Franchise Lawyer Blog

Yum! – How Many Franchises Are Too Many?

Yum Brands is a Fortune 500 company that owns franchised restaurant systems. The question had been asked if Yum! represented the future of franchising on the franchisor side of the equation: the bigger the better. Bigger meant economy of scale, shared resources, cross marketing, even shared space. Some of the Yum! brands live side by side in the same leased space.

Yum’s vision is stated on its website:

At Yum! we’re building a vibrant global business by focusing on four key business strategies:

  • Build leading brands across China in every significant category
  • Drive aggressive international expansion and build strong brands everywhere
  • Dramatically improve U.S. brand positions, consistency and returns
  • Drive industry-leading, long-term shareholder and franchisee value

Today it was announced that Yum! is selling two of its systems, A & W and Long John Silver’s, to two different buyers. The prices were not disclosed, but it can be assumed in this economic environment that the two chains did not bring the $320 million dollars that was paid for them in 2002.

Analysts opined that the two sold properties did not present enough opportunities for growth in the U.S. and particularly in China, where Yum! has apparently decided to focus its growth strategy. Approximately one-third of its revenue is generated in China, with that expected to rise. Yum’s other systems, KFC, Pizza Hut and Taco Bell offer more growth domestically and more opportunties abroad.

Does this sale reflect a failure of a model? Will it prove impossible for any one company to amass the kind of size in the franchising space that Yum! had seemed to aspire to? It certainly will serve as a cautionary tale to other potential franchising giants. Within any industry, even one with the similarities that the restaurant business contains, each franchise system is idiosyncratic enough to suggest that a collective of a group of them would be hard to grow in a manner that was consistently successful for each independent part. That will most likely be the conclusion until someone comes along and succeeds where Yum! apparently failed.

Leave a Comment

Your email address will not be published. Required fields are marked *

Scroll to Top