- A Yum Brands exec said the company was “scanning categories” that don’t compete with its brands.
- “The Mediterranean-foods space is interesting,” Chris Turner said at a JPMorgan conference.
- The analyst Mark Kalinowski identified seven chains that Yum Brands could target for an acquisition.
Yum Brands, which owns Taco Bell and KFC and whose most recent acquisition came at the onset of the pandemic, is looking for another brand to buy, possibly a Mediterranean chain, Chris Turner, its chief financial officer, said at a recent investor conference.
“We’re keeping our eyes open,” Turner said at the JPMorgan US All Stars Conference on September 20. “We’re always scanning categories. The Mediterranean-foods space is interesting. There’s lots of interesting categories out there that we’re studying.”
Mark Kalinowski, a veteran industry analyst, said that with valuations sputtering in a tough macroeconomic climate, it’s not surprising that Yum Brands might be looking to expand its portfolio. Earlier this year, Kalinowski suggested that Restaurant Brands International, the owner of Burger King and Popeyes, was looking to buy a big fast-food brand.
“If you’re an acquirer, now might be the wise time to pull the trigger,” Kalinowski told Insider in an interview. “If you have a long-term outlook, do you really care if we’re going into recession six months from now?”
Turner said Yum Brands opened a new store every two hours in 2021. The company and its franchisees own and operate more than 53,000 restaurants in 155 countries under the brand names Taco Bell, Pizza Hut, KFC, and Habit Burger Grill.
Habit was Yum Brands’ latest acquisition — it purchased the fast-casual chain in March 2020 in a deal valued at $375 million. Kalinowski said that the burger chain from California filled a hole in Yum’s portfolio and that a Mediterranean buy could do the same.
“If Yum Brands decides to go Mediterranean, it’s a bet on the future of the segment itself,” Kalinowski said.
The founder of Kalinowski Equity Research wrote a note last week about possible acquisition targets for Yum Brands. In a follow-up interview with Insider, he said Yum Brands could also go after a coffee company.
“Yum doesn’t own any coffee concepts, and coffee is big,” he said.
Yum Brands declined to comment on Turner’s comments.
Kalinowski identified seven chains that could be a good fit for Yum Brands, including Cava and Dutch Bros Coffee. (Units, sales, and AUVs, or average yearly sales per store, were obtained from Datassential’s 2022 “Firefly 500” report.)
Cava Group (Cava and Zoe’s Kitchen)
2021 units: 168 (Cava), 124 (Zoe’s Kitchen)
2021 sales: $168.2 million (Cava), $206.8 million (Zoe’s Kitchen)
Average unit volume: $1 million (Cava), $1.7 million (Zoe’s Kitchen)
Background: In 2018, Cava Group, the owner of Cava, bought Zoe’s Kitchen in a deal valued at $300 million. Cava, a fast-casual chain often described as the Chipotle of Mediterranean food, took the publicly traded Zoe’s private and began rebranding some stores as Cava. At the time of the acquisition, the combined chains encompassed 327 restaurants in 24 states. That number has decreased to 292, according to Datassential’s 2022 “Firefly 500” report.
Kalinowski’s take: Kalinowski said the Cava Group concepts are “the most likely Mediterranean concepts that Yum Brands could acquire, should it choose to move within that category.” He added: “They are the two largest concepts within the Mediterranean sector, and of these five concepts, Zoe’s Kitchen generates the largest average unit volumes. Mediterranean is a growing space because it carries a healthy halo, and people do seem in some ways to be gravitating, ever so slowly, to eating a little healthier.”
The Halal Guys
2021 units: 88
2021 sales: $121.9 million
Average unit volume: $1.4 million
Background: The Halal Guys, which started in the 1990s as a New York City food cart, is known for its chicken-and-rice platters drowned in white sauce. The company began franchising in 2014.
Kalinowski’s take: He gave this brand an outside chance of getting snapped up. “It’s delicious food, no doubt about it. It just doesn’t carry a healthy halo,” he said. “I’m not sure Yum Brands is interested in any old Mediterranean concept. My guess is they want something that when people think about the brand they say, ‘I can eat healthy there.'”
2021 units: 116
2021 sales: $55.1 million
Average unit volume: $475,000
Background: Pita Pit was founded in 1995 in Kingston, Ontario, by Nelson Lang, whose vision was to provide a healthy alternative to fast-food restaurants. Pita Pit USA was created in 2005. The chain sells build-your-own bowls, salads, gyros, and chicken souvlaki.
Kalinowski’s take: He said that while Pita Pit is a small chain with a vastly lower AUV than the rest of the concepts on this list, “maybe that’s an opportunity” for Yum Brands to grow the concept.
2021 units: 48
2021 sales: $57 million
Average unit volume: $1.2 million
Background: The San Diego-based fast-casual chain was founded in 2004 and is known for its marinated grilled kabobs. The chain says it uses sustainably raised meats and non-GMO ingredients.
Kalinowski’s take: He said Luna Grill’s menu “seems to me more in line with something that Yum Brands might be interested in,” adding, “Ultimately you want something with very healthy unit economics.”
Dutch Bros Coffee
2021 units: 538
2021 sales: $433 million
Average unit volume: $805,000
Background: Dutch Bros Coffee, based in southern Oregon, operates drive-thru coffee shops that sell espresso-based drinks and other specialty coffee beverages. The chain, founded in 1992, went public in September 2021. It was worth $5.6 billion after the initial public offering, according to Bloomberg.
Kalinowski’s take: In March 2021, before Dutch Bros went public, Kalinowski said Yum Brands should be looking for its next acquisition in the lucrative coffee/cafe segment because some of the concepts, such as Starbucks, “enjoy very high customer frequency.”
“It is arguably the most habit-forming menu item to be found anywhere in the restaurant industry,” he wrote in a note that year.
He told Insider that targeting Dutch Bros when it was privately held in early 2021 would’ve “made the most sense.”
“Now it’s publicly traded,” he said. “It has a market cap bigger than I would have expected, so it’d be an expensive purchase for Yum Brands.”
2021 units: 266
2021 sales: $217.9 million
Average unit volume: $820,000
Background: The Michigan-based coffee chain opened its first shop in East Lansing in 1995.
Kalinowski’s take: He pointed out that Biggby is “much smaller” than Dutch Bros, adding, “I’m not sure it has the appeal of Dutch Bros and brand positioning within that segment that’s unique.”
Still, Kalinowski said that given the popularity of coffee brands, adding a coffee concept like Biggby “would fill a part of the brand portfolio that Yum Brands does not have.”
“And again, it’s just a meaningful part of the overall restaurant industry now,” he said. “Finding a concept that can compete in that space is not the dumbest thing in the world.”