The year 2013 represented a rough year for international restaurant conglomerate Yum! Brands (NYSE:YUM) with its China division still reeling from the Avian Bird flu scare last year resulting in same stores sales declining 11% in its most recent quarter. However, one of its chains, Taco Bell, harbors great plans for its future and represents a real bright spot among Yum! Brands' global struggles and may very well move the needle on the company's performance over the long-term. Here's why..
Plenty of room
You may worry that upstart fast casual chains such as Chipotle Mexican Grill (NYSE:CMG) may put a crimp in Taco Bell's business. After all, Chipotle Mexican Grill grew its revenue and free cash flow 131% and 586% respectively over the past five years translating into a total return of 792% versus a 125% total return for the S&P 500 . Moreover, Chipotle Mexican Grill's product quality, simplistic menu, the ability for customers to customize food, and its overall restaurant atmosphere serve as a magnet for increased business. The fast casual concept continues to gain in popularity. However, according to QSR Magazine Taco Bell's main competitors stem from regional chains such as "Taco Bueno in the Midwest" and "Taco Cabana on the West Coast". The CEO of Taco Bell, Greg Creed, says that the fast casual chains such as Chipotle Mexican Grill do not represent the brands that the Taco Bell brand "is going after" .
Relationship with PepsiCo
Taco Bell utilizes beverage and food giant PepsiCo's (NASDAQ:PEP) vast snack portfolio in enhancing its menu. The chain took Doritos, a PepsiCo brand, and made the super popular Doritos Locos Taco where sales topped $1 billion as of October according to the Daily Mail UK. The various Doritos flavors add to the product's potential. Another Yum! Brands subsidiary, Pizza Hut, wants to team up with Frito Lay snacks, another PepsiCo brand, to create product combinations of its own. Taco Bell benefited in other ways in its relationship with PepsiCo with the creation of the Mountain Dew frozen drink varieties according to QSR .
Taco Bell makes an effort in catering to its younger and more frugal audience via offerings such as the Doritos Locos Tacos and the proposed $1 cravings menu along with the Cantina menu aimed for the older more sophisticated market who wants a higher end quality product. In 2014, Taco Bell plans on an expansion of its menu and a nationwide rollout of its breakfast menu which should include the much talked about waffle tacos and the $1 cravings menu. Taco Bell makes an effort in innovating for the purpose of meeting customers wants and needs and not just for the purpose of coming out with something new.
Over the next 10 years Taco Bell plans to open at least 2,000 more stores in the U.S. increasing its domestic store count from the current 6,000 to 8,000. Taco Bell's expansion will lie in more rural areas where its presence remains absent. Moreover, Taco Bell wants to bring in new operators or "new blood into the system". On the international front, Taco Bell anticipates long-term success in India stemming from a cultural bias toward the younger demographic, vegetarian tastes, and the desire for value for the money spent, according Taco Bell executives at its analyst day .
Taco Bell plans on rolling out a mobile platform where you can order and pay for your food via a mobile device in an effort to increase loyalty and enhance convenience for the customer. Customers will no longer need to wait in line, just simply come in and pick up their food.
Taco Bell's initiatives renew hope in Yum! Brands as an investment and Yum! Brands is definitely worth of being on your Motley Fool Watch List. As Yum! Brands moves past its troubles in China then it's definitely worthy of your added attention. Foolish investors should always do their own research before making any investment decisions.
William Bias has no position in any stocks mentioned. The Motley Fool recommends Chipotle Mexican Grill and PepsiCo. The Motley Fool owns shares of Chipotle Mexican Grill and PepsiCo. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.