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.