What changed in this filing

/stocks — the workspaceLOADING

Item 1. Business

2023-02-27 compared with 2022-02-23 · 43 added, 59 removed, 156 unchanged (40% of the section changed)

7 unchanged sentences

Overview of Business

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”).

YUM has over 55,000 restaurants in more than 155 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.

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

At December 31, 2022, 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:

The following is a brief description of each Concept and a summary of our Concepts’ operations as of and for the year ended December 31, 2022:

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

14 unchanged sentences

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

Today, Pizza Hut is the largest restaurant chain in the world specializing in the sale of ready-to-eat pizza products.

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

Today, Pizza Hut specializes in the sale of ready-to-eat pizza products and operates in the delivery, carryout and casual dining segments around the world.

Habit Burger Grill

2 unchanged sentences

Business Strategy

Through our Recipe for Growth and Good we intend to unlock the growth potential of our Concepts and YUM, drive increased collaboration across our Concepts and geographies and consistently deliver better customer experiences, improved unit economics and higher rates of growth.

Key enablers include accelerated use of technology and better leverage of our systemwide scale.

Our Recipe for Growth is based on four key drivers:

Through our Recipe for Good Growth we intend to unlock the growth potential of our Concepts and YUM, drive increased collaboration across our Concepts and geographies and consistently deliver better customer experiences, improved unit economics and higher rates of growth.

Key enablers include accelerated use of digital and technology and better leverage of our systemwide scale.

Our global citizenship and sustainability strategy is reflected in our Good agenda, which includes our priorities for social responsibility, risk management and sustainable stewardship of our people, food and planet.

Our Growth agenda is based on four key drivers:

• Unrivaled Culture and Talent:

6 unchanged sentences

Drive market and franchise expansion with strong economics and value

Our global citizenship and sustainability strategy, called the Recipe for Good, reflects our priorities for socially responsible growth, risk management and sustainable stewardship of our people, food and planet.

Information about Operating Segments

8 unchanged sentences

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 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 franchise relationships that are particularly important to our business, such as our relationship with Yum China (defined below) 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.

7 unchanged sentences

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.

2 unchanged sentences

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 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.

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, a wholly-owned indirect subsidiary of Yum China, and YUM, through YRI China Franchising LLC, a subsidiary of YUM.

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

To this end, the Company invests a significant amount of time working with the franchisee community and their representative organizations on key aspects of the business, including products, equipment, operational improvements and standards.

Restaurant Operations

2 unchanged sentences

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.

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

In addition, Taco Bell and KFC offer a drive-thru option in many stores.

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

Restaurant management structure varies by Concept and unit size.

Restaurant management structure varies by Concept, unit size and franchise organization.

Generally, each restaurant is led by a restaurant general manager (“RGM”), together with one or more assistant managers, depending on the operating complexity and sales volume of the restaurant.

Each Concept issues detailed manuals, which may then be customized to meet local regulations and customs.

These manuals set forth standards and requirements for all aspects of restaurant operations, including food safety and quality, food handling and product preparation procedures, equipment maintenance, facility standards and accounting control procedures.

The restaurant management teams are responsible for the day-to-day operation of each unit and for ensuring compliance with operating standards.

CHAMPS – which stands for Cleanliness, Hospitality, Accuracy, Maintenance, Product Quality and Speed of Service – is our proprietary systemwide program for training, measuring and rewarding employee performance against key customer measures.

CHAMPS is intended to align the operating processes of our entire system around one core set of standards.

RGMs’ efforts, including CHAMPS performance measures, are monitored by Area Coaches, where sufficient scale allows.

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.

Each Concept issues manuals, which may then be customized to meet local regulations and customs.

These manuals set forth standards and requirements for restaurant operations, including food safety and quality, food handling and product preparation procedures, equipment maintenance, facility standards and accounting control procedures.

Each franchise organization and their respective restaurant management teams are responsible for the day-to-day operation of each unit, including all matters related to employment of restaurant staff, and for ensuring compliance with operating standards.

We have accelerated our deployment of digital and technology initiatives to enhance the customer experience and our off-premise capabilities.

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

In 2022, our system restaurants generated digital sales of $24 billion and over 47,000 restaurants now offer delivery, which represents approximately 85% of our global system.

Delivery can be provided through either a delivery system owned and operated by our restaurants or through third-party delivery companies such as aggregators.

The Company and its Concepts own numerous registered trademarks.

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 challenge any infringement of our marks vigorously.

The use of certain of these marks by franchisees has been authorized in our franchise agreements.

Under current law and with proper use, the Company’s rights in our marks can generally last indefinitely.

The Company also has certain patents on restaurant equipment and technology which, while valuable, are not currently considered material to our business.

Supply and Distribution

6 unchanged sentences

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

The core mission of RSCS is to provide the lowest possible sustainable store-delivered prices for restaurant products and equipment.

The core mission of RSCS is to provide the lowest possible sustainable store-delivered prices for

restaurant products and equipment.

This arrangement combines the purchasing power of the Company-owned and franchisee restaurants, which the Company believes leverages the system’s scale to drive cost savings and effectiveness in the purchasing function.

12 unchanged sentences

We have the right to control the advertising activities of certain advertising cooperatives, typically in markets where we have Company-owned restaurants, through our majority voting rights.

Trademarks and Patents

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

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

The use of certain of these marks by franchisees has been authorized in our franchise agreements.

Under current law and with proper use, the Company’s rights in our marks can generally last indefinitely.

The Company also has certain patents on restaurant equipment which, while valuable, are not currently considered material to our business.

Working Capital

3 unchanged sentences

The retail food industry, in which our Concepts compete, is made up of supermarkets, supercenters, warehouse stores, convenience stores, coffee shops, snack bars, delicatessens and restaurants (including those in the QSR segment), and is intensely competitive with respect to price and quality of food products, new product development, digital engagement, advertising levels and promotional initiatives, customer service reputation, restaurant location and attractiveness and maintenance of properties.

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.

Competition has also increased from and been enabled by delivery aggregators and other food delivery services in recent years, particularly in urbanized areas.

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 dishes.

30 unchanged sentences

and approximately 13,000 employees outside the U.S.

Approximately 90% and 85% of our U.S.

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

Approximately 85% of our employees work in restaurants while the remainder work in our restaurant-support centers.

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.

2 unchanged sentences

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.

Human capital management considerations are integral to our Recipe for Growth and Good strategy, the drivers of which include leveraging our culture and people capability to fuel brand performance and franchise success, as well as recruiting and equipping the best restaurant operators in the world to deliver great customer experiences.

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

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

Human capital management considerations are integral to our Recipe for Good Growth strategy, the drivers of which include leveraging our culture and people capability to fuel brand performance and franchise success, as well as recruiting and equipping the best restaurant operators in the world to deliver great customer experiences.

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.

8 unchanged sentences

• Providing YUM employees with training and development that builds world-class leaders and drives business results.

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.

including our Code of Conduct.

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

4 unchanged sentences

• Continually building upon ongoing inclusion efforts to help ensure our workplaces are environments where all people can be successful.

• Consistent with our Code of Conduct, making employment-related decisions based on an individual’s abilities and merit, not personal characteristics that are unrelated to the job.

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

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.

associates among our executive and management ranks, franchisees and suppliers over the next 10 years to match the combined demographics of those groups within the U.S.

We intend to further this goal through an increased focus on coaching capability, sponsorship programs and customized individual development plans.

Moreover, we have joined We Are All Human's Hispanic Promise, a national pledge to hire, promote, retain and celebrate Hispanics in the workplace.

We also plan to enhance our relationship with the Consortium for Graduate Studies in Management, which brings outstanding underrepresented talent of color and companies like YUM together to fill critical organizational roles.

• Continuing to roll out Inclusive Leadership training and anti-racism training across our system.

In 2021, approximately 42% of our global corporate leadership roles were held by women and approximately 51% of our global workforce were women.

• Increasing representation of underrepresented U.S.

associates among our executive and management ranks, franchisees and suppliers over the next 10 years to achieve our aspirational goals to be representative of our customers and communities.

Through our membership with the OneTen coalition, we are partnering with a group of U.S.

businesses to create career mobility and advancement opportunities for underrepresented people and communities.

• Continuing to make Inclusive Leadership training and anti-racism training available across our system.

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.

5 unchanged sentences

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