do that. I think the thinking is we have to be there for them during the good times and the bad times. This is a chance to build even stronger bonds with them. Those are tough decisions because we're looking at our P&L and our balance sheet and trying to figure out what are we going to do if we don't get any royalties. We've got a lot of G&A to pay. But we made the right decision by making the right long-term decisions that might have hurt us in the short term. That's what tough decisions are generally come down to is, are you going to do the right thing for the long term even though it might have some short-term pain. I think what you've seen from Yum! is we're very consistently always going to err on the side of building this business for the long term, investing in technology that doesn't have an immediate payoff, buying brands like Habit that maybe you aren't going to help our P&L next month, might even hurt it, but things that we know will build long-term shareholder value. So I don't know what the decision -- the toughest decision I'll have to make, but it will probably fit into that framework of long term versus short term.

Great. And maybe the final question is, what question were you expecting us to ask you this morning and we didn't? And what's the answer to the question?

You know what, you're pretty thorough. I think we covered a lot of ground. So there really isn't anything that we didn't touch on. Obviously, Russia and Ukraine. But I think we've said some -- we've made our statements on that, and I think that's all very clear our way forward there. So really nothing that from my standpoint that we haven't touched on. And thank you for the questions from the audience.

Thank you, everybody. Thank you, David, for your time today. We very much appreciate it. And thank you, everybody, for participating this morning. Thank you.