Tricon's Fast-Food Smorgasbord
For the Smalley family of Eagan, Minn., 2-year-old Josiah is the "veto vote" on outings to KFC for fried chicken. As he can make his parents painfully aware, Josiah prefers pizza. That's why, when heading back to Atlanta's airport after a family visit, Josiah's mom, Misty, finds it worth her while to venture off I-85 to a combination KFC-Pizza Hut Express store, owned by Tricon Global Restaurants (YUM). While Misty enjoys her drumsticks, Josiah nibbles on pepperoni pizza. "My son won't eat KFC, but I love it," she says. "That's why we come here."
Clustering different restaurants under one roof may not have the pizzazz of a Super Bowl promotion or a hot new menu item. But after exploring the idea since the late 1990s, Tricon, operator of Pizza Hut, KFC, and Taco Bell, is now placing a big bet that so-called multibrand stores can spice up domestic sales growth well beyond the tepid 2% rate the company has seen in recent years. Louisville-based Tricon is rolling out hundreds of them and is searching for outside partners with brands that might fill its menu gaps.
It's also testing the concept overseas. The aim: to edge closer to the industry-leading annual sales average of $1.6 million per store posted by McDonald's. Mickey D's is able to pull that off by offering everything from salads and shakes to Egg McMuffins.
A TACO BELL BURGER? Tricon's tight focus on either pizza, Mexican food, or chicken has kept per-unit volumes stuck below $1 million. To overcome the veto votes of finicky eaters such as Josiah Smalley, Tricon at first tried to broaden the menu range of the individual brands. "Every time we've tried to venture into a new category, we've failed because we've lacked credibility," says Chairman and CEO David C. Novak. "Nobody is waiting with bated breath for a Taco Bell burger."
The multibrand strategy solves the credibility problem because it offers variety from familiar, trusted brands -- whether Tricon's own or those of outside restaurateurs, such as Yorkshire Global Restaurants. Over the past four years, through upgrades and new-store construction, Tricon has set up 1,375 such stores, including 325 last year. They now generate more than $1 billion of Tricon's $14.5 billion U.S. sales. The company will add 350 more this year in the U.S. "We have an underutilized asset base" of 19,750 stores, says Tricon Chief Development Officer Chuck Rawley.
The strategy, which echoes smaller-scale efforts by other fast-food outfits, seems to be producing clear benefits. Operators can put both real estate and payroll to better use while getting more for their marketing buck via multibrand coupons and joint media buys, says franchisee Linda Alvarado, who operates 53 multibrand stores in four states. While a standard $200,000 upgrade of a KFC may boost sales by 5% to 10%, spending $100,000 more to add Taco Bell to the menu can spike sales by 25%.
"BLOODY CONFUSING." Still, the push carries risks. Juggling different menus and cooking systems from one kitchen can be tough for franchisees. "From an operational angle, it can be a challenge," says franchisee Munir Taherbhai, who runs a KFC-Pizza Hut Express in Atlanta. There can be snarly issues among KFC, Taco Bell, and Pizza Hut franchisees, who all covet multibrand rights for their area. Such rights are sorted out on a case-by-case basis.
Another possibility: The proliferation of combo stores may blur brands that Tricon has worked hard to differentiate. "The branding benefit is pretty bloody confusing," warns Simon Williams, chairman of consultancy Sterling Group, which worked on Burger King's latest rebranding.
Also, Tricon's three chains target afternoon and evening traffic. By contrast, the three-in-ones of Allied Domecq Quick Service Restaurants meld breakfast-oriented Dunkin' Donuts, lunch-oriented Togo's sandwich shops, and afternoon- and evening-oriented Baskin-Robbins. Tricon execs insist the performance of existing multibrands shows no undue overlap.
BEEFING UP. Still, to expand choices and reduce franchisee conflicts, Tricon is stepping up its search for outside partners, such as Yorkshire's Long John Silver's seafood chain and the A&W Restaurants burger-and-desserts chain. On Jan. 7, Tricon struck a deal to test 10 dual-branded units pairing a KFC, Taco Bell, or Pizza Hut franchise with a Back Yard Burgers restaurant, with an option to add up to 500 more.
Such deals, however, further complicate the brand-management task. When Allied Domecq several years ago decided it needed a more compelling lunchtime offering, it determined the best option was to buy Togo's outright so it would completely control the brand, says Mark Richardson, Allied Domecq's vice-president for multibranding.
While multibrands are no substitute for menu and marketing hits, restaurant analyst John Ivankoe of J.P. Morgan Chase figures the strategy should help Tricon boost revenues 5% this year, to $7.3 billion, with net income rising 11.5%, to $554 million. And it should create a broader audience for Tricon's next menu successes, whenever they come
Clustering different restaurants under one roof may not have the pizzazz of a Super Bowl promotion or a hot new menu item. But after exploring the idea since the late 1990s, Tricon, operator of Pizza Hut, KFC, and Taco Bell, is now placing a big bet that so-called multibrand stores can spice up domestic sales growth well beyond the tepid 2% rate the company has seen in recent years. Louisville-based Tricon is rolling out hundreds of them and is searching for outside partners with brands that might fill its menu gaps.
It's also testing the concept overseas. The aim: to edge closer to the industry-leading annual sales average of $1.6 million per store posted by McDonald's. Mickey D's is able to pull that off by offering everything from salads and shakes to Egg McMuffins.
A TACO BELL BURGER? Tricon's tight focus on either pizza, Mexican food, or chicken has kept per-unit volumes stuck below $1 million. To overcome the veto votes of finicky eaters such as Josiah Smalley, Tricon at first tried to broaden the menu range of the individual brands. "Every time we've tried to venture into a new category, we've failed because we've lacked credibility," says Chairman and CEO David C. Novak. "Nobody is waiting with bated breath for a Taco Bell burger."
The multibrand strategy solves the credibility problem because it offers variety from familiar, trusted brands -- whether Tricon's own or those of outside restaurateurs, such as Yorkshire Global Restaurants. Over the past four years, through upgrades and new-store construction, Tricon has set up 1,375 such stores, including 325 last year. They now generate more than $1 billion of Tricon's $14.5 billion U.S. sales. The company will add 350 more this year in the U.S. "We have an underutilized asset base" of 19,750 stores, says Tricon Chief Development Officer Chuck Rawley.
The strategy, which echoes smaller-scale efforts by other fast-food outfits, seems to be producing clear benefits. Operators can put both real estate and payroll to better use while getting more for their marketing buck via multibrand coupons and joint media buys, says franchisee Linda Alvarado, who operates 53 multibrand stores in four states. While a standard $200,000 upgrade of a KFC may boost sales by 5% to 10%, spending $100,000 more to add Taco Bell to the menu can spike sales by 25%.
"BLOODY CONFUSING." Still, the push carries risks. Juggling different menus and cooking systems from one kitchen can be tough for franchisees. "From an operational angle, it can be a challenge," says franchisee Munir Taherbhai, who runs a KFC-Pizza Hut Express in Atlanta. There can be snarly issues among KFC, Taco Bell, and Pizza Hut franchisees, who all covet multibrand rights for their area. Such rights are sorted out on a case-by-case basis.
Another possibility: The proliferation of combo stores may blur brands that Tricon has worked hard to differentiate. "The branding benefit is pretty bloody confusing," warns Simon Williams, chairman of consultancy Sterling Group, which worked on Burger King's latest rebranding.
Also, Tricon's three chains target afternoon and evening traffic. By contrast, the three-in-ones of Allied Domecq Quick Service Restaurants meld breakfast-oriented Dunkin' Donuts, lunch-oriented Togo's sandwich shops, and afternoon- and evening-oriented Baskin-Robbins. Tricon execs insist the performance of existing multibrands shows no undue overlap.
BEEFING UP. Still, to expand choices and reduce franchisee conflicts, Tricon is stepping up its search for outside partners, such as Yorkshire's Long John Silver's seafood chain and the A&W Restaurants burger-and-desserts chain. On Jan. 7, Tricon struck a deal to test 10 dual-branded units pairing a KFC, Taco Bell, or Pizza Hut franchise with a Back Yard Burgers restaurant, with an option to add up to 500 more.
Such deals, however, further complicate the brand-management task. When Allied Domecq several years ago decided it needed a more compelling lunchtime offering, it determined the best option was to buy Togo's outright so it would completely control the brand, says Mark Richardson, Allied Domecq's vice-president for multibranding.
While multibrands are no substitute for menu and marketing hits, restaurant analyst John Ivankoe of J.P. Morgan Chase figures the strategy should help Tricon boost revenues 5% this year, to $7.3 billion, with net income rising 11.5%, to $554 million. And it should create a broader audience for Tricon's next menu successes, whenever they come
