Why Yum! Brands Doubled Down On Delivery With Grubhub

The fast food segment has become a highly competitive place of late, with upgrades and discount promotions seemingly pouring in at all times — a reality that has hit Yum! Brands as it labors to keep not one, but three chains up, running and avidly competing.  Pizza Hut, Taco Bell and KFC are all large operations in their own right, and they’re all facing the stiff headwinds that are blowing throughout the fast food segment.

During its last earnings report, Pizza Hut’s comparable sales were down 1 percent in the latest quarter, despite the fact that analysts had projected a 1 percent gain. Comparable sales for Yum! rose 1 percent, missing estimates for 1.9 percent growth.

This has left Yum! struggling to update its brands and get them back into competitive shape. Which, in 2018, has meant a major focus on delivery via a partnership with Grubhub. Yum! invested $200 million in the firm as part of the pair-up, which would onboard KFC and Taco Bell into the Grubhub system.

“Grubhub and Pizza Hut will work together to determine how best to leverage their respective scale and expertise,” the companies announced in a release in February.

Now, six months into the partnership, Yum! is reporting smooth results — though they have continually emphasized that all results at this point are very early results and that they are focused on slowly rolling out their delivery efforts with Taco Bell and KFC franchises.

“We’re pleased with the initial results that we’re seeing by adding delivery into Taco Bell and KFC. Remember, Taco Bell already had a decent sized pool of stores that experimented with delivery with another aggregator partner. Behind the scenes, we’re doing all the work to integrate the systems with Grubhub, so that we can make this the fastest, most seamless process for consumers and for our store employees. And we feel good about how that work is going,” Yum! CEO Greg Creed noted.

The challenge now, according to the executive team at Yum!, is not just getting delivery up and running, but getting it up and running according to in-house specifications. Yum!, via Pizza Hut, has been running its own in-house delivery operations for some some years, and according to its president and chief financial officer David Gibbs, Yum! is very cautious when it comes to trading on new delivery offerings

“We’re fairly sophisticated when it comes to the subject of delivery. We know delivery well from our Pizza Hut business. So getting Taco Bell and KFC in, we have very high standards for where we want to ultimately get to,” Gibbs said.“And while, as Greg said, we’re pleased with where we’re at right now in the journey, we know ultimately the kinds of times and accuracy that you need to deliver in delivery. We’re not there yet, but we’re on that path to getting there with Grubhub right now.”

When will Yum! be there?  That was the most common question from analysts during its last earnings call — and it was a subject that its executive team remained cagey on, offering little in the way of specific answers.

“There are several milestones we have to get through as we go on this journey,” Gibbs noted.

And the brand has its doubters. When speaking to Bloomberg, analyst Jennifer Bartashus noted that while Yum! does have a strong opportunity to make a bigger dent as it raises the level of its game, as of right now, it’s having a hard time capitalizing on its efforts.

“There’s something about the execution and product innovation that is not quite resonating with customers,” she said.

Moreover, she noted, as the competition among fast food players is becoming more intense, so too is the pressure to get into the race for the bottom in pricing — discounting is a powerful draw in this segment.

“The competition in the U.S. on value remains very very strong,” Bartashus said. “That’s where KFC and Taco Bell are playing.”

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