By Julie Jargon
Greg Creed had a successful run heading Taco Bell, the
U.S.-focused chain famous for fast-food indulgences like Doritos
tacos. Now, as the incoming chief executive of parent Yum Brands
Inc., he will face bigger challenges, from assuaging Chinese
consumers' food-safety concerns to persuading young people around
the world that fast food can be fresh and healthy.
The Australian-born Mr. Creed, a 20-year Yum veteran who is
scheduled to take over from longtime CEO David Novak on Jan. 1,
said the fast-food industry is undergoing a revolution in which
young customers are questioning the integrity of their food and
demanding freshly made products.
In his first interview since he was tapped to be CEO in May, Mr.
Creed said Thursday that Yum has the potential to double its global
restaurant count to 80,000 in the next 20 years. But he added that
the company has to overcome the idea of fast food as fuel and
"transcend" the industry by showing customers its food is
fresh.
"We have to clean up our menu labels. What people want are
things on labels that they can pronounce," Mr. Creed said. "We have
to pull preservatives out." He added that all Yum's chains, which
also include KFC and Pizza Hut, are working on such efforts, though
he cautioned that "it's going to take us a few years."
Mr. Creed's comments echo those of McDonald's Corp., which said
Wednesday that it's rethinking the use of preservatives and is
reviewing its recipes and cooking techniques to better satisfy
demands for fresher food. On Wednesday Carl's Jr. announced the
launch of a new grass-fed, free-range beef burger that is free of
added hormones, antibiotics and steroids. And Chick-fil-A Inc. says
it is phasing out all chicken raised with antibiotics over five
years.
Mr. Creed, 57 years old, said that he'd eventually like Pizza
Hut and Taco Bell to switch to hormone- and antibiotic-free beef
but that it will take other big players in the industry to get on
board to increase the supply of those products.
The incoming CEO's most pressing priority involves food-quality
concerns in China, a vital market where Yum has been grappling with
a sales slump for two years. In late 2012, Chinese media alleged
that a KFC supplier used growth hormones and antibiotics to help
chickens grow faster. Yum defended its safety practices, but the
chain's sales were pressured for more than a year as fearful
consumers stayed home or switched to competitors.
Yum had said that 2014 would be KFC's "bounce back" year in
China. Sales improved in the first half, following menu adjustments
and an advertising campaign emphasizing food safety. But in July,
Chinese media reported that a Shanghai supplier had intentionally
sold expired meat to Yum and other fast-food chains in China and
sales began to slide again.
Yum said Tuesday that it expects same-store sales in China this
year to decline by a mid-single-digit percentage, dragging down
per-share earnings growth for the company to the mid-single digits.
In October, Yum had lowered its forecast for per-share earnings
growth to between 6% and 10% from at least 20%. On Thursday, Yum
said that November same-store sales in China are expected to be
down 15% but sales should improve in December.
The volatility has led some analysts to speculate that Yum could
spin off its China business--a notion Mr. Creed didn't entirely
dismiss. "There are no plans today to spin off China or do anything
structurally with China," Mr. Creed said. "Getting China back on
its feet is really our focus," he added, though he also said, "I
would never say never."
KFC plans to give local markets in China more autonomy in
offering menu items and setting prices because consumers in large
cities have higher incomes and different food preferences than
those in smaller cities. KFC is also adding offerings like premium
coffee, and it plans to use more Chinese celebrities in its ads,
roll out free Wi-Fi at its restaurants and reinvigorate its
children's menu.
Fixing the China business is a tall order for an executive who
has spent most of his career in Australia or in Taco Bell's mostly
U.S. business.
Mr. Creed, who was appointed Taco Bell's CEO in early 2011, is
credited with pushing the chain's successful Doritos Locos Taco
product and driving sales during late-night and breakfast periods.
In the fiscal third quarter, Taco Bell posted 3% growth in
same-store sales, driven by breakfast sales and an operating-profit
increase of 14%.
Mr. Creed isn't a stranger to food-quality issues. Shortly after
he became Taco Bell's CEO, a lawsuit alleging that the chain used
more filler than meat in its tacos triggered widespread negative
attention. Mr. Creed's swift defense included full-page newspaper
ads and YouTube video appearances defending the products, which he
said consisted of 88% beef--along with water, oats, spices and
cocoa powder--not the 35% beef content the suit claimed. The suit
was ultimately withdrawn.
Mr. Creed said that the demand for fresh, high-quality food from
customers--especially those from their midteens to mid-30s--is a
global phenomenon. Yum's Pizza Hut brand just embarked on a major
effort to better appeal to this age group with a new menu boasting
premium ingredients like Peruvian cherry peppers, new flavors and
crusts, lower-calorie pizzas and more customization options.
The Pizza Hut relaunch also extends to the uniforms employees
wear in the restaurants, which include T-shirts and jeans, and a
more interactive way to order online or on mobile devices in
English or Spanish.
Emphasizing food quality can also affect restaurants' layout.
Taco Bell has an open-kitchen restaurant in Bangalore, India, where
customers can see their food being prepared through a glass window.
Mr. Creed said the company plans to open another open kitchen in
Chicago next year.
Write to Julie Jargon at julie.jargon@wsj.com
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