Yum Brands, The Owner Of KFC, Taco Bell, And Pizza Hut
The past few decades have seen the rise of a phenomenon known as the illusion of choice. When you go to the supermarket, and you see the over-stuffed shelves, it’s easy to feel overwhelmed by what appears to be an over-abundance of different products. But more often than not, the various competing brands are owned by the same company and in the end, whether you buy a Kit Kat or a Lion. The profits end up in the same pocket. Of course, this multi-brand strategy isn’t necessarily bad and it’s very popular across almost all consumer industries.
1. Harland Sanders – Creator of KFC
One example that most people find surprising is the restaurant business and in this article, we’ll take a look at the company that owns three of the largest chains in the U.S Yum Brands. The three restaurants I’m talking about are KFC, Pizza Hut, and Taco Bell. And, as you’ll see, their origins are pretty humble. Let’s start with KFC and its famous creator, Colonel Sanders. The Colonel whose real name is Harland Sanders opened his very first restaurant in 1930 when he took over a Shell gas station in North Corbin.
As you can imagine, operating a gas station during the Great Depression wasn’t very profitable. That was the reason Shell was willing to give it over to Sanders in the first place. By that point, he was already 40 years old and he’d worked over a dozen different jobs. He was always struggling to make ends meet and the restaurant was his first real success. He would serve his customers, country ham, pork, steaks, and, most importantly, delicious, fried chicken. Sander’s chicken was so good that he became a local celebrity. In 1935 the Kentucky governor even made him an honorary Kentucky Colonel for his culinary contributions.
2. Sanders Perfected his Chicken and franchised his Recipe
Sanders worked hard to improve his recipe and he finally perfected it. In 1940, as a mixture of 11 herbs and spices. In 1952, Sanders decided to franchise his chicken recipe to Pete Harman, the owner of a restaurant near Salt Lake City. Harman ended up being a huge contributor to the early franchise. He was the one who came up with the name, Kentucky Fried Chicken and he later trademarked, the famous “finger-licking good” slogan. In 1956 Sanders had managed to get six other franchisees, but his original North Corben restaurant ended up failing after the new Interstate 75 highway diverted traffic away from the city. Left, with minimal income and 105 dollars per month from Social Security Sanders started touring the U.S. looking for restaurants, that wished to franchise his chicken recipe. It was a struggle at first but was eventually very successful. By 1960 he had around 200 franchised restaurants and by 1963, that number had tripled to more than 600 becoming the largest fast-food operation at the time. Managing KFC became so overwhelming that Colonel Sanders now 74 years old sold his company for $ 2 million in 1964.
3. Pizza Hut’s Success
We will find out who he sold it to in a little bit, but first, let’s see our next big brand Pizza Hut. Now pizza, despite being one of the most iconic dishes in the U.S. is a very recent phenomenon. It only started becoming popular after the end of WWII, when American soldiers returned from Italy. By the end of the 1950s, pizza parlors were still very much a rare sight found most often near communities of Italian immigrants. In 1958 Inspired by the story of one such place, Dan and Frank Carney decided to open their pizza restaurant on their university’s campus in Wichita. The tiny building looked a lot like a hut, and so they decided to call it their establishment The Pizza Hut. Business was good, and one year later, the Carney brothers got their first franchise contract in the nearby city of Topeka.
Over the next decade, as pizza grew in popularity across the U.S, Pizza Hut, expanded rapidly. By 1966, the franchise had increased to over 145 Restaurants and the Carney brothers were already looking to go international first to Canada and then to Germany, Australia, Japan, and Great Britain. By 1971. It had 1,000 restaurants and was the largest pizza chain in the world. The Carney brothers. Finally, cashed in on their amazing success in 1972, when the company went public with a listing on the New York Stock Exchange. We will get back to Pizza Hut in a little bit.
4. Taco Bell’s Success
But now, let’s look at our last brand Taco Bell. The creator of Taco Bell was a man named Glen Bell. After witnessing the horrors of WWII firsthand, Glen decided to bring some happiness to his life by opening a hot dog stand in San Bernadino in 1946. Across the street, from his hot dog stand was a popular Mexican restaurant where Glen would eat regularly. He became close friends with the owner, who taught Glen the art of making delicious tacos. Eventually, Glen felt confident enough that he sold his hot dog stand and started making tacos himself. Over the next ten years, he would experiment with his idea of a Mexican fast-food restaurant several times. Each chain he started was a success, but they were all shared ventures where Glen was only a minority shareholder. He was a pretty independent guy and so, in the end, he sold his stake and in 1962 he used the money to open the first Taco Bell in Downey California.
You probably know where this going. I mean the 1960s were the decade when franchising exploded as a concept and the early adopters of this business model were very successful. The first Taco Bell franchise contract was signed in 1964 for a restaurant. In the South Bay area of Los Angeles. Six years later, when the company went public in 1970, it had a total of 325 franchised restaurants.
5. Pepsi Acquired KFC, Pizza Hut, and Taco Bell
It is at this point in our story that Pepsi comes in. Not the drink, but the company. This will probably come as a surprise to most Coca-Cola lovers, but the Pepsi Corporation was a huge food and beverage conglomerate that owns a bucket load of brands. Their story is also very interesting, but that’s a story for another time. What’s important is that during the late 1970s, they successfully predicted where the future of the global restaurant industry would be. Not in small family-owned businesses but in the large franchise chains that were already emerging in the U.S. Pepsi decided to get its hands on it. As many popular franchises as they could – and this is where our three stories – meet. Pizza Hut and Taco Bell – were public companies when Pepsi acquired them in the late 1970s.
KFC, on the other hand, was private and it had changed hands three times before finally being bought by Pepsi in 1986 for $ 850 million. With the three franchises under their control. Pepsi was briefly the largest restaurant company in the world.
6. Pepsi Created a new Restaurant Company - Yum Brands
I say briefly because just one decade later, in 1997, Pepsi made the very questionable decision of spinning off its restaurant business into a separate company. Now the reasons they gave at the time were that the restaurant business was becoming unpredictable, which was kind of true. Domestic sales had been decreasing for the past three years. But almost immediately after becoming independent from Pepsi, the new company called Tricon Global Restaurants saw huge success. They gave their franchises a facelift and released various new products and menus. In 2002, it changed its name to Yum Brands to better reflect its multi-brand strategy. Since then, they’ve become huge, both in the U.S. and internationally, especially in China.
There have been some bumps along the way like when their main supplier went bankrupt in the year 2000 or when there was an Avian Flu epidemic in China in 2013. But overall Yum Brands has been doing a good job and today they’re the largest restaurant company. In the world. If you compare their stock prices to that of Pepsi, you’ll see a pretty clear pattern. That latest drop in share price by the way is due to their recent decision to spin off their Chinese restaurants into a separate company. That decision probably sounds familiar and we know how spinning off a good business went last time. But hey I’m sure the CEO knows what’s best. After all, they’re, not paying him $ 1.1 million per year for nothing.