What changed in this filing

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Item 1. Business

2022-02-23 compared with 2021-02-22 · 45 added, 47 removed, 170 unchanged (35% of the section changed)

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Overview of Business

YUM has over 50,000 restaurants in more than 150 countries and territories primarily operating under the four concepts of KFC, Pizza Hut, Taco Bell and The Habit Burger Grill (the “Concepts”).

The Company’s KFC, Pizza Hut and Taco Bell brands are global leaders of the chicken, pizza and Mexican-style food categories, respectively.

The Habit Burger Grill, a concept we acquired on March 18, 2020, is a fast-casual restaurant concept specializing in made-to-order chargrilled burgers, sandwiches and more.

At December 31, 2020, 98% of our units are operated by independent franchisees or licensees under the terms of franchise or license agreements.

YUM has over 53,000 restaurants in 157 countries and territories primarily operating under the four concepts of KFC, Taco Bell, Pizza Hut and The Habit Burger Grill (the “Concepts”).

The Company’s KFC, Taco Bell and Pizza Hut brands are global leaders of the chicken, Mexican-style food and pizza categories, respectively.

The Habit Burger Grill, a concept we acquired in March 2020, is a fast-casual restaurant concept specializing in made-to-order chargrilled burgers, sandwiches and more.

At December 31, 2021, 98% of our Concepts' units are operated by independent franchisees or licensees under the terms of franchise or license agreements.

The terms franchise or franchisee within this Form 10-K are meant to describe third parties that operate units under either franchise or license agreements.

The following is a summary of our Concepts’ operations and a brief description of each Concept as of and for the year ended December 31, 2021:

Number of Units % of Units International Number of Countries and Territories % Franchised System Sales (a)(b)

Number of Units % of Units International Number of Countries and Territories % Franchised System Sales (a)

(in Millions)

KFC Division 26,934 85 % 149 99 % $ 31,365

Pizza Hut Division 17,639 63 % 110 99 % 11,955

Taco Bell Division 7,791 10 % 32 94 % 13,280

Pizza Hut Division 18,381 64 % 111 99 % 12,955

Habit Burger Grill Division 318 3 % 3 13 % 588

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See further discussion of this performance metric within Part II, Item 7 of this Form 10-K.

(b) System sales of Habit Burger Grill are for the period from March 18, 2020 through December 31, 2020.

KFC was founded in Corbin, Kentucky, by Colonel Harland D.

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KFC restaurants across the world offer fried and non-fried chicken products such as sandwiches, chicken strips, chicken-on-the-bone and other chicken products marketed under a variety of names.

The first Taco Bell restaurant was opened in 1962 by Glen Bell in Downey, California, and in 1964, the first Taco Bell franchise was sold.

Taco Bell specializes in Mexican-style food products, including various types of tacos, burritos, quesadillas, salads, nachos and other related items.

The first Pizza Hut restaurant was opened in 1958 in Wichita, Kansas, and within a year, the first franchise unit was opened.

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Pizza Hut operates in the delivery, carryout and casual dining segments around the world.

The first Taco Bell restaurant was opened in 1962 by Glen Bell in Downey, California, and in 1964, the first Taco Bell franchise was sold.

Taco Bell specializes in Mexican-style food products, including various types of tacos, burritos, quesadillas, salads, nachos and other related items.

Habit Burger Grill

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• The KFC Division which includes our worldwide operations of the KFC concept

• The Pizza Hut Division which includes our worldwide operations of the Pizza Hut concept

• The Taco Bell Division which includes our worldwide operations of the Taco Bell concept

• The Pizza Hut Division which includes our worldwide operations of the Pizza Hut concept

• The Habit Burger Grill Division which includes our worldwide operations of the Habit Burger Grill concept

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Franchisees can range in size from individuals owning just one restaurant to large publicly-traded companies.

The Company has franchise relationships that are particularly important to our business, such as our relationship with Yum China, our strategic alliance with Telepizza Group S.A., who is the master franchisee of Pizza Hut in Latin America (excluding Brazil) and portions of Europe and our relationship with certain large franchisees, such as Flynn Restaurant Group, an existing YUM franchisee, which recently announced its intention to acquire approximately 950 Pizza Hut U.S.

restaurants which would make it the largest operator of Pizza Hut restaurants in the U.S.

The Company has successfully increased franchise restaurant ownership in recent years, and utilizes both store-level franchise and master franchise programs to grow our businesses.

Of our over 49,000 franchised units at December 31, 2020, approximately 30% operate under our master franchise programs, including over 9,500 units in mainland China.

The Company has franchise relationships that are particularly important to our business, such as our relationships with Yum China (defined below), and our strategic alliance with Food Delivery Brands Group, S.A.

(previously named Telepizza Group S.A.), who is the master franchisee of Pizza Hut in Latin America (excluding Brazil) as well as portions of Europe and our relationships with certain other large franchisees.

The Company has successfully increased franchise restaurant ownership in recent years, and currently has approximately 1,500 franchisees with whom we have franchise contracts.

The Company utilizes both store-level franchise and master franchise programs to grow our businesses.

Of our over 52,000 franchised units at December 31, 2021, approximately 30% operate under our master franchise programs, including nearly 10,800 units in mainland China.

The remainder of our franchise units operate under store-level franchise agreements.

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Under master franchise arrangements, the Company enters into agreements that allow master franchisees to operate restaurants as well as sub-franchise restaurants within certain geographic territories.

Master franchisees are typically responsible for overseeing development within their territories and performing certain other administrative duties with regard to the oversight of sub-franchisees.

Master franchisees are typically responsible for overseeing development within their territories and performing certain other administrative duties

with regard to the oversight of sub-franchisees.

In exchange, master franchisees retain a certain percentage of fees payable by the sub-franchisees under their franchise agreements and typically pay lower fees for the restaurants they operate.

Our largest master franchisee, Yum China, pays the Company a continuing fee of 3% on system sales of our Concepts in mainland China.

The use by Yum China of certain of our material trademarks and service marks is governed by a master license agreement between Yum Restaurants Consulting (Shanghai) Company Limited (“YCCL”), a wholly-owned indirect subsidiary of Yum China, and YUM, through YRI China Franchising LLC, a subsidiary of YUM, effective from January 1, 2020, and previously through Yum!

Restaurants Asia Pte.

Ltd., another subsidiary of YUM, from October 31, 2016 to December 31, 2019.

On October 31, 2016, we completed the spin-off of our China business into an independent, publicly-traded company under the name of Yum China Holdings, Inc.

(“Yum China”).

As our largest master franchisee, Yum China, pays the Company a continuing fee of 3% on system sales of our Concepts in mainland China.

The Company seeks to maintain strong and open relationships with our franchisees and their representatives.

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Traditional units can feature dine-in, carryout, drive-thru and delivery services.

Non-traditional units include express units and kiosks that have a more limited menu, usually generate lower sales volumes and operate in non-traditional locations like malls, airports, gasoline service stations, train stations, subways, convenience stores, stadiums, amusement parks and colleges, where a full-scale traditional outlet would not be practical or efficient.

Non-traditional units include express units that have a more limited menu, usually generate lower sales volumes and operate in non-traditional locations like malls, airports, gasoline service stations, train stations, subways, convenience stores, stadiums, amusement parks and colleges, where a full-scale traditional outlet would not be practical or efficient.

Most restaurants in each Concept offer consumers the ability to dine in, carryout food and/or have the Concepts' food delivered either through store-level or third-party delivery services.

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Pizza Hut and Habit Burger Grill offer a drive-thru option on a much more limited basis.

Our restaurant operations and results were significantly impacted by a novel strain of coronavirus, COVID-19, in the year ended December 31, 2020.

This included having a significant number of our open restaurants subject to dining room closures and other limitations on access.

In response, we accelerated our deployment of digital and technology initiatives to enhance the customer experience and our off-premise capabilities.

This included increasing our focus on driving digital sales where customers utilize ordering interaction that is primarily facilitated by automated technology.

In 2020, our system restaurants generated digital sales of $17 billion, which represented an approximate 45% increase over 2019.

Additionally, the number of restaurants that now offer delivery increased to over 35,000 restaurants, which represents over 70% of our global system.

Restaurant management structure varies by Concept and unit size.

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Area Coaches typically work with approximately six to twelve restaurants.

Our restaurant operations and results were significantly impacted by a novel strain of coronavirus, COVID-19, beginning in 2020 and continuing into 2021.

As COVID-19 spread throughout the U.S.

and the rest of the world, governmental authorities implemented measures to reduce the spread of COVID-19.

These measures include restrictions on travel outside the home and have other limitations on business and other activities as well as encouraging social distancing.

As a result of COVID-19, we and our franchisees have experienced significant store closures and instances of reduced store-level operations, including reduced operating hours and dining-room closures.

We and our franchisees have also experienced interruptions of food and other supplies as well as labor shortages that have impacted restaurant operations.

The impact on our sales in each of our markets has been dependent on the timing, severity and duration of the outbreak, measures implemented by government authorities to reduce the spread of COVID-19, as well as our reliance on dine-in sales in the market.

In response, we accelerated our deployment of digital and technology initiatives to enhance the customer experience and our off-premise capabilities.

This included increasing our focus on driving digital sales where customers utilize ordering interaction that is primarily facilitated by automated technology.

For our restaurants that prominently feature drive-thru, carryout and delivery options, COVID-19 has in many cases contributed to an increase in sales during 2020 and 2021.

In 2021, our system restaurants generated digital sales of $22 billion, which represented an approximate 25% increase over 2020.

Additionally, the number of restaurants that now offer delivery increased to over 45,000 restaurants, which represents over 85% of our global system, more than a 25% increase over 2020.

Supply and Distribution

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The Company does not typically experience significant continuous shortages of supplies, and alternative sources for most of these supplies are generally available.

In the U.S., the Company, along with the representatives of the Company’s KFC, Pizza Hut and Taco Bell franchisee groups, are members of Restaurant Supply Chain Solutions, LLC (“RSCS"), a third party which is responsible for purchasing certain restaurant products and equipment.

In the U.S., the Company, along with the representatives of the Company’s KFC, Taco Bell and Pizza Hut franchisee groups, are members of Restaurant Supply Chain Solutions, LLC (“RSCS”), a third party which is responsible for purchasing certain restaurant products and equipment.

Additionally, The Habit Burger Grill entered into a purchasing agreement with RSCS effective July 31, 2020.

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The Company and its Concepts own numerous registered trademarks and service marks.

The Company believes that many of these marks, including our Kentucky Fried Chicken®, KFC®, Pizza Hut®, Taco Bell® and The Habit® marks, have significant value and material importance to our business.

The Company believes that many of these marks, including our Kentucky Fried Chicken®, KFC®, Taco Bell®, Pizza Hut® and The Habit® marks, have significant value and material importance to our business.

The Company’s policy is to pursue registration of important marks whenever feasible and to oppose vigorously any infringement of our marks.

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Competition has also increased from and been enabled by delivery aggregators and other food delivery services in recent years, particularly in urbanized areas, which trend has accelerated following the onset of the COVID-19 pandemic.

Our Concepts also face competition as a result of convergence in grocery, convenience, deli and restaurant services, including the offering by the grocery industry of convenient meals, including pizzas and entrees with side

The retail food industry is often affected by:

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and international employees, respectively, work in restaurants while the remainder work in our restaurant-support centers.

In the U.S., approximately 85% of our Company-owned restaurant employees are part-time and at least 45% have been employed by the Company for less than a year.

In the U.S., approximately 90% of our Company-owned restaurant employees are part-time and approximately 50% have been employed by the Company for less than a year.

Some of our International employees are subject to labor council relationships whose terms vary due to the diverse countries in which the Company operates.

In addition to the persons employed by the Company and its subsidiaries, our approximately 2,000 franchisees around the world are estimated to employ over 1 million people working in and supporting the approximately 49,000 restaurants they operate.

Each year YUM and our franchisees around the world create thousands of restaurant jobs, which are part-time, entry-level opportunities to grow careers at our KFC, Pizza Hut, Taco Bell and The Habit Burger Grill brands.

As evidence of the opportunities these positions create, approximately 80% of our Company-owned Restaurant General Managers (“RGMs”) located in the U.S.

In addition to the persons employed by the Company and its subsidiaries, our approximately 52,000 franchise restaurants around the world are responsible for the employment of over an estimated 1 million people who work in and support those restaurants.

Each year YUM and our franchisees around the world create thousands of restaurant jobs, which are part-time, entry-level opportunities to grow careers at our KFC, Taco Bell, Pizza Hut and The Habit Burger Grill brands.

As evidence of

the opportunities these positions create, approximately 80% of our Company-owned Restaurant General Managers (“RGMs”) located in the U.S.

have been promoted from other positions in our restaurants and such RGMs often earn competitive pay greater than the average American household income.

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Our investment in people includes creating a culture of engagement that attracts, retains and grows the best people and creates high performance in our restaurants.

We are also highly focused on building an inclusive culture among our employees, franchisees, suppliers and partners to reflect

the diversity of our customers and communities.

We are also highly focused on building an inclusive culture among our employees, franchisees, suppliers and partners to reflect the diversity of our customers and communities.

Our commitments and progress towards executing this strategy are reflected below.

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We promote these efforts through initiatives such as our leadership development program (Heartstyles), our unconscious bias program (Inclusive Leadership) and training programs with respect to our compliance polices, including our Code of Conduct.

We also intend to make available the Heartstyles program to our franchisees so that their employees may benefit as well.

• Enabling a culture that fuels results and cross-brand collaboration on operational execution, people capability and customer experience initiatives across our system.

Our Heartstyles program is also available to our franchisees so that their employees may benefit as well.

• Enabling a culture that fuels results and cross-brand collaboration on operational execution, people capability and customer experience initiatives throughout our system.

• Assessing progress towards lowering turnover and increasing retention rates, particularly at the restaurant-employee level.

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• Significantly increasing the number of women in our senior leadership globally, with a goal of achieving gender parity by 2030.

In 2019, approximately 40% of our global leadership roles were held by women and approximately half of our global above-restaurant workforce were women.

In 2020, approximately 45% of our global leadership roles were held by women and approximately 55% of our global above-restaurant workforce were women.

• Increasing representation of Black and Latinx U.S.

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We intend to expand our Inclusive Leadership training to employees and franchisees around the world and have started development of an online module of this training program to help provide even greater access.

COVID-19 Response

In connection with navigating the COVID-19 pandemic, we have been heavily focused on the health and safety of the employees, customers and franchisees of our Concepts.

Our response efforts during the pandemic have included the following:

• Supporting impacted employees through establishment of a global medical relief fund through Yum!

Brands Foundation, Inc.

for Company-owned and franchise restaurant team members diagnosed with COVID-19 or acting as the primary caregiver for someone diagnosed with COVID-19.

• Assisting franchisees through a global franchise health and COVID-19 support team for business continuity and providing assistance to franchisees who were in good standing and needed more access to capital, primarily through deferrals of capital obligations for remodels and new development.

Additionally, where necessary, we provided grace periods for near-term payments due to YUM.

• Keeping restaurants open safely through increased use of low contact options such as delivery, drive-thru and curbside pickup, providing for contactless delivery, increased cleaning and sanitization and providing for personal protective equipment, temperature checks and counter shields.

Available Information

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business