⛫ The Risk of Legacy Brands

FD Capital offers advisory services to multi-unit franchisees and franchisors looking to sell their business, and/or raise capital.

If you are considering selling or raising capital, reply to this email directly or get in touch via FDCapitalGroup.com.

If you were to become a franchisee of Taco Bell, or a franchisee of KFC, most would view each brand as a similar opportunity in terms of your potential upside.

If anything, KFC was probably the better bet.

Today, that couldn’t be further from the truth. Taco Bell is arguably the best QSR concept to own, commands multiples north of 10x EBITDA, and is in a category of their own.

Meanwhile, KFC’s U.S. system-wide sales are back to where they were in 2004, and their AUV is the lowest of the big chicken chains (just ~$1.3M)!

When you zoom out on Yum! Brands, the global systemwide revenue looks as such (shoutout Chartr for this one):

Note: Habit Burger is excluded from the charts because they generate zero profit, and are frankly a rounding error in Yum! Brands’ business.

But the operating profit of each brand, which is what the pie chart you saw earlier represents, is the bigger story.

Here’s how it breaks down in pure numbers:

• KFC U.S: ~5%

• KFC International: ~45.5%

• Pizza Hut: ~11.5%

• Taco Bell: ~38%

Over 80% of operating profit is from just Taco Bell and KFC International!

You can avoid disgruntled shareholders on earnings calls when the overall portfolio is growing, even if certain segments are declining to the point of irrelevancy.

In other words, the growth of Taco Bell and KFC International has come at the expense of KFC U.S. franchisees and Pizza Hut U.S. franchisees.

Both brans were once the top of their sector here, and now both are arguably amongst the lowest performers on a per unit basis.

For years, no one batted an eye, because Yum! as a whole was growing.

But it highlights the risks of mature brands:

Big systems are slower to make changes and adjust, and the franchisors have more levers to pull (ahem, DISTRACTIONS), like global growth, that can generate returns for them, but do little for you in the U.S.

This is why leadership matters so much at the brand level.

Declines at this scale don’t happen overnight. It’s numerous moments of inaction, and death by a thousand paper cuts.

Major Taco Bell franchisee Sells 44 Units Ghai Restaurants (an upcoming podcast guest 👀) bought the Houston-area stores, doubling its Taco Bell footprint.

Innovation Meets Customer Satisfaction at Dave’s Hot Chicken Despite order completion being high, Dave’s, like many chains, tested and then pulled back from drive-thru voice AI.

Chick-Fil-A Opens Ghost Kitchen in Miami The chain joins a growing cohort of brands, including Pressed Juicery and Roti, to open inside ghost kitchen providers years after restaurants moved away from delivery-only channels.

Subway Offering Delivery From….Walmart? The sandwich chain is the first restaurant to be integrated with Walmart’s Express Delivery and can be included with a grocery order or delivered on their own.

McDonald’s Announces > NEXT Plan The plan focuses on improving food quality and taste, customer experiences, restaurant interiors and hospitality.

Dollar General Sales Soar Customers continue to trade down at ‘accelerated’ rate

Costco Records Strong Results via Protein The club retailer launched protein-focused private label items to tap into shifting consumer demands stemming from the popularity of GLP-1s.

Regional C-Stores are applying Pressure to QSR Companies like Wawa, QuikTrip and Sheetz are pushing aggressively into new states and challenging incumbent players both small and large.