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Yum! Brands Is Going Upscale

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The success and popularity of the fast-casual dining concept has not been lost on other restaurant operators, particularly Yum! Brands (NYSE: YUM  ) , which has decided to pull up a seat to the table.

Both Chipotle Mexican Grill (NYSE: CMG  ) and Panera Bread (NASDAQ: PNRA  ) have been some of the best restaurant concepts over the past few years, but particularly during the recession, as diners went down market to save money while still getting a good value for their dollar.

Sales at Chipotle have expanded at nearly 20% annually over the last five years, while operating profits soared more than 30%. For Panera, the growth rates have been similarly lip-smacking good, with revenues rising at a 14% compounded annual growth rate, and profits up 27% annually.

In contrast, Yum, which operates fast food chains Taco Bell, KFC, and Pizza Hut, has seen an anemic sub-4% rise in sales, and just an 8% rise in profits over the same time frame. While lately the chain has suffered as a result due to its exposure to China, where a slowing economy and a avian flu outbreak caused sales to dip, even fast food leader McDonald's, which obviously has a more focused format than Yum, could only post comparable results to its rival.

It could be for that reason Yum has decided to take a bite out of the fast casual market, the area where industry analysts see the best potential for growth still. 

The move began last year when Yum brought in celebrity chef Lorena Garcia to spice up its Taco Bell menu, while creating a more lounge-like ambience in its restaurants. That followed a trend launched by Wendy's and Burger King, who also installed lounges, while giving their menus a makeover. But Yum is extending the concept to its KFC chicken business now, as well, finally burying the iconic goateed image of Colonel Sanders, and unveiling what it calls a new "KFC eleven," a nod to the 11 herbs and spices of the original KFC recipe. The new concept will feature flatbread sandwiches, fresh salads, and a more relaxed atmosphere.

Analysts say restaurant sales overall should be similar to last years results, but the fast casual market will be best to capture the opportunity with concepts like Panera and Cheesecake Factory their favorites. With the U.S. Census Bureau saying that sales at restaurants and bars were up 3.9% in June, Yum's upscale attempt to latch onto some fancy feasts means it could be time for investors to pull up a chair here, as well.

While China's immediate effect on Yum! Brands has been negative, there's a long-term story in international opportunities. Profiting from our increasingly global economy can be as easy as investing in your own backyard. The Motley Fool's free report, "3 American Companies Set to Dominate the World," shows you how. Click here to get your free copy before it's gone.

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Related Tickers

8/26/2016 4:02 PM
YUM $89.53 Down -0.41 -0.46%
Yum! Brands CAPS Rating: ****
CMG $418.75 Up +5.41 +1.31%
Chipotle Mexican G… CAPS Rating: ****
PNRA $217.44 Down -0.98 -0.45%
Panera Bread CAPS Rating: ****