Why Taco Bell’s Killer Marketing Hasn’t Helped Yum Brands

by Alyssa Oursler | September 3, 2013 11:39 am

Why Taco Bell’s Killer Marketing Hasn’t Helped Yum Brands

Yum Brands’ (YUM[1]) Taco Bell may be Ad Age’s “Marketer of the Year,”[2] but that sure hasn’t helped shareholders.

Ad Age applauded the fast-food chain this morning for a host of successful moves: the Doritos Loco Tacos launch; a new social media push; the debut of its pricier, higher-quality Cantina Bell menu; a revamped value menu and a new “Power Protein” menu that’s currently in beta.

The  Locos Tacos, for one, was the most successful launch in the company’s history and helped Taco Bell post an 8% increase in U.S. same-store sales during 2012. Meanwhile, the Cantina Bell offerings were one reason David Einhorn smelled trouble[3] for rival Chipotle (CMG[4]) last year.

Yet so far this year, YUM stock has posted an unimpressive 5% climb while even struggling rival McDonald’s (MCD[5]) has bested that with 7% gains. Meanwhile, fast-food players Burger King (BKW[6]) and Wendy’s (WEN[7]) have soared 19% and 38%, respectively.

And that’s because Yum Brands — as you likely know — is far more than just Taco Bell, and far more than its U.S. locations, which hasn’t been a good thing as of late.

Yum gets around half of its sales from China, where it has nearly 6,000 KFC and Pizza Hut locations — however, not only has China’s economy been struggling, but the fast-food chain has also faced a string of food quality problems including an avian bird flu scare[8].

In fact, in the company’s most recent earnings report, the success of Taco Bell was little more than a footnote from CEO David Novak. Instead, he talked about the fact that earnings fell 16% year-over-year, noted the company’s problems in China (did I mention same-store sales dropped by 20% there in the most recent quarter?), applauded Pizza Hut Casual Dining, mentioned the opening of new units. Then, almost as an aftermath, he nodded to Taco Bell’s “industry-leading innovation.”

So while Taco Bell’s rebranding might make for a great headline or engaging showcase, it’s hardly the core of its parent company’s business — and hardly is helping the stock.

Worse, even despite its recent weakness, YUM still looks overbought, trading for more than 18 times expected 2014 earnings — higher than similarly struggling McDonald’s, and far north of Yum’s expected 11% annualized five-year growth.

For prospective YUM investors, the lesson is clear: Don’t be fooled by the success of something that, in the end, is a small piece of the company’s pie. It might make for great headlines like “Sales are Going Loco at Taco Bell,” but it hasn’t made for great performance.

As of this writing, Alyssa Oursler was long MCD.

Endnotes:
  1. YUM: http://studio-5.financialcontent.com/investplace/quote?Symbol=YUM
  2. Ad Age’s “Marketer of the Year,”: http://adage.com/article/special-report-marketer-alist-2013/taco-bell-ad-age-s-marketer-year/243852/
  3. David Einhorn smelled trouble: http://investorplace.com/2012/10/cmg-has-einhorn-smelling-like-roses-again/
  4. CMG: http://studio-5.financialcontent.com/investplace/quote?Symbol=CMG
  5. MCD: http://studio-5.financialcontent.com/investplace/quote?Symbol=MCD
  6. BKW: http://studio-5.financialcontent.com/investplace/quote?Symbol=BKW
  7. WEN: http://studio-5.financialcontent.com/investplace/quote?Symbol=WEN
  8. an avian bird flu scare: http://investorplace.com/2013/05/steer-clear-of-these-bird-flu-tainted-stocks/

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