It is no secret that the restaurant industry, whether it is casual, quick-serve, or fine dining, felt the pain when consumers scaled back on eating out in response to the economy. But there are some signs, at least in the quick-serve sector, that business is gradually picking up.
Quick-serve (a.k.a."fast food") restaurant company Yum! Brands Inc. (NYSE: YUM) -- which operates and franchises Taco Bell, KFC, and Pizza Hut restaurants -- filed its fiscal first-quarter earnings Wednesday for the period ended March 24. Net income was up to $458 million on $2.3 billion in revenue. That compares with net income of $264 million on $2 billion in revenue for the year-ago period.
The company has more than 35,500 restaurants in about 110 countries. It opened more than 1,500 restaurants last year. including 656 of them in China, and plans on opening another 1,500 this year. In addition to China, Yum is focused on other emerging markets, including India, where it plans to increase its restaurants from 374 to 2,000 by 2020.
R.J. Hottovy, an analyst with Morningstar (Nasdaq: MORN), says Yum's quarterly results show prior fears of a slowdown in consumer spending in China, Yum's most profitable market, were overblown. He says high-income consumers in China who built their assets through real estate, for example, may have scaled back a bit on spending. However lower- to middle-income consumers, the demographic Yum targets in China, shelled out the yuan to eat out. "We see wage rates increase in [that] country and continue to prop up consumer spending at Yum's restaurants," Hottovy says.
The company also saw gains stateside in the first quarter with what Hottovy called better than expected results. "We had been saying for some time the company needs to make more aggressive turnaround initiatives," he says, "particularly with the KFC brand."
Yum!
Sales at Taco Bell rebounded, Hottovy notes, after struggling in 2011 amid class action lawsuits that questioned, among other things, whether the chain's meat was really beef. "It's nice to see them recover there. It bodes well for this year for the US business."
Hottovy attributed the first-quarter gains at Taco Bell to fewer external distractions as well as changes to the menu offerings. "The Doritos Locos Tacos [a regular Taco Bell beef taco with one giant Nacho Cheese Dorito chip forming the shell] seems to be doing very well." Other menu initiatives are in the pipeline as well for Taco Bell, including plans to roll out "Cool Ranch" flavored shells this year. Yum is testing breakfast offerings for Taco Bell in select markets with plans for a national launch expected in the coming quarters. Hottovy foresees Yum adapting the strategies that worked at Taco Bell to its other restaurant brands.
The positive direction Hottovy sees Yum moving in may also speak to growth in foot traffic for the overall quick-serve sector. "A lot of that stems from a general increase in consumer confidence among that group" of customers. However he cautioned that such positives for the dining market are put at risk by such factors as gasoline prices applying pressure on consumers.
Even with such issues at play, Hottovy sees the quick-serve market luring more customers back to their tables -- or in some cases the drive-through window. "In the back half of 2011, a lot of sales at quick-service restaurants were being driven by menu price increases," he says, "but this past quarter, traffic returned to being a bigger contributor to overall sales."
I used to have a high school biology teacher who swore that we should always eat fast food when on road trips in strange places because they posed less risk of food poisoning them some unknown mom and pop shop. Because of standardization of product and sanitation procedure. Then I met Noreeen.
Don't give up on all fast food! Just be prudent. I don't care if a restaurant is part of a chain or not. You need to use your senses to determine if it seems clean and well run, and resist the urge to simply assume everything is fine because of the name on the door.
Oh thanks Noreen, now none of us can eat fast food for fear of what corners have been cut.
I too worked in food service some yeas ago - in an ice cream shop. Our managers ran a clean store - I didn't see anything that would make me think twice about eating there.
On the other hand we didn't have parties with alcohol either, unless maraschino cherries have alcohol? I do remember enjoying an absurdly huge number of cherries on our free daily Banana splits or sundaes. Ah.. To eat like a teenager.
I'm going back a long way -- to high school. But my recollection was that the assistant managers on each shift competed with each other to do the best in sales, etc and that drove them to make questionable decisions. We'd reuse mayonnaise that had been out for our full shift rather than dumping it at closing...they let a woman with severe eczema (on her hands!) prepare food without gloves...did I mention the mice that would fall asleep in the Styrofoam boxes stored in the basement (you know, the ones they put your sandwich in?).
On the bright side, for a kid anyway, they held a holiday party and served alcohol to all of us (yep the drinking age was 21 in Pennsylvania). I was 16. Whatever.
@Noreen, I am surprised to learn store manager is more guilty than regular workers. Do store managers usually have the long term interests in the business? Do they get intense & frequent training in MacDonald/KFC/... Universities ? Do they earn 6 digit compensation each year?
I assume that at least these store managers cares a lot about customers. It seems I am wrong. I guess I get one more reason to stay away from the food of MCD or YUMs.
As a former fast food worker I can tell you many of the shortcuts that hurt quality are unsanctioned store manager decisions. They do questionable things to boost store revenues, including reuse of product that should be discarded, according to official protocol.
@Value Hiker, Yum! corporate and other large restaurant chains spend millions in risk management, menu creation and logistics to ensure that customers receive uniform good service no matter where they are ordering their food across the country, and to ensure that their employees have safe and reasonable work environments. One can say that's an impossible proposition no matter how much they spend because of what you mentioned: disgruntled employees are everywhere, especially in low-wage environments, and are more impossible to predict than tornados, outbreaks of food-borne illness, customer slips and falls, and other more common risks.
Salmonella is disgusting. Now that I have that out of the way, consider this:
Salmonella can be contracted via contact with other Salmonella reservoirs including dogs, cats, pigs, reptiles, rodents, cattle, and other infected people. An infected person or animal will often shed infectious bacteria in their feces. Any food product that has come into contact with animal feces — including fruits and vegetables — can spread Salmonella.
And:
Food may also become contaminated by the unwashed hands of an infected food handler who might or might not be showing symptoms. Salmonella can also be found in the feces of some pets, especially those with diarrhea. People can become infected if they do not wash their hands after contact with these feces. Reptiles are particularly likely to harbor Salmonella. People should always wash their hands immediately after handling a reptile, even if the reptile is healthy.
So 1) you could've had a food handler with unwashed hands or 2) the chicken could have encountered bacteria on the floor from a rodent (remember they said they didn't discard all the chicken that fell on the floor?)
With minimum wage and no health insurance coverage, most front counter employees are not so happy, or proud of their works. Bad things are sure to happen from disgruntled employees
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