Yum's second thoughts

What a difference a year makes.

David Novak, the CEO of Yum! Brands, speaking to financial analysts on Feb. 4 about the company’s vision for Long John Silver’s and A&W All-American Food:

Our goal with Long John Silver and A&W is to make those brands stronger and to build them working with our franchisees.

Novak, as quoted in a press release issued today by Yum, the parent of Taco Bell, Pizza Hut and KFC:

We do not believe Long John Silver’s and A&W All–American Food restaurants fit into our long–term growth strategy. Accordingly, we have decided to put these two great brands up for sale.

Isn't this supposed to be a slow news time?

We’re about to ring in the new, but a number of restaurant greybeards aren’t ready to sound the gong on their careers quite yet.

Veterans of McDonald’s in particular have been making considerable news with fresh endeavors. Today brought word that Robert Doran, a one-time operations EVP, was taking the helm of the Granite City brewpub chain. He’ll be joined on Granite’s reconstituted board by Mike Rawlings, a former president of Pizza Hut.

They’ll oversee a company that’s just been injected with a $9-billion equity infusion by Doran’s company, Concept Development Corp.

Doran might be able to get a discount if he eats at Tom & Eddie’s, a new burger joint in Geneva, Ill. The just-opened eatery is a collaboration between Ed Rensi, a supposedly retired president of McDonald’s USA, and Tom Dentice, once EVP of operations and training for fast-food’s Lebron James.

But they’re not the only ones who can’t seem to get enough of the restaurant business. Catterton Partners, a co-owner of such chains as Outback, Carrabba’s, Cheddar’s and First Watch, today announced that has acquired Noodles & Co., once the poster-concept for the fast-casual sector.

Catterton has yet to announce who’ll be assisting Noodles president Kevin Reddy as he leads the chain into a new chapter. But my bet’s on some industry veterans.

Some blunt words about Pizza Hut & KFC

It’s not unusual for chain executives to pass long customers’ opinions of their brands. It’s another matter for the officials to relate the slams along with the gushing praise, especially while talking to investors. Yet, in a refreshing burst of candor, that’s exactly what the CEO of Yum! Brands did Thursday during a conference call about the company’s fast-food chains, Taco Bell, KFC and Pizza Hut.

Chief executive David Novak had the harshest words for Pizza Hut’s domestic operations, whose same-store sales fell a head-turning 12% during the last three months of 2009. Oh, sure, the American public loves the chain’s pizza, said Novak, but “the consumer has told us frankly that we are simply too expensive.” He noted that the venerable chain is also focusing on service speed and kitchen operations, so you have to suspect that customers aren’t tossing bouquets in those directions, either.

Novak said the chain is countering its high-price stigma with the “successfully tested” Any Way You Want It promotion, where patrons can get a customized pie for $10.

And how about KFC’s domestic operations? Oy, don’t ask.

“There is no question we have our work cut out for us,” Novak told analysts on the conference call. He ticked off the chain’s three main perception problems in the U.S.: Too much fried food, not enough value, and lousy operations.

The first two objections from customers have been addressed, he said. Indeed, KFC’s new Kentucky Grilled Chicken now accounts for a fourth of all the chicken on the bone sold by the chain.

But operations still have a ways to go, particularly in terms of service speed and not running out of some menu items before the next batch of supplies arrive, Novak acknowledged.

He had nothing but praise for Taco Bell, describing it as one of the company’s sales and profit workhorses, with ample room left to grow in the U.S. market.

The domestic arms of Pizza Hut and KFC, on the other hand, weren’t even addressed when Yum! gathered analysts in New York a few months ago for a close-up look at the company’s inner workings. “we made the conscious decision to not even cover Pizza Hut and KFC U.S. at the December analyst meeting,” he noted.

Then again, those pieces of the business still seem to be held in higher regard than Yum’s two other American fast-food brands, Long John Silver’s and A&W. “[I’m] wondering whether there is a potential to sell those brands or whether we'll see those brands continue to operate here as it relates to generating incremental cash,” Jeffrey Bernstein, the restaurant analyst for Barclays Capital, asked the Yum officials on the call.

“Our goal with Long John Silver and A&W is to make those brands stronger and to build them working with our franchisees,” countered Novak.

Off with The King's head?

There’s probably no truth to the rumor that Burger King headquarters is planning a new line of kids-meal action figures called Butthead Franchisees (“Collect all the dolts--and their lawyers, too!!”) But the home office clearly isn’t friending some of its licensees on Facebook these days, and vice-versa. Though that’s sort of like saying Batman and the Joker had their inter-relational challenges. We’re probably only a snipe away from seeing The King in combat fatigues and camouflage face paint.

The flashpoint is the $1 Double Cheeseburger that the chain decided to promote systemwide despite a forceful don’t-you-dare from franchisees. In a gambit that drew more media coverage than Michael Jackson’s funeral, a group claiming to represent three-fourths of BK’s licensees filed a lawsuit to halt the promotion, arguing that the franchisor was fixing prices. The National Franchise Association said at the time of the filing that a franchisee stands to lose a dime on every double that’s sold.

By franchising standards, that sort of gripe is the equivalent of asking Mike Tyson if he prefers women’s clothing. But the association took the further step of sending a letter to each director of Burger King’s parent company, asking that they intervene to reverse management’s decision and set the home office on a more intelligent strategy. The elevated middle finger was leaving CEO John Chidsey, the director who crafted the current plan, on the mailing list.

That’s when things started getting really ugly.

Yesterday, someone leaked an e-mail to the Associated Press that had been sent to Franchise Association members over the weekend by Chuck Fallon, the Chidsey direct report who oversees BK’s North American division. It cautioned the dissidents that they could be limiting their growth opportunities with all the public grumbling.

“Bankers, landlords, suppliers and potential new franchisees are watching and listening,” the A.P. quoted Fallon as warning. The upshot, he said, could be less lending and less attractive terms—or a lower price should the malcontents look to sell their businesses.

A return volley has yet to be fired by the franchisees, or at least it’s not yet come to the attention of the media. But give it time.

Not that they’re the only franchisees who are ready to string up their franchisors during these trying times. NPC, Pizza Hut’s largest franchisee, told its shareholders in an earnings statement last week that the pizza brand and its marketing need to be handled differently, a veiled criticism of franchisor Yum! Brands. Making that observation in a financial statement is like telling a soccer mom that her kid couldn’t hit a barn with three free kicks.

And Quiznos franchisees probably have a rule that you have to pay a dollar everytime you mention the franchisor or otherwise cuss.

Because of its sheer size, BK is going to be the fracas in the spotlight. It’s just a matter of time until the feud starts snagging covered on CNN.

Yum! steers its chains onto surprising turf

Yum! Brands has previewed some scrambles it’ll try in the next few months to juice up sales at its three major fast-food chains. But most were unrelated to the breakfast initiatives being plotted for Taco Bell and KFC.

Instead, the franchising giant is trying to remix its concepts' sales by venturing into some surprising territories. Here are some of the brand-bending undertakings Yum! described to financial analysts during a conference call on Wednesday:

--If you think Taco Bell is all about stuffing skateboarding dudes with as much bulk as they can buy for a buck, steel yourself. The chain will kick off 2010 with a national advertising for its Fresco line, a nine-item array of lower-fat and less-caloric selections.

If that's not enough of a departure from Taco Bell's traditional image, consider what looms on the horizon: "Longer term, we are most excited about breakfast," said Yum! CEO David Novak.

If the Taco Bell chihuahua hadn't passed away, he'd be letting out a Klingon death howl right about now.

--KFC--that's shorthand for Kentucky Fried Chicken, in case you're of a vintage that thinks Col. Harland Sanders was some Civil War hero--now derives 30% of its sales from Kentucky Grilled Chicken. "We have driven awareness to 75% of quick service restaurant users," said Novak, noting that the product is transforming the brand's image.

"We needed to broaden the appeal of this brand and we have done it," he said. Nevertheless, "continuing to drive trial is our top job."

--A major reason for Pizza Hut's 13% same-store sale drop in the third quarter was its image as a place for premium pizza, according to Novak. It shouldn't be a shocker, then, that the chain's new ads focus on chicken wings and a concept-within-the-concept, the bolted-on WingStreet wings brand. WingStreet is being positioned as a separate concept that piggybacks on Pizza Hut's delivery service.

Novak was far less effusive than he has been in past conference calls about Pizza Hut's new Toscani pasta line. He gave no reason why, but did note that the pizza chain has to do a better job of stressing the new diversity of its menu.

Novak noted that Yum! is in the process of choosing a new ad agency for Pizza Hut, precisely "to give the brand a fresh, more differentiated positioning." But he acknowledged that pastas already account for 10% of Pizza Hut's sales and figure into 30% of all transactions.

He also disclosed that breakfast is seen as a big international opportunity for KFC.

"When you look at KFC outside the United States, the only competitor we have is McDonald’s, so why can't we do breakfast?" he commented. "I mean, who is closer to the egg than Kentucky Fried Chicken?"

Novak also mentioned that Taco Bell is working on "a bigger beverage program," without divulging details. But the Orange County Register reported Wednesday night that at least two units in California are testing a juice bar featuring smoothies and a new frozen shake called the Frostbite.

Also available are fingerfood snacks like Mini Crispy Empanadas and Bacon Belly Bombers, along with cupcakes and cookies.

No green from a fibbing Pizza Hut

Pizza Hut has snagged a fair amount of press for its new building design, which made its official debut Thursday in Jacksonville, Fla. After announcing at almost the same time that it would not be changing its name to The Hut, the Yum! Brands-owned pizza specialist has stressed that the new format is a really a three-in-one restaurant. In addition to selling an array of pies, the store will showcase Toscani Pastas, previously marketed as delivery and takeout options, and WingStreet, a bolt-on Buffalo chicken wings concept that execs intend to advertise as a separate entity.

Oh, and about that rumor of a name change: Contrary to Pizza Hut’s assertions, the new prototype carries an exterior sign reading The Hut, as you can see in this picture from a local paper.

Management stresses that it’s just a test, and that the chain is indeed keeping the full Pizza Hut name. “We do use ‘The Hut’ in some of our marketing efforts,” CMO Brian Niccol said in last week’s statement.

The launch of a new prototype isn’t a “marketing effort,” especially when the new design is reportedly being stamped on 30 units already. I have trouble reconciling Assertion A with Fact B.

If you’re tallying such things, this is Stretched Truth No. 3 for Yum. Earlier this year, it made a big splash with Kentucky Grilled Chicken, which is really oven baked on a special plate that imprints grill marks. At the time of the introduction, coupons for a free sampling were distributed. Yet KFC ran a commercial that said in essence, “Sorry, but we’re not honoring those right now.” It stopped short of saying, Na-na-na-na-na-na.

Okay, perhaps there’s a disconnect between what Pizza Hut said and what it does. Such is corporate life.

But what should concern the public is what Pizza Hut didn’t say about the new prototype. In all the coverage, in all the comments made by executives to local media, there’s not one mention of a green feature. How can a resource-rich company introduce a new building design that omits conservation features? And why would it, given the savings that could be easily realized?

Maybe the chain is too busy asserting that it’ll continue to be known as Pizza Hut. It’s also important to keep The Hut sign clean and as visible as possible.

Give me 12 episodes, babe

Just when I was about to hang up the tuba, the industry sends word it could use my cover of "Enter Sandman”. What else could you make of the news that Pizza Hut is launching an in-store entertainment network?

The disclosure of Hut TV follows indications that McDonald’s, Hardee’s, Arby's and Wendy's, among others, are also installing proprietary entertainment networks for patrons to watch as they munch their fries. The trade is going on the air. Instead of placing fast-food products in TV shows, some brands are placing TV shows in fast food.

Which leads me to why I’m suggesting you pick a card, any card. I don’t know if you’ve seen any television recently, but clearly there’s not a deep pool of programming from which the established networks can draw. If Rob Blagojovich’s wife is being cast in a primetime show, “Paint Drying: The Mini Series” might already be in storyboards on some cable exec’s desk. My flaming baton work may finally get the showcase it deserves. Heck, the other guy from Wham! might end up a star. This could be the best news Vanilla Ice ever got.

Of course, there’s some concern about how my art will be received in a quick-service venue. I don’t know about you, but the last thing I need is more streaming entertainment. If Fast Food TV catches on, it’ll fill in that five-minute gap when I’m disconnected from computer screen, Twitter feeds, cell-phone calls, radio, television, land line and iPod. Whew. No more of that mind-numbing boredom of thinking without distraction. Or, even worse, relative silence.

The chains are betting the media-saturated will appreciate not having to struggle through a disruption in sensory input. They’re also counting on unique programming to provide a point of distinction, like a new sandwich or a head-turning bargain. Pizza Hut, for instance, reportedly views Hut TV as an integral part of recasting the brand as a cooler, more contemporary concept called The Hut.

It’s a bold wager. Done wrong, the entertainment could be seen as an annoyance, or the sort of background din that’s disparaged as elevator music. And picking programming is clearly dicey. Need I mention "Cop Rock," a musical police show that was backed by Stephen Bochco and NBC? Or the Fox Network's "The Tick," starring a regular from "Seinfeld"? If that's how the industry's luminaries can stumble, imagine what an upstart network could do.

But what do I know? I was sure my kazoo rendition of “Umbrella” would chart.

Forget the auto bailout. Send Pizza Hut instead.

Yum! Brands should do the patriotic thing and lend Pizza Hut’s menu development team to the Big Three auto companies. The wheezing giants desperately need innovation to make their products competitive again. Pizza Hut, as Sunday’s football broadcasts revealed, has nailed that ability to meet mainstream America’s preferences, before the public even senses the desire. The decades-old concept has transformed itself from a commodity seller into a consumer products business that just happens to use bargain-priced food as its means of satisfying a need.

The most recent bit of evidence is the pie that was advertised here in New York during the Jets’ meltdown Sunday against the Dolphins. A commercial showed a pleasant, brick-walled little pizza-and-pasta-type eatery, like you’d find in the artsy section of any city. The proprietress of Elizabeth’s, as I think the place was named, is offering samples of her newest item, a pizza made with all-natural ingredients. Customers rave about it.

Then Elizabeth reveals she didn’t make the pie. The camera cuts to a Pizza Hut delivery guy, carrying a stack of the chain’s new pizza, The Natural.

Okay, maybe the spot was a bit hokey, and a complete rip-off of the old Folgers Coffee commercial (persons of a younger vintage could probably find it on YouTube, mixed in with videos of jousts, barbershop quartets and other cultural phenomenon of that pre-historic time). But it got across the message that this was a pizza made with a whole-wheat crust, additive-free sauce and cheese, and “all-natural” pepperoni and sausage (i.e., both are free of nitrates, nitrites or other nasty-sounding preservatives). The message stressed that the sauce was made from vine-ripened tomatoes without any added sugar. It’s a convincing bid for validity.

Clearly, this is not your Folgers drinker’s pizza.

There’s nothing about Pizza Hut being the first mega-sized restaurant chain to offer an all-natural product. After all, who cares about that sort of huckster-ism.

And it wasn’t about price, though the spot did indicate the pies sell for $11.99 (a “rustic” version, with whole tomato slices) and $9.99 (the basic pie).

No, the hook is clearly the all-natural aspect. As that sensibility has gone mainstream, convincing consumers that “natural” is better, many would-be converts were likely frustrated by the lack of access to reasonably priced examples. They likely wouldn’t have found an all-natural pizza in the corner joint. And places that carried such a pie may have come across as too nuts-and-berry.

I’m betting Pizza Hut has found a true sweet spot. Of course, that’s easy to say when you consider all the year-end predictions that health and wholesomeness will have a profound impact on restaurant menus in 2009. The National Restaurant Association, for instance, cited “nutrition/health” as Number 11 on its list of hot trends for the new year.

The Natural, which has been in test for eons, follows the rollout earlier in the year of the Tuscani line of takeout and delivery pastas, in my estimation the restaurant industry’s best new product of 2009. In the latest estimate by Yum executives, the $12.99 trays of pasta, each of which feeds four, have generated in excess of $100 million in sales since their introduction in April.

That adeptness at reading the market may be what the auto industry needs to come up with the next Mustang, SUV or small pickup.

Since we last met...

Sorry if I sound a little rusty. Since Nation’s Restaurant News laid me off Tuesday, I’ve not been blogging, at least about the restaurant business (though I have been doodling about my new status at Pink-slipped). I figured I’d clear some of the cobwebs by offering a few observations about the industry’s week that was:

Pretty soon T.G.I. Friday’s is going to start giving away living room sets with every meal you order. The casual chain’s frequent-guest program, Give Me More Stripes, started out with the usual bonuses for heavy traffic. Then it tried to sweeten the deal by throwing a free helping of chips and dip into the mix. Now the sector’s granddaddy is adding the whipped cream of a free dessert to any card carrier who visits a unit next weekend and buys an entree. I’m holding out for a steak-knives offer.

Taco Bell president Greg Creed has cajones bellgrande. First the chain proves it’s a badass by dissing 50 Cent. Last summer it suggested the mega-star reprise a Chihuahua’s role by serving as an unlikely pitchman for the Bell. Change your name to 79 Cent, 89 Cent or 99 Cent, the home office publicly offered, and we might be able to come through with bling-bling—a $10,000 payment to the charity of your choice [Thugs Without Bullets, perhaps? Teeth Grills for the Disadvantaged?). The proposal was put forth just as Taco Bell was rolling out a new value menu, an event that may not have snagged much publicity on its own. But Taco Bell tweaking a nasty mother like 50 Cent? Big news, dog.

50 Cent, the only rapper whose music I refuse to let my wife play when I’m in the car, responded with a lawsuit. He may try hard (and convincingly) to come off as a gangsta in the hood, but he’s a brilliant businessman who’s not going to let his name be used gratis as part of a publicity ploy.

Taco Bell should’ve been grateful that the response wasn’t a drive-by. But instead of dropping the matter, it filed a blistering defense that accused the Gangsta Formerly Known as Curtis James Jackson III of not being able to take a joke.

Indeed, the Sept. 19 court filing, brought to light yesterday by the gossip site TMZ was one big bitch-slap (Fast Company called it “counter-blathering.”) Taco Bell alleged in its filed response that 50 Cent nee Jackson “has a well-publicized track record of making threats, starting feuds and filing lawsuits,” and that his suit was merely an attempt to “burnish his gangsta rapper persona.”

“Instead of responding to Taco Bell's sincere offer in the friendly and humorous spirit in which it was issued,” the suit reads, “Jackson launched an aggressive, offensive attack on Taco Bell in the press. In a heavily publicized sound bite, Jackson threatened legal action against Taco Bell stating, "When my legal team is finished with them, Taco Bell is going to have a new
corporate slogan: 'We messed with the bull and got the horns.'"

The filing—technically an “affirmative defense”--disputes or denies each on of 50 Cents’ assertions in turn. It then asks the court hearing the action to dismiss it and make the the rapper pay Taco Bell’s legal fees.

A heads up to Creed: Remember Tupac, my man.

Just think ‘pizza’ and your delivery order will be placed. Maybe we’re not there yet, but the major delivery chains are certainly inching closer to that Isaac Asimov-ian vision. Domino’s, a leader in online ordering, added the option last week of letting TiVo users put in for a pie via the set-top box. Papa John’s announced that it would try to protect IM fanatics from malnutrition by allowing them to buy a delivered pizza without leaving Facebook, an option that Pizza Hut started added in mid-Oct.

So, let us review. Want to order a pizza? You can now do it via your phone (cell or landline), computer, Facebook account, TiVo, video game, or text-messaging capability.

My money’s on Pizza Hut as the first to accept brainwave orders. The chain should just hope it doesn’t intercept any that were beamed by 50 Cent at its sister brand.