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

Thanks everybody for joining us. I'm Sara Senatore, Bank of America's restaurant analyst. I'm very pleased to have with me today, Chris Turner, Yum! Brands' Chief Financial Officer. I will say a few words about Yum!, just because I know we might have a broader global audience than I'm used to, give you a little bit of Chris' background, and then we will dive in and put him on the hot seat. So Yum!'s KFC, Pizza Hut and Taco Bell brands are global leaders in the chicken, pizza and Mexican food category. The company's diversified -- but Habit. I've been covering this company for a very long time. Habit Grill is a fast casual restaurant concept specializing in made-to-order char-grilled burgers, sandwiches and more. The company's diversified global system includes approximately 1,500 franchisees operating more than 55,000 restaurants in over 155 countries and territories. The strategy is defined by Recipe for Good Growth, which is grounded in the idea that growth and brand relevance will only endure if brands are inclusive, sustainable and reflective of evolving employee franchisee and stakeholder results. As I mentioned, very pleased to have Chris with me. As Chief Financial Officer, he has global responsibility for finance, corporate strategy, supply chain and information technology. As we talked about, Chris has actually a very long-standing history with and around Yum! Brands. Turner -- Chris Turner joined Yum! from PepsiCo, where he served as Senior Vice President and General Manager leading Pepsi's retail and e-commerce businesses, after having served as Senior Vice President of Transformation for PepsiCo's Frito Lay North America business. Previous -- prior to Yum!, Turner previously spent more than 13 years at McKinsey & Company. So like I said, 4 years in the CFO role? Many, many years...

Yes. Coming up on [indiscernible] in a couple of weeks.

Yes. But many years in and around the brand.

Yes. Yum! was one of my clients at McKinsey. And I served Yum! starting more than a decade ago. So when I rejoined Yum!, it felt like coming back home to a company I knew well.

Great. Wonderful. So with that institutional knowledge, I will dive in and ask you maybe to give us a brief overview of the Yum! strategy, maybe how it's evolved either since you've been there or prior to that. And then what does the growth look like from here?

Terrific. Thank you for hosting us. Thanks to all of you for making time to hear more about the Yum! story. I think the Yum! story is incredibly exciting. So you hit on a bunch of the sort of basic facts about the business. We have an incredibly scaled global business. Four iconic brands that resonate with customers around the globe. More than 155 countries. It's a very global business. 55,000-plus restaurants, 1,500 amazing franchisees. So it's a very large global business. So you might say with that, well, how do you guys think about strategy? Despite that scale, we still think of ourselves as a growth company, and that is our primary focus, is driving what we call Good Growth. In fact, that's how we define our strategy: The Recipe for Good Growth, which incorporates our ESG aspirations, which we frame around people, food and planet; with our growth aspirations. And of course, the way we define our long-term growth trajectory is through our algorithm, our long-term growth algorithm, which we actually took up a bit at our Investor Day last year. And that, we believe and we have high confidence in our ability in the long run, to deliver 5% net new unit growth each year, translating to 7% system sales growth, translating to at least 8% core operating profit growth. So then you say, okay, what are the elements that drive that kind of growth on a business that already has 55,000 restaurants? There's a few that I'll highlight, I'm sure we'll dig into. One is our development capability. We think it's distinctive, defensible competitive advantage. Last 2 years, we've owned 8,600 new restaurants. That's a new restaurant every 2 hours. Second are these 4 iconic brands and our marketing capabilities that drive same-store sales growth in those brands, make those brands relevant to consider us around the globe. Third, our amazing franchisees. We have a responsibility to our franchisees to be the global franchisor of choice. And in return, we think we've got the best franchisees in the industry. And lastly, and something that we've built over the last 3 years, are our digital capabilities. 45% mix digital in Q1. Nearly a $25 billion digital business last year. And we like everything about those digital sales. So those are sort of the highlights of our strategy and what is driving the good growth that we see in the business.

Very helpful overview. And I want to touch on each of those points. But while we're talking about the overall strategy, you mentioned you have multiple brands, more even actually, clearly, than when I started covering you. So maybe talk about the idea of a multi-brand portfolio, the advantages there, and how you think about both the existing portfolio and growth from here.

Yes. So if you think about our 4 iconic brands, things that they have in common. Being iconic brands, I think, is where it starts. These are all brands that resonate with customers. They have a great customer connection. They have really inspiring entrepreneurial foundation stories and have grown tremendously since then. And we think they can all be broadly appealing to customers around the globe. And then you say, okay, what are the other advantages of having these together in one company as Yum!? And we think that there are a bunch. One, we think there is a multiplicative effect in terms of the growth focus that we have across brands as we leverage our growth capabilities. So if you think about, at the end of the year, we do our strategy sessions across brands. We've got the CEOs of each of the brands sitting in, providing input to one another on how can we accelerate growth across the brands. So there's best practice sharing and strategic sharing across the brands. Second is obviously scale. So if you think about getting scale benefits for our franchisees and for our brands, purchasing is a prime example. In the U.S., we do all of our purchasing across all 4 brands together through our restaurant supply chain partner in the U.S. So we're bringing scale advantage. Third is digital and technology. Increasingly important space in the restaurant industry. Largely fixed cost investments. We think that being able to platform and utilize our technology capabilities, not only across brands but across markets, should allow our franchisees to access leading-edge digital capabilities at a lower cost than they could in any other system. Last thing I'll say is talent. We are able to develop incredible talent internally and attract incredible talent externally into our business because of the opportunities that the multi-brand portfolio provides. Maybe just one more is our franchisee base. They see advantages in us having multiple brand opportunities available to them. And that's part of us fulfilling our role as franchiser of choice.

And when you talk about the franchisees, I think that's a good segue to the fact that you took up the growth algorithm. So could you talk a little bit about how that disaggregates across the brands and the different markets? The drivers of the unit growth -- accelerated unit growth? And maybe even just a little bit about the topic that's always on everybody's mind, financing. Does the current environment change that or inhibit it at all? So maybe a bit more about the unit growth.

Yes. So I'll take the 2 parts of the question. Let me start with why we're so confident in our long-term unit growth trajectory and why we've been able to put up these results that we have in the last few years. First, there's tremendous white space opportunity for our brands. You might say, gosh, with 55,000 restaurants, aren't you about tapped out? We're just getting started. We said at our Investor Day, we think there are going to be another 100,000 restaurants on top of the current 55,000. Part of that is being a multi-brand portfolio. You've got slightly different use occasions for each of our brands, so we can get to a much higher density as a company than any single brand can on its own. Plus, in some markets, we're just getting started in terms of penetrating the market. Think about India. In the next 5 years, there will probably be north of 250 million consuming-class customers in India, and we're just north of 2,000 restaurants there. Compare that to the U.S., where you got about 300 million consuming-class customers, we've got 17,000 restaurants. So there's a tremendous growth opportunity in markets like India. There's still a huge growth opportunity in China. I could go market by market around the globe. Opportunity and white space is not our problem. Next is unit economics. We're an asset-light company, 98% franchised. So when a unit goes up, it's our franchisees who are putting their capital to work. They're only going to do that if unit economics are strong and the returns that they generate are strong. We said at our Investor Day, the last couple of years, 80% of our restaurants have been built in markets with 5-year paybacks or better. So our franchisees see a tremendous investment opportunity in building a restaurant. Third, I'd say is having the right franchisees. I think we've got the best in the business. They're larger on average than franchisees in other systems. And we talk about them being 3C: Capable of running great stores, well capitalized and committed. And that committed part is about a desire and willingness to build new units and to grow the system. Four is we got the best development teams, I think, in the industry. And they're increasingly using advanced analytics tools to help us identify white space, drive the strategy. That's why our unit development story is so strong and why we're so confident. Now you asked about the rising interest rates, how is that affecting the industry? I actually think that's going to turn into a competitive advantage for us whenever it comes to development. If you think about where our development happens, we have 15 publicly traded franchisees who drive about 60% of our total net new unit growth. If you go look at their balance sheets, on a weighted average basis, they have less than 1x leverage relative to their EBITDA. They're not highly levered. In fact, you take the couple of -- the biggest of those, they have a lot of cash on the balance sheet, 0 debt. This just isn't a big [ problem ]. Obviously, we'd all prefer an environment with interest rates being a little bit lower. But with our sophisticated franchisees and their scale, they're taking advantage of this opportunity to get ahead. If you look at what Yum! China did in the last 3 years, think about the severely negative same-store sales environment they experienced because of the COVID movement restrictions, they built 3,000 new Yum! restaurants over the last 3 years. So that platform, as they come out of COVID, is much bigger than it was going in. That's just one example of how our franchisees take advantage of these times of opportunity when other systems can't.

Right. And I'm glad you talked about, right, that sometimes the more challenging environments present the best opportunities and allowed you to kind of press your advantage. Maybe talk a little bit more about that, sort of the strength in today's macro landscape, whether it's from a brand positioning perspective, pricing. You talked about scale on the supply chain. So just help us think about like what some of those advantages -- true advantages are in terms of your cost structure or the brand resonance as we look at a more difficult operating environment.

Yes. So if you do see these macroeconomic headwinds in certain markets, of course, they manifest themselves in different ways in different markets. Being in 156 countries, it's hard to -- every market has its own situation that it's dealing with. But I think our brands are well prepared to succeed in any sort of environment. Of course, QSR is a great place to be. It's -- in general, the space stands for value and that's what customers look for in times of macroeconomic pressure. But I think our brands are particularly well positioned within that space. I've got over here, Sean Tresvant, who is our Global Chief Brand and Strategy Officer at Taco Bell, he's got his Taco Bell socks on. An amazing leader, an amazing marketer. Used to run marketing for the Jordan brand at Nike, which I thought was one of the coolest jobs on the planet, and it is. But being at Taco Bell must be a little cooler. We're so excited to have Sean in the business. And if you think about what he's trying to do with the Taco Bell business, I think it really exemplifies what you're asking. Taco Bell has a magic formula, and all of our brands have a magic formula, of creating brand buzz and cultural relevance through their marketing. They have an innovation engine with the food that is always bringing new excitement to the menu. We always have a strong value -- we have strong relative value. You think at Taco Bell, we do that with the $2 Value menu. Of course, when most customers come in, they see all of that exciting innovation that still is at a great relative value, but a little bit higher price point. And the vast majority of our customers choose to buy from those other parts of the menu. And then they're underpinning that with this digital capability that has allowed them to go from basically 0 digital sales in 2018 to now 1/4 of the business that's digital. All of those things contribute to being able to deliver what customers want in any environment. They want craveable food, they want an easy experience and they want great value. And I think our brands are positioned to do that well in all of our markets around the globe.

Right. No, that makes a lot of sense with the brand and the segment. Also, I shouldn't -- I forgot to mention, Sean is here, and as is Jodi Dyer from -- Head of IR. So I always say, when Jodi's here, you can direct the hard questions to her. That's what I do. So all right. So on that note, let's talk maybe a little bit about the sort of the topic that we always want to talk about, same-store sales. your same-store sales across the board have accelerated. And in fact, I think of sort of the most recent quarters, Yum! has really fired on all cylinders in a way that I hadn't always seen it. Again, maybe thinking back -- certainly it predates your tenure. But what is it that has helped -- in addition to what you're talking about, how should we think about the cadence of same-store sales going forward? Versus what it maybe used to look like, which is very low single digits? Is it share gains? And to your point earlier, pressing the advantage and really offering something that maybe smaller franchisees or competitors can't. Is it pricing? Maybe help us think about that as part of the growth algorithm.

Yes. So same-store sales is a critical focus for us. We talk a lot about our development capability because we think it's so darn distinctive. But our same-store sales capability, which is largely driven by our marketing and our operations teams, we think is just as strong and must remain just as strong in the future. And we want to have those dual growth drivers driving the business. If you think about what's driven our strength recently, I think it's a lot of the things that we've talked about. I think it's having the best marketing teams in the business who bring the formula, in Taco Bell's magic formula; in KFC, it's what we call our Bucket strategy. But they bring each of the brands' approaches to driving same-store sales growth and customer relevance to live. 2 weeks ago, in Dallas, we had the annual KFC MPM meetings, the marketing planning meetings. So from around the globe, all of our KFC marketing leads, plus a set of our franchisees, were in Dallas to each present their marketing plans for the coming year, trade best practices, align on how to bring the Bucket strategy to life. Really inspiring to see. Next, digital has been a tremendous driver on the same-store sales side. Every time we convert sales from non-digital to digital, 2 things happen. One, check sizes increase. It just -- even when you normalize for heavy users maybe being more likely to move over, we just to do a better job demonstrating full menu breadth to the customer, plus upsell through our digital capabilities works just -- works better time and time again. Second, we get higher frequency. We've built a deeper relationship with the customer. We're able to target messaging to them on an ongoing basis. They get an easier experience. And because they've now got the app on their phone or they've got the account set up, it becomes a sticky experience. So I think that's been a driver as well. And then finally, the customer experience being fast and easy. We've talked about digital being the way to bring easy to life. But even our non-digital customers, you think about Taco Bell, high-volume restaurants, provides the fastest drive-thru experience at scale in the U.S. market. Still sub 4-minute drive-thru times. You've got to have an easy, convenient experience for customers. Of course, we also provide multiple other channels, whether it's delivery with our own capabilities or delivery through aggregators as well. I think all of those things are underpinning. Now to your point, there's probably a little bit of a tailwind from the pricing that's been taken to deal with inflation, but I think the foundational elements are all strong.

Right, right. And to your point, you've outpaced a lot of other restaurants who have also taken price, so it can't just be that. You did mention value, so I want to just focus on that for a little bit. The current operating environment, we touched a little bit about the strength that the Yum! portfolio has. But maybe I should have started with are you seeing softness in the current operating environment? Certainly, like I said, the quarters, the most recent quarters, we've seen have been very strong from a top line perspective. But maybe talk a little bit about that, and the fact that you are still being able to trade people up or upsell them on digital. Any kind of resistance or challenges there?

Yes, again, it's market-dependent. But you've got -- in general, it's across industries, across sectors, there's a little more customer pressure from inflation. So the macroeconomic situation is presenting that. But again, QSR and our brands in particular are very well designed to deal with that. And I'll use Taco Bell again as an example. Think about what they've done in the last few years balancing the 2 things that we take into account whenever we see these sorts of pressures. We always want to be providing strong relative value for our customers and a great offering, while also ensuring that our unit economics remain really strong for our franchisees. So that's -- we have to take that into account as we think about pricing. Taco Bell has expanded margins and driven tremendous same-store sales growth over the last 3 years. So they're getting that equation right. Pizza Hut and KFC in the U.S., I'll just take those as an example, one of the things that they were dealing because they didn't have as many low price point items on the menu, they provide a tremendous abundant value. Pizza is the most cost-effective way to feed a family of 4 or 5, but it costs the same to feed a family of 1 or 2. Pizza Hut introduced the Melts. $6.99 price point, it's now here in the U.K. We say it is enough for 2, but priced for 1. It provided a totally new category entry point or a use occasion. So now someone who wants to eat Pizza Hut as an individual meal at lunch can access the brand. That was part of what helped us drive such strong sales in the U.S. in Q4 and in Q1. KFC in the U.S. introduced the $5 wraps. Now they've got nuggets. The wraps, with our lowest-income customer segment, helped drive traffic growth amongst that segment in Q1. It just shows that when you provide great product and great value, it resonates with customers in any sort of environment. So I think those are the things that we're focused on. But providing that magic formula in all of its forms across our brands is what's going to matter in resonating with customers.

Right, right. That's really interesting. To your point about like pizza and all the different kinds of values, price point value, abundant value, value for the money, and different consumer cohorts are looking for different things. So I guess one of the things, maybe we can dig a little bit further into Taco Bell since we -- you mentioned that and we have an expert in-house here. That actually has been what I would consider probably the most consistent performer. The kind of crown jewels were how it was always viewed. To what do you attribute that? What is it about -- is it the operating model? Is it the fact that it's sort of a market of one and there really is nothing even close to Taco Bell on a national scale? How should I think about that? Because I will tell you, when I talk to franchisees, that is the #1 brand on almost everybody's list, they all want to be a part of the Taco Bell system. So do you get that kind of flywheel started and continuing to go?

Yes. All of our brands are crown jewels. But this -- if we think about Taco Bell for a moment, the -- we'll start with the category of one component. Structurally, it's advantaged. If you take the QSR space, Mexican-inspired food in the U.S., it by far has the most share. And so it operates as the category of one with a set of products that are -- they're so creative that a lot of customers don't have in their mind what's the reference point on pricing. I think David used the saying the other day that no one knows what the price of a chalupa should be. Whereas, burgers, people have a reference point, in some other places, people have a reference point. That gives us the freedom from a pricing standpoint as they bring new innovation to the menu. But customers still are excited about what they're getting. It is a tremendous value relative to things they can find in other places. The brand buzz and the cultural relevance that Taco Bell has always keeps it at the leading edge of the conversation. If you look -- Time just came out with their list of the 100 most influential companies in the world, Taco Bell is on it from an innovator standpoint because of the relevance they breed. That's a credit to Sean and what he's been driving with the marketing team. But they are always at the leading edge of the conversation. Today, if you go on Instagram, you'll see Paris Hilton talking about the return of the Volcano menu, which takes us to the food innovation component. They always come up with a way to create new, craveable food items. Some of that is a return of old favorites. Volcano is a return of something we had on the menu in the past. The Mexican Pizza last year created tremendous buzz. But also new innovations, the Grilled Cheese Burrito, where we put the cheese on the outside of the burrito, was a tremendous innovation. It's an amazing product, and it's really resonated with customers. Bringing fries to the menu has been another example of that. And then they do all of this with tremendous operating efficiency. And that leads to a very high-margin business model that also provides a great customer experience. That's why there's been such franchisee pull for the system. Entrepreneur Magazine, the last 3 years, has ranked Taco Bell as the #1 franchisor amongst all industries with franchise businesses in the U.S. So this speaks to how this is a great investment opportunity for franchisees who come in and partner with us and system. All of those have contributed to the flywheel at Taco Bell, which has allowed it to maintain its strength over time in the U.S. And then the great story and opportunity going forward is that now we're starting to get momentum on taking Taco Bell internationally. We've now got 4 markets, including the U.K., where we have more than 100 Taco Bell restaurants. So this is becoming interestingly a global brand. We passed 1,000 unit mark outside the U.S. recently. And Sean and his team have tremendous aspirations for continuing to grow those markets. You got the next wave of markets in Malaysia, Australia, that we'll be looking to get to scale. I hope some day, we think there should be tens of thousands of Taco Bells outside of the U.S. as well.

So let's talk about that, because there is growth international, and then I think there's also growth domestically that you talked about. So maybe let's take them separately. To your point, unit economics is always a leading indicator, there's plenty of demand. How do you think about the U.S. for a brand that's been around for decades? Are the growth opportunity is still there? What sort of has to happen? And then to your point about international, you've achieved the 1,000 store mark or breached it, but you have other brands that have tens of thousands. So taking those 2 separately, kind of what have been the gating factors? And going forward, what are the unlocks?

So if we start with the U.S., I think 2 primary opportunities. One on the unit development side. We still think there's going to be thousands more Taco Bells in the U.S. If you look at the one of our leading competitors in the U.S., they've got 13,000, 14,000 restaurants. We're just a little over half of that. There's no reason we can't have the same number of restaurants in the U.S. The economics are so strong. Our unit development pace has been really good. I think we were the fourth-biggest new unit opener in the U.S. last year amongst all restaurant brands. We'd like to continue to accelerate that. The other side is the same-store sales side. Sean and the Taco Bell U.S. team are thinking very strategically and systematically about how to drive that, and they're attacking it from a daypart and a customer use occasion standpoint. If you break down the dayparts, Taco Bell's the undisputed late night leader in the U.S. They have a fantastic dinner business. We have good breakfast and lunch businesses. But if you compare it to a couple of our competitors, if we could get the same penetration in breakfast as lunch as they have, there's $1 million per store opportunity there. And so their strategies are focused on how do they go attack that as part of driving accelerated same-store sales growth over the long haul in Taco Bell U.S. If I go internationally, it's really about how do you take this brand, which is so loved in the U.S., and make it -- bring it to life in the same -- with the same level of customer passion and customer following around the globe? And we think that absolutely can be done. Now it does take a little more time to communicate the food category and the food products outside of the U.S. KFC is so translatable. If you're a human on this planet and you're not a vegetarian, you've probably have tried chicken and you probably loved it. So KFC is kind of meeting that demand on first bite. Taco Bell, it takes a little more trial. And we -- our old strategy, we were opening a couple of restaurants here, a couple of restaurants there. But that lack of scale prevented us from doing the kind of marketing we needed to do to tell the Taco Bell brand story. That's why we shifted the strategy to say let's get to 100 units. We think that's where the flywheel really hard to spin. That allows us to do more marketing, get more leverage out of the marketing, practically on supply chain. In a number of these markets, there's not a well-established tortilla maker or a chip maker, so people could set up lines, our supplier partners could set up lines, if we had more scale. And then third, from a digital standpoint. Of course, digital benefits from scale, so that's another reason to go with the scale approach. Of course, Taco Bell internationally is being kind of born as a digital brand. It has a 40% digital mix. So all of those things are part of the strategy shift that we made a couple of years ago. Everything we've seen so far is telling us that strategy shift was the right one. and that, that flywheel should start to pick up speed. But I think those are the elements to bringing it to life.

Interesting, right. So there's sort of the flip side of -- or the other side of the market of one, is you have to build that market a little bit more. Okay. So that -- we could probably talk about this brand forever, but I do want to get to the others and maybe talk about technology. So let me -- actually, maybe I'll use technology as a segue to the others. You mentioned that Taco Bell is a very digital brand. You talked about how that's something where you can get scale across brands. Can you help unpack, if you will, kind of what needs to be done at the brand level versus where the scale benefits are for technology. Because I always think about the idea that brands need to be run, the operating model is different, the brand messaging, all those things, which is something that Yum!, I think, has done quite well across its portfolio. But then are there -- how do you really think about technology in that context?

So part of the reason Yum! is one of the great global retail growth stories of all time. I was a retail industry consultant for many years, and there just aren't many stories like the Yum! story, 155-plus countries, including back in the days when we were part of PepsiCo. Part of that magic was that we're pretty decentralized in the way we thought about this. We didn't -- we said there's not a massive playbook where you have to do thousands of things whenever you take KFC to a new market. We said there's a set of guardrails: You're going to use the Colonel; you're going to use 11 herbs and spices; you're going to have this great, craveable food; you're going to create an awesome environment for our team members; you're going to have a really safe, well-operated supply chain; and otherwise, tailor this to the market. And that's why, if you go market to market and go visit KFCs, it comes to life slightly different ways that are very relevant to the local market around the globe. That's fantastic. But one of the areas where we must get scale, and fortunately, our leaders back in 2017, 2018 saw this coming, that the advent of technology, because of the fixed cost investments, this is a place where clearly you can have better economics and move a lot faster if you have platforms that span those brands. And they shifted our strategy. And in 2019, we hired Clay Johnson, who is our Chief Digital and Technology Officer. He was Walmart's CIO, came in and he leads Yum! digital and technology at the center. And we still have brand technology teams with amazing CIOs and CTOs and amazing teams, and they work in partnership. And what we're trying to do at the center is build platforms, and we're building those in 3 areas centered around the word easy. And Jodi was our CFO of our digital and technology organization in her prior role. She came up with this framework. All of our capability's tied with easy. We have easy experiences for the customer. We have capabilities that provide easy operations for our team members and our franchisees, and capabilities that generate easy insights from all of that data. So it's a very comprehensive framework. We're building platforms in each of those areas that all of our brands and all of our markets can leverage. What the technology teams at the brand do is ensure that the interface between those platforms and the customer, or the platforms and the franchisee, are still relevant and tailored to the brand and to the individual market. Because the way your e-commerce should come to life in Thailand and KFC is probably going to be a little different than the way Taco Bell should come to life in Guatemala. So that's the -- or the collaboration that we're trying to get across those 2 components. We've made tremendous progress, and the results show. 45% -- of course someday, I think we should be at 100% digital. I don't know how long it's going to take us to get there, but that's where I think we should be. But in some ways, we're still in the early innings of this journey. So those platforms are still being implemented. There's a lot of work to sort of get everyone onto the platforms. And -- but once we're there, we'll be able to move so much faster with new innovation and being at the leading edge of technology because we won't have to be doing multiple integrations across markets, that sort of thing. So I think we will be faster, better and with advantaged economics for our franchisees and for us in the long run as a result of the strategy.

So what -- so we talked about easy insights, and I'll focus on that first. What are some of the kinds of insights you can pull? Can you use data or transaction data across the multiple brands and use that then to inform brand-specific decisions? So maybe give us a little bit more insight or detail on that since we're restaurant investors, not necessarily technology investors. So that maybe...

Yes. So in the easy insights area, we've got a set of capabilities that we've built in our data sciences team. But we've also acquired -- and there are 2 acquisitions that we've made that partner together. One is company called Collider. And Collider is a set of the biggest kind of marketing and consumer insight experience that you'll ever find. Ken mentioned his team are just amazing. Every time I hear him speak, they blow my mind. They're the art. And then we acquired a company called Kvantum. And it's an analytics company that's based in the U.S. and India, and it brings the science. So that's the combination of art and science. Kvantum's calling card was marketing mix optimization. So if you think about -- with the advent of digital, there's this transition from traditional marketing channels, television, mass media; to very individualized, digitally driven marketing. That shift is happening at different paces in every single one of the 155-plus countries in which we operate. Kvantum helps us get that right. So we're optimizing our marketing spend, and they're doing that across brands and across markets. That was their calling card. But they have a tremendous set of other capabilities. Another example is pricing. We're now doing a lot more of our pricing analytics internally through Kvantum in a much more sophisticated way. So they're providing customer-driven, store-level, SKU-level insights and recommendations to our franchisees about where -- the franchisees will ultimately decide on where to place that. And then working with our marketing teams in each brand to generate customer insights that are relevant to the brand. And increasingly -- you mentioned it. Increasingly, we are able to generate insights from a multi-brand perspective, which is having a more holistic view of the customers is aiding our marketing programs in each of our brands. So those are just a few examples of how easy insights are come to life.

Right, right. And I always think about that with respect to sort of the loyalty programs, the loyalty is the real sort of pile of gold, or whatever have you, is the treasurer is like is the data, right? That's really -- that insight and being able -- which is good for customers because you're targeting and giving them what they want more precisely, and it's good for the business. Maybe we could talk a little bit about loyalty and sort of how you think about that. Again, how across the 3 brands, what the intentionality is behind it in terms of frequency or spend. Or maybe how you would look at it.

Yes. So more than 50% of our restaurants globally now have a loyalty or are part of a loyalty program. Now a lot of our competitors have loyalty programs as well. I think in the near term, there'll be some distinctiveness that comes from the design of the program. But I agree with the statement you just made, which is, in the long run, I think the companies that make the best use of the data generated from loyalty will be the ones who find this to be a competitive advantage. And that's why we're investing in the easy insights component underneath that. We think -- when we've done the analysis at Taco Bell, I mentioned earlier, every time we shift sales to digital, we see an increase in frequency and we see an increase in check size. If you then were to say, okay, now what if we go from somebody just using the app casually to being a member of the loyalty program, you see an additional step-up even when you control for other factors around the usage -- the normal usage of the customer. And it's because you get richer data, you get an even tighter connection. If you're in the U.S. right now and you want to go take advantage of the new Volcano menu, which returns today, I think the first couple of days, the only way to order it is if you're on the Taco Bell app and a member of the loyalty program. So there are some reasons that you want to be there. You can sort of and take advantage of a set of promotions or other value we can deliver through that. But we obviously build a deeper relationship with those customers and understand more about them. And so the customer benefits, we benefit. Our marketing becomes much more productive. So everybody wins in the equation, but that's part of how that comes to life.

Right. So I'm checking the time, I think we probably have maybe 10 more minutes to sort of -- this is from -- my reminder for myself because I would grill you forever. But -- so I wanted to make sure we hit KFC and the other brands and also talk about sort of the portfolio capital allocation base. So KFC, I think, is a big driver of the acceleration in the algorithm. How sustainable is that outsized development, if you will, on that? And what is -- how should we think about the -- perhaps what you've seen in the unit economics there that have improved dramatically? Or is there something else that has opened up markets? Just what are kind of the key drivers for the momentum we've been seeing.

Yes. Well, the KFC business is an incredible global business. It's -- as I go visit markets around the globe and you see how it comes to life, it's just such a tremendous brand with great partners and tremendous scale in many markets despite having a lot of white space left to grow. In some ways, we talked about Taco Bell in the U.S. as a category of one. KFC outside of the U.S. is similar in many ways. It's almost a category of one. In a lot of these markets where we are operating with KFC, they're either the only really well-established QSR brand or there's only 1 or 2. Contrast that with the U.S., where the chicken market is pretty competitive. Remember, 80-plus percent of our KFC business is outside of the U.S. It's a very global business. And outside the U.S., I think this -- we have the structural advantage of being the first mover into those markets, having expertise around franchising and have selected great partners in each of these markets who are bringing it to life. Second, the unit economics are tremendous. It's so quickly translatable to new customers. That's why we say, in total, we think we can have another 100,000 restaurants. 50,000 of those, we think, are in KFC. And about half of those, we've already mapped where they could be. There's a lot of white space opportunity. The unit economics remain strong. If you listened to Yum! China talk about the returns on their new units in China, very fast paybacks. So I think that's a fundamental part of it. Our digital mix in KFC is actually higher than it is in Taco Bell. We're at a 40% digital mix in KFC globally. So our digital strategy is working well and driving sales in the ways that we've talked about across markets. And then it's just an amazing brand. And similar to what Taco Bell does in terms of creating buzz and cultural relevance, KFC does that in their own way. So they may focus a little more on the craveability of the food, but we really -- take some of the marketing they're doing in South Africa, as an example, where we have an amazing business. It's a cultural trendsetter and buzz generator in that market as well, and we see that in other markets with KFC. And then finally, they're providing tremendous value. So they're using their scale to provide this very craveable product with the 11 herbs and spices, which in many markets outside -- around the world is largely a chicken off the bone product menu. We've got tremendous sandwiches, tremendous strips and nuggets businesses around the globe, and they're bringing that to life in a way that resonates with customers and drives -- and delivers great value.

Right. Right. And you mentioned how intensely competitive the U.S. is versus markets of one in international markets. Do you worry about competition? Any of the sort of competitors from U.S. having ambitions of growing, or local competitors? Is that something that you worry about? Or is this sort of scale and first mover, those advantages so significant that it would be hard for anybody to catch up?

I'll give you 2 answers to that. One, we're an intensely competitive company and we don't take any competition lightly. And so we are always out saying, how are we beating the competition? What are we doing to deliver a better value proposition to our customers and our franchisees than our competitors can? So that is our mindset. You said U.S., a lot of competition in this space in particular. And if you look at it, a lot of those are either company-owned store models or franchise models that are highly company controlled, where the franchisor might own real estate, the franchisees might be limited to 1 or 2 restaurants, for example. And that has worked well for a number of those competitors in the U.S. If you look globally, there's really only a handful of companies that have figured out how to take brands globally at scale. And franchising is the core competency that enables brands to do that. And those -- that handful of companies have figured that out. But a lot of companies have tried and have not figured it out. And I think our -- we are the global franchisor of choice, and that gives us a tremendous advantage outside of the U.S. And how we've built the business, partly why we're so focused on development, we think there's a first-mover advantage in these markets to have an installed base of significantly dense network of restaurants in each of these markets. So we think we are building up outside of the U.S. a very defensible competitive advantage in the chicken category. But we're going to continue to take all of our competition very seriously.

Right, right. Understood. Yes. No, certainly don't mean to sort of understate, yes, how focused on the market and the consumer and competition you are. But it's helpful context for those of us Americans who are used to seeing a lot of different brands out there. Maybe we could talk, then let's transition a little bit so I'm like sure I hit everything. Let's talk about Pizza Hut because that's also a global brand. And I think in some ways it looks very different outside the U.S. versus what it does inside the U.S. I can't speak to the U.K., which is where we are now. But maybe talk a little bit same thing there, kind of some of the strategic priorities. And in some sense, kind of maybe help us understand how Pizza Hut is positioned, whether it's dine-in versus off-premise, that looks globally versus what I know in my home market.

So in the U.S. and in some of our global markets, Pizza Hut grew up as a dine-in brand, and we've been in this transition to a modern off-premise delivery brand. We made tremendous progress. Now in many international markets, the Pizza Hut grew up that way. And so the U.S. business has always had strong performance, good unit growth, good same-store sales growth. It is a more competitive category than the -- than what KFC and Taco Bell face. Pizza is a more competitive category. But in general, our international business has always delivered strong growth. The U.S. had to go through this transformation from that prior business model to the new business model. But the health of the U.S. business is in a much stronger place than it was even just 5 years ago. Our franchisee base is strong. Greg Flynn now is the largest franchisee in the U.S. system, biggest restaurant operator in the U.S., systematically going through improving performance in each of those restaurants. The food innovation engine is back at full speed. That's how they developed the Melts so quickly, and are taking those to international markets. Return of the big New Yorker. Our digital capabilities, with the acquisition of Dragontail and the easy operations space, which is a totally new way of managing the restaurant in a delivery environment, is really enhancing performance in our Pizza Hut restaurants around the globe, and we're rolling it out in the U.S. And our marketing has a new spring in its step at Pizza Hut. So all of those things have contributed to the health of the business, and you saw the performance there with the same-store sales in Q4 and then in Q1 in the U.S., so plus 8%. Really strong performance in a highly competitive category. It's a competitive category, so there's going to be puts and takes. But in the long run, we're very optimistic and bullish on the future of the Pizza Hut brand.

Right, right. And one of the things you mentioned is strong performance. What role did aggregators play in that -- with Pizza Hut. But also maybe your relationship broadly as a partner in the digital business?

Yes. So step back, we want to be where our customers want to do business with us. When we meet them there, we're going to have to do it in ways that work for our franchisees and for us from an economic standpoint, and that's exactly what we've done from an aggregator standpoint. This hasn't been a reactive strategy. Remember, I guess -- there's another one I can't take credit for. But the leadership team, David and team back in 2018, made an investment in Grubhub, which was not a financial move. It was about learning about this aggregator space that was starting to grow. We had a Board seat at Grubhub. We've learned a lot about how the sector, the space, operates. Our learnings informed how we went out building relationships with aggregators around the globe. And in many markets -- not all markets. But in many markets, the way our relationships are set up, our economics are very similar from channel to channel. So if a customer wants to meet us on an aggregator platform or wants to -- if an operator at one of our franchisees wants to use delivery as a service help augment their own delivery capabilities at Pizza Hut, that's great because the economics work for us. And so to us, that's just another way to help deliver customer need and meet the customer where they want to be met. So our aggregators have been good partners in doing that. Of course, if there is a higher price that the customer pays in that channel. If the customer says, "Hey, I'm not willing to pay that," we've got all of the other channels, click and collect, our own delivery channels where we think we provide a really easy, convenient experience that they can go to at a little bit lower cost.

Right, right. So that's sort of a clear line of meeting the customer where they are and provide them with the use case or the occasions that they need. One of the -- I guess, in the last few minutes, I wanted to talk a little bit about Habit and also the broader context of your portfolio capital allocation. So Habit does seem to present a little bit different use case. It's fast casual, not -- versus traditional QSR. Maybe help us think about the sort of the process behind the acquisition. And then going forward, I'll tack on 2 questions related to that. One would be, do future acquisitions, if there are future acquisitions, do they look similar? And then how should we think about your financial structure leverage in the context of how you're thinking about using your cash?

Yes. So Habit. We're very excited about The Habit and think that someday there'll be thousands of Habits around the globe. David, our CEO; Tracy Skeans, our Chief People and Chief Operating Officer, were the Habit team out visiting stores last week. I'd say the thought process behind Habit was we hadn't done an acquisition in many years. The last ones we've done were a little bit more turnarounds -- I don't think were the right -- we're not the turnaround play. Habit was grounded in growth. You had an iconic brand in Southern California. If you go to Southern California, there's a cult following for The Habit. Starting to expand outside of California, it needed some help with the growth capabilities. They didn't really know how to do franchising, needed some development expertise, could help make the brand more distinctive. We thought we could provide those. It was also subscale. And subscale brands at that time were starting to fall a little bit out of favor in the market. Habit had north of $1 billion valuation at one point. Of course, we acquired it in the $400 million range. So we could leverage our scale. Third, we think in the long run that it will provide an exciting new growth opportunity for franchisees in our system. And then lastly, we thought there was a significant shareholder upside because of the valuation where we were able to acquire it. The only thing that kind of got in the way of the plan on The Habit was COVID. So we announced it on January 6, 2020. And just a couple of days later, you started to see these news stories roll in. So COVID just created a delay in the plan. More than 50% of the sales were in the dining rooms. So our first focus is just stabilize sales and sustain sales when -- this channel that represented half of the business sort of went away overnight. So that was the primary focus. That's where the delay came. But now we're focused back on the integration plan. Right now, Shannon Hennessy, who's our new CEO and President there. She focused on getting the P&L to the right place. Margins were a little compressed with the inflationary pressures. She's focused on that. And then they're going to focus on a return to strong same-store sales growth while we have development engine going. We've learned a lot from the integration. In fact, our playbook that we used, I'd probably say 60%, 70% of that worked really well. But there's 30%, 40%, if we were to do another acquisition, I'd do a little differently. So we generated a ton of learnings from it, which was another reason that we did it. As we've said, we're keeping our eyes open for opportunities in the market, but they'll fit those same things as I mentioned, growth opportunity, leverage our scale, exciting for our franchisees and shareholder value creation. You mentioned capital on the end. Our approach to capital was about optimizing returns for our shareholders. Past few years, that's meant landing at a 5% leverage target. We said this year, the...

5x, yes.

I'm sorry, not 5%. 5x leverage target. But that was where we thought we could optimize returns. But things changed. It's not the upside in the share price, we still think there's tremendous upside in the share price. The thing that's changed is where interest rates are, and that's changed the math in the model. And so we've said this year, we're likely going to float lower than 5x. We don't have to take an action to do it. We don't have to go pay down low-priced debt that's already on the balance sheet. We simply have to grow into the lower leverage. And that doesn't mean we'll do fewer buybacks this year as we're growing into it, but that's the right thing to optimize value for our shareholders.

Good. So great brands, focused on optimizing value for shareholders, it's a great place to leave this. Thank you so much. It's been super helpful for me.

Thank you so much. I appreciate it your attendance.