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EPISODE 277

Yum! Brands COO Tracy Skeans Cooks up the Recipe for Growth and Good

55 minutes · January 3, 2022

Tracy Skeans, Chief Operating Officer and Chief People Officer of Yum! Brands (NYSE: YUM), has helped position the world’s largest restaurant company for continued growth over the past several years by combining a people-first approach, investing in infrastructure and future business strategies, and using technology to enhance the customer and employee experience. She explains how having a fundamentally strong company going into the pandemic allowed Yum! to position itself for the future by continuing to make acquisitions, increasing its digital acceleration, and focusing on diversity and inclusivity from top to bottom.

Speaker 1:

From the Library of the New York Stock Exchange at the corner of Wall and Broad streets in New York City, you're Inside the ICE House, our podcast from Intercontinental Exchange on markets, leadership, and vision in global business, the dream drivers that have made the NYSC an indispensable institution of global growth for over for 225 years. Each week, we feature stories of those who hatch plans, create jobs, and harness the engine of capitalism right here, right now at the NYSC and at ICE's 12 exchanges and six clearing houses around the world, and now welcome Inside the ICE House.

Pete:

For today's episode, I can confidently say I went the extra mile to prepare, literally. I drove 1.1 miles from my house to the local Taco Bell to scrupulously research one of the topics of today's conversations. That restaurant checks every box in my food preferences: spicy, vegetarian, convenient, and practically available 24/7. The menu is also ideal for my entire family, a household of two vegetarians, a gluten allergy, and one picky first grader.

Pete:

If only I could have expensed the food as research for each visit, I've made for at least once a week for my entire adult life. The only break in that routine was just a few weeks in March 2020, but that same drive-thru I was traversing a few hours ago was the first place I went when I was comfortable ordering out again.

Pete:

Returning home from that visit back in 2020, sitting down around the table with my family, and unpacking that brown pipe bag is one of the memories seared in my brain from the monotony of the lockdown. That meal was the embodiment of comfort food from the sealed bag with a sticker to polishing off that last cheesy bean rice burrito. The seal bag was delivered to me on a tray, which was just one of the many procedures put in place by the brand and its parent company Yum! Brands to ensure its workers and customers would feel safe and stay healthy during those dark days.

Pete:

Our guest today, Tracy Skeans, COO and Chief People Officer of Yum! Brands is one of the people who led the company and the 1.5 million restaurant employees who work for its brands, which includes Taco Bell, KFC, Pizza Hut, and more, through the pandemic. She joins us today to talk about the state of the quick service restaurant industry, her work transforming Yum! over the past 20 years and the future of both. Our conversation with Tracy is coming up after this quick break.

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Pete:

Our guests today, Tracy Skeans, is the Chief Operating Officer and Chief People Officer of Yum! Brands. That of course is NYSC ticker Yum!. Tracy joined Yum! in 2000 and has held numerous leadership positions across all aspects of the business and played essential role in the company's growth and transformation over that time. Prior to Yum! she worked in a treasury role at Union Switch and Signal and as a senior auditor with PWC. Welcome, Tracy, Inside the ICE House.

Tracy:

Thanks, Pete. I'm happy to be here.

Pete:

So what's your family's go-to restaurant for a comfort meal, whether during the pandemic or normal times?

Tracy:

Well, you know what? I love your story in the introduction about Taco Bell, and I love the fact that you and your family got to enjoy that even during the sad times of the lockdown of the pandemic. Obviously, I am really fortunate to work for a company that has a lot of great brands. I do always share that I grew up in Pittsburgh, Pennsylvania, and the suburb in which I grew up in Pizza Hut is where you went. That was the place that you went for all of the special occasions, your birthdays, after high school football games. So I mean, that's where I started with Yum! in 2000. I came to join Pizza Hut. So Pizza Hut is always my go-to, but I got to tell you, there's nothing like a great bucket of Kentucky fried chicken, and to your point earlier, Taco Bell, especially late night. My kids love it, and I certainly love it as well.

Pete:

Over the course of this conversation, we're going to get into all parts of the business and the different brands.

Tracy:

Sure.

Pete:

Operating different cuisines in all manners of local geographies, you in Pittsburgh, me in Jersey, it's a very complex business. So how does the company use its recipe for growth and good to align the entire brand, whether it's a KFC in the south or a Pizza Hut in the Midwest or a Taco Bell in Arizona to be on one set of business and social purpose objectives?

Tracy:

Sure. Well, to your point, Pete, it's a huge company. We are the largest restaurant company in the world. Well, we're opening about 10 restaurants a day, so it's always hard to keep count, but at about 53,000 restaurants or so in 140 countries. So if you think about even the combination of how many brand country combinations, it's a lot. So I think what Yum! has has done for a long time now is we, first of all, we really stay brand-centric. The brands have to have their own identity, that it's important to them, they have their own strategies, but we're fortunate at Yum! to have this portfolio of these brands.

Tracy:

To your point, we have our strategic framework is what we call our recipe for growth and good. Really, what that means is especially on, if you think about recipe for growth first, I'll start there, we we have four growth drivers that are really ubiquitous to all of the brands. We focus on having the best culture and talent, and that's in our above restaurant employees, and to the point that you made, all the way down to 1.5 million employees that work in our restaurants. You have to have the top talent and you have to have a really strong, relaxed, enjoyable culture for people to want to work for the company.

Tracy:

Bold restaurant development is one of our growth drivers, and I mentioned earlier, when you're opening as many restaurants, we keep hitting record levels of development around the globe. That's something that all of the brands share in their focus on development. Unmatched operating capability, during COVID, that was a great example of we had to rally together very quickly to make sure our restaurants stayed safe in our franchisees, the 2,000 franchisees that operator business, that they knew what to do to keep our team members safe and obviously our customers.

Tracy:

Then lastly, we always want to be what we call RED, have brands that are relevant, easy, distinctive, and that can vary market to market, and that can vary quite frankly even state to state here in the US. What might resonate in Jersey might be different than Pennsylvania or Texas, but the way that brands manifest the, the strategies that they put in place market by market might differ, but the focus is the same.

Tracy:

Then secondly, on recipe for good, which is something that we were really proud of, we hold it with the same statures or growth strategies, what we do around planet and people and food for our communities from an environmental standpoint, governmental standpoint is equally as important to us. So you have a huge company like ours with four brands now, but those tenets underneath recipe for growth and good, they stay the same across the entire world.

Pete:

Those recipes, Yum! CEO, David Gibbs, gives laid those out in your 2020 annual report, but I want to focus on something that actually was buried on page 93. 40% of Yum! senior leadership are women. A number that I believe has even grown since the report came out last year. Why has the company committed to a 50% gender split across this leadership by 2030, and how have you been able to see such progress? I mean, 40% is almost there.

Tracy:

We are almost there. I'm really proud I to tell you that we have now revised that goal, and we think we will be there by 2025, not by 2030 because we're close. We're above 40% now. This is really near and dear to my heart. I grew up here at Yum! coming in as a senior finance analyst and have worked my way up through lots of different roles and to now have a chance to sit on the executive team these last several years and drive some of these initiatives. Like I believe many companies that have realized in the last many years, the more diverse your leaders are, the better your results are, quite frankly.

Tracy:

I think that, at least for Yum!, if you think about it, we serve customers around the globe, tens of millions of customers a day. They're the most diverse customer population out there. Our team members, 1.5 million team members, are wildly diverse. So in a company like ours, it would only go to say that you should definitely have diverse representation.

Tracy:

I will say a few years ago, we found that like many companies, we had a lot of female leaders in the middle of the organization, middle management. We were about 50/50 at parity already, but as you went up and you went level by level, as you reached the top of the organization, those numbers dropped off. So we really took a hard look at that. I would say that while certainly we did a lot of programmatic things in terms of ensuring development plans were robust for our female leaders, I really think that what made the biggest difference was a personal touch in terms of we went to our senior most leaders at the time, which were the majority male and said, "We really want you to reach out to our female leaders. Pay more attention to their development needs. Give them the feedback that they really require and that they need. Let's put them in the stretch assignments earlier. Let's tap into the potential that they have. Ask them what they want to do and be much more intentional and purposeful."

Tracy:

I think that really paid off. I would say it was more of a personal touch than any of the programs that we did to get people rallied around the more senior women we have at the table. They will also lift the other groups that are underrepresented as they rise, and they've done that. So we're making a lot of good strides. I'm proud of it, but I'll really be proud when we're at parity and when the other areas of underrepresented minorities are equally as represented as well.

Pete:

I understand you in your own fair family had women that modeled for you. What impact did your mother Lynn and grandmother Jane have on shaping you as a leader of people that you've become today?

Tracy:

I love to talk about them. In my family, my mom, Lynn, we talk a lot about we come from a long line of really strong women, and my mom was a nurse and then in healthcare administration. She worked my whole childhood and she always said, and she gets this from my grandmother, Jane, "You got to be really good to the people you work with."

Tracy:

Obviously, I was raised to work really hard. That's something that the whole family has instilled, but especially my mom, my grandmother, Jane, my other grandmother, Anne, they were good to people. I mean that in the most simple way. They treated people well. They were kind. They were nice. They recognized people. They appreciated people. They went out of their way to learn about people personally, and I stand by that that makes a huge difference, and I actually think that going forward in society it's going to be even more important that with so many hard things happening in the world, especially, and I really do think sometimes senior women leaders they get this a bit more naturally that making sure you see people, you hear them, you appreciate them, whether it's the person that makes the coffee, the person that's cleaning the bathroom floors or the CEO of the company. You treat them well. You treat them with respect. You see them for the person that they are. I really do just think the world needs more of it, quite frankly.

Pete:

A lot of those are characteristics of your family, but also I think the area you grew up. You returned to Pittsburgh. You mentioned Pittsburgh already after going to Lehigh to work for, I mentioned in the intro, PWC and later Union Switch. What were your career goals at that time, and how did those roles very different than what you're doing now help you develop to become the chief people officer of a giant restaurant brand?

Tracy:

Well, thanks for the question because it's a bit of an interesting journey. I grew up in Pittsburgh, as you said. Anyone that comes from Pittsburgh, it's a hard working, down to earth type city. I loved going to Lehigh University. Actually, my son is there now. My dad went there. My grandpas went there. So I loved going to Lehigh, and when I returned from Lehigh with an accounting degree, I joined Pricewaterhouse at the time, PWC now.

Tracy:

What I really enjoyed about that time is at such a young age, you get to go see so many different clients. So I got to work on manufacturing clients and some oil and gas clients, and you really were forced when you know pretty much nothing, let's just face it, and you get to go talk to these clients and learn about what they're doing and do your job and do it well, but I think it was a great education in how to become, you had to know your stuff and you had to know how to interact with clients right away.

Tracy:

I loved Pricewaterhouse. I was fortunate, though, that a client that I had had, Union Switch and Signal, hired me away and they said, "We'd love you to learn treasury and do some international work," which is not something I had experienced at Pricewaterhouse and, quite frankly, at the time I was in my early 20s. So you wouldn't have done much international work anyway, but Union Switch was a great place. I got to do foreign exchange and cash management and banking and all different sorts of things. Then when I moved to Dallas to work for Pizza Hut, the finance area itself was all different types of capital planning, financial planning, strategic planning. It was really enjoyable, and I instantly fell in love with the company.

Tracy:

Now, had you told me back then that I would spend over 20 years, I wouldn't have guessed it, but I was so fortunate to do about nine years in various financial roles, and then the company said, "We think it would be great if you took a tour through HR," which had not been on any career plan that I had, but I found that, interestingly enough, at a company like Yum!, our business is our people. It is if you think about the 1.5 million people in the restaurants are making the product that is handed to other people within minutes, maybe now through a delivery driver for 10 minutes, but within minutes, and so it's a people business.

Tracy:

I found that working in the human resources space and then general management, et cetera, communication space, it is all about how do we take all the business strategies that the company needs to execute to be successful and make them happen through the people. It's been great. I enjoy it. I enjoy getting to talk to our franchisees around the globe, our people around the world and make sure that we put the right people in the right spot to get the right work done at the right time.

Pete:

My personal first interaction with Yum! Brands was being on frequently the restaurants including Pizza Hut as a kid was the 2016 spinoff of Yum! China from the company. I actually worked with Tom Farley on what he was going to say when he was over in China for that dual bell ringing we did, which was a very, very cool thing, but why was that transaction important to transform the company, and how has Yum! evolved from 2016 through the start of the COVID-19 pandemic?

Tracy:

Yum! had been on such a great trajectory when it spun off from PepsiCo under the leadership of David Novak and we were growing like crazy, growing the brands, China growing like crazy, so really a powerhouse company. When we got to that 2015 and then 2016 timeframe, it really became clear that, quite frankly, we were two separate companies, a very equity-owned company in China with all of the companies owned in China, but almost fully franchised, not quite, outside of China. So you had really two different investment type models. So through a lot of hard work, we decided, "Let's spin one huge company into two huge companies," and it's worked beautifully.

Tracy:

What was interesting, though, is sometimes when you spin off a company, it's the company that's been spun off that has to go through a lot of change, and in this case, China was equity-owned, it still is. It's doing great. We have great relationship with them, but what we really had to look at was the Yum! without China. We were mostly franchise, but not fully, and that then started to really dilute our focus. So we entered into what we called the time of transformation, and our objective was to become much more focused as an organization on being a really pure play franchisor, which meant we had to refranchise some of those company- owned restaurants at all three brands, get much more focused around what we talked about the recipe for growth and become more efficient.

Tracy:

At the time, we'd gotten a little heavy, I would say, in terms of the cost that we carried and we needed to get, I would say, leaner, if you will, get a little healthier. So we announced a three-year transformation to do all of those things. So a huge amount of change in that time to basically restructure your teams, take your equity-owned restaurants, refranchise them to our wonderful franchisees, and then make sure that we started to focus more than we had.

Tracy:

We did that 2017, 2018 and 2019. I'm very pleased to report all of the goals that we said we would meet we met and exceeded. The company's growth did accelerate. I stand by the fact that oftentimes when you become more focused, you get really good at the things that only you can do and the growth comes. Coming out of 2019, I should say, it was wow. We've just completed the transformation. It's going really well. We were about to announce a new CEO. What's going to be next? 2020. The sky is the limit, and then we all know, 2020 came and it was unlike anything anyone had expected.

Pete:

Speaking of your evolution time, you were promoted earlier this year to a dual role, which I introduced you with, which included the COO title. You already had the chief people officer title. We talked about the size of this company. Even not counting Yum! China, still a giant global company, 140 plus countries you oversee. How do you prioritize your responsibilities to the company, employees, and the other stakeholders, the franchisees, the shareholders, and everyone?

Tracy:

The great news is I was promoted into that role a little while ago. It was actually something that I had already been sort of naturally doing, if you will. Similar to something I said earlier, in our company, our operating model really is based on our people. We're a franchise company. So the leaders that we have, they interact with our franchisees every day. That's our bread and butter. So it was really natural in terms of the people strategies that we have to make sure that we're executing all of our growth initiatives.

Tracy:

How we, I would say, rope those together across the brands, that's really a lot of what I do in the chief operating officer role is anything that's got a cross brand focus to it since Taco Bell very different than Pizza Hut, than KFC, that's where I come in. As an example, when we went through the phase of COVID, how did we very quickly get all of our brands doing the same safety protocols, if you will? How did we make that happen as opposed to having it so decentralized that everyone was doing their own thing? We needed to bring that together.

Tracy:

So for me, prioritizing my time. First of all, I focus on what are the biggest things on the plate. There's always in a company of this size, there's a laundry list of things you can tackle, but making sure that you say what's the most important. COVID was a great learning in that, in that some of the things you used to think were important had to fall right off the list because it wasn't important to our team member safety or our consumer safety. So therefore, it was no longer important.

Tracy:

Also, what are things that really drive growth? In a business like ours, we're a growth company. We want to continue to put more units in the ground, grow our same store sales growth. So any initiatives that further that and ensure that growth is always front and center is wildly important to us. Then lastly, I would say, we put a premium on culture and talent. I really believe that it's this special secret of Yum! David Novak, our founder, was the one that instilled that in us. So at the top of our collective priority list, mine included here at Yum!, making sure that we've got the right talent in the right place with the right culture behind it is always front and center. So if it's about growth, if it's about anything cross brand or if it's about culture and talent, that's usually where you'll find me.

Pete:

I've read interviews where you've referred to culture as infrastructure, which falls right under the COO role, but also the people role. Enacting policies across is a top down process. How do you make sure that that culture makes it from your office to the front lines of every counter?

Tracy:

It's tough, I will tell you, but it's something that we've been working on for almost 25 years since Yum!'s founding. First step I would say is do we have the right franchisees, and we pay really close attention to people that we choose to be our franchisees, and they are a great, great group of organizations and people. We want at franchisees that are well-capitalized, obviously, that have great capabilities, that are really committed to our brands.

Tracy:

I would say that the most important piece, though, that surrounds all of that is are they culturally aligned. Do they believe in treating their people well? Do they believe in a recognition culture where the restaurant general manager is the number one leader and is empowered to lead that team as if it were a family? So without the right franchisee base, you'd have no chance.

Tracy:

Throughout the years of Yum!, there's been so many different programs that we have fostered, and it's interesting. I realized it's sometimes hard to believe, but if you stop in a KFC in South Africa and you stop into a Pizza Hut in Indonesia or you stop in a Taco Bell in California, you will see the recognition culture alive and well, and it's amazing that it's worked that way. We always have more room to go. I'd say that's an ongoing push for us, but that recognition culture that comes from the corporate parts of Yum! down through the franchisees, to the teams and the operations, it makes its way through some areas more than others, but you'd be amazed. You can feel it all across the world.

Pete:

You mentioned a couple locations right there. One of the interesting things is that your franchises are operating in local areas, and I was researching this episode and I was so delighted to see that Pizza Hut still offers the BOOK IT! program, which it sounds a little more high tech on the website than when I used to bring my little stickers to a local Pizza Hut and get my free personal pan, but a program like BOOK IT! is crucial for encouraging education, which is a core tenet of allowing everyone to achieve the American dream, whether they're in America or overseas. Over the last few years, though, the stakes have seen even higher. I imagine a police often found themselves work in areas that are on the frontline of the social unrest and protest that we've seen in this country and across the world. How's the company responded to support the communities that you're operating in?

Tracy:

It is one of the great privileges of being in a role like mine and in a company that is so global that I've been fortunate to spend time in Johannesburg, South Africa in KFCs and talk to the people that work in our restaurants there. The roles that we have are life-changing for them and because of that, it's important for us to give back to them. We've got different foundations, different charitable organizations. Our franchisees do this all over the globe.

Tracy:

So the thing I feel so proud about is that our franchisees and our organization that we've been leaning into social issues around the globe for a long time, but to your point, Pete, in the last couple years is this social unrest inequality and even the pandemic causing the plight of the frontline worker to be more seen, if you will, it's enabled us to do even more.

Tracy:

So just in the last couple years, during COVID, we very quickly opened a medical relief fund that was open to all of our franchisees and ended up giving tens of millions of dollars away to help with COVID. In the middle of the pandemic, we decided to launch $100 million unlocking opportunity fund, where our whole goal is to fight inequality. It's interesting. At Yum!, we've talked for a long time about unlocking people's potential, and that's something we see that happen. Team members that join us and then go on to bigger and big careers as franchisees or elsewhere, everyone's got so much potential that we have always wanted to unlock, but these last few years have helped us realize even though everyone has potential that should be unlocked, they may need more access to opportunities because those opportunities don't always come equally.

Tracy:

So our unlocking opportunity initiative to go after inequality around the globe, and we're earmarking funds for various causes, all in an effort to make sure that people are equally represented and that people have what they need to succeed, whether that's life skills, whether that's education, whether that's becoming entrepreneurs. A lot of the work we're doing now is how do we build people's skills so that if they want to be a franchisee. We've opened a school at the University of Louisville to have people take a class on how to be a franchisee, and now we're starting to figure out how to set them up for the future.

Tracy:

There's been so many things that Yum!'s been leaning into just in the last two years since the pandemic hit, but I always like to comment on the fact that we've been doing this for a long time, and it's a responsibility. When you work around the globe, you have a huge responsibility to give back to those communities through programs like BOOK IT!, like you said, and so many others in other countries.

Pete:

Yeah. I would say ESG has become a buzzword in the markets in the last few years, but BOOK IT! has been around for decades longer than that. After the break, Tracy Skeans, COO and Chief People Officer of Yum! Brands, and I discussed the future of Yum! Brands and the entire QSR space. We'll be right back after this.

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Pete:

Welcome back. Before the break, Tracy Skeans, COO and Chief People Officer of Yum! Brands, and I were discussing her career and the transformation of Yum! under her leadership. Leading into the break, we're discussing some of the national events and how Yum! has responded to them. Back in August 2020, you told QSR Magazine, "One challenging aspect of the COVID-19 pandemic has been striking the right balance between the business and personal needs of our employees and customers." As the pandemic unfolded, what were some of the operational and people-focused initiatives that you launched? You mentioned one right before the break and how many of those are permanent changes that you've made to the company and how many were just short-term stop gap measures?

Tracy:

That's a great question, Pete. It's hard to believe as you look back now that we're 18 months post that. I do think in some ways things become clear when you get a little bit more distance from it. What I had said back then, I still believe that was true, is that before COVID, you almost have an anchor, if you will, on, "What's the business objective I'm trying to meet? In any decision that you make as a leader, "What's the business goal? What's the metric I'm trying to hit? what's my strategic objective?" You name it.

Tracy:

COVID put into place, "Wow! I might need to put aside some of my business objectives in the short term because I need to put my focus solely on our people, on the health of our people, on the safety of our people," and when I say our people, I don't just mean the people that work for us, but our customers. You had to say, "I don't care what it costs. We're going to get masks for everyone. We have to retrofit the restaurants at this moment in time out of safety needs."

Tracy:

So it was interesting to have to, in some ways, not put aside the business objectives, but really deprioritize them in service to how do we take care of everyone. In our business, that also meant taking care of our franchisees. There was a time when as the businesses shut down, we were so fortunate with our business model to be able to get our drive-throughs, and we have so many drive-throughs and delivery capability already that we were able to scale that quickly, but there was a time that if you're a small business owner as a franchisee and your restaurants are suddenly shuttered for some length of time, that's demoralizing and could really jeopardize the whole foundation of their business.

Tracy:

So some of the things that we did is we really did say, "All right. It's got to be first about health and safety, no matter what. Whatever the cost, health and safety of our team members." We put it in our medical relief fund, as I'd mentioned. We started to write operating procedures that could be rolled out as quickly as possible. So we upped our communication with our franchisees, with our frontline to figure out how do we get the information to them that they need realtime, quite honestly.

Tracy:

Some of the program that we did, making sure that we were giving extra paid time off, sick time. Our equity stores, we gave our RGMs bonuses. Our CEO, David Gibbs, gave up his salary for the year so we could fund some of the healthcare funds and also give bonuses to our GMs, and many of our franchisees did that too to make sure that people had the financial backing to keep working even when sometimes they weren't getting as many hours for a while.

Pete:

Operating in so many countries and even just think about the US, the different rules, the different regulations. You talk about communication. I mean, how did you evolve as a leader to be able to communicate not only with all these different situations, but also making sure you're hearing each person's particular plight. I know that there's certain areas in Europe I know that still haven't opened.

Tracy:

We are so fortunate to have incredible general managers country by country. One of my lessons coming out of COVID is the fact that we were really strong going into COVID, strong from a business performance standpoint, strong from a balance sheet standpoint, but I would say most importantly, strong from a leadership standpoint. Those leaders came through for us.

Tracy:

So we very quickly said to our general managers in each country, "You will have to keep your finger on the pulse of what's happening in your markets," because to your point, every geography was wildly different. Every government had different regulations so we could not have a one size fits all. We very quickly set up ways that we could gather that input from the general managers of the countries and the brands, depending on geography. We quickly also said we really wanted geography by geography to be treated similarly.

Tracy:

So, as an example, we wouldn't have wanted Pizza Hut in the UK to institute different policies or procedures than KFC in the UK because the legislation became so important by region. So our GMs would work together to figure out how to do that. Then from a communication standpoint, we said there are things that apply to everyone. The fact that we want people to be taken care of themselves, their families, transitioning to this working remotely, and so in that regard, we started to communicate. At first, I think it was weekly with our employees above restaurant to come out to them, to talk to them, to basically check on them and, again, prioritizing, in that case, their mental wellbeing, their mental health, making sure that they had access to the leaders to ask as many questions of what was happening with the company.

Tracy:

This was also a time in 2020 where Yum! like lots of other companies, it was a lot of uncertainty. People were wondering, "Am I going to have a job? What's happening with the company?" So communicating in a way to put people at ease, if you will, and certainly during that timeframe, you're not really able to put people completely at ease, but to do what we could, to say, "The company is doing well. We want you to take care of yourselves and your families first, and then secondly take care of the business. Let us know what you need. Let us know how we can help."

Tracy:

It's something I've learned is that that level of communication out to the markets, spending more time on the phone with franchisees, spending more time even through video, it can be a game changer. You can build much stronger relationships and I think commitment for the company by communicating more often, more transparently, and more authentically even when you didn't have answers. I'm sure I'm not alone in thinking there was a lot of days in 2020 where I thought, "I'm not sure what we're going to do today or tomorrow, but we'll make the best decisions we can on the fly."

Pete:

In addition to the pandemic uncertainty, in the last few months there's been swings in markets and consumer confidence. So as you mentioned, first and foremost health, but to look at those numbers for a second, how is Yum!'s business doing compared to pre-pandemic, and how has the business probably changed by the consumer behavior that's changed over the past two years?

Tracy:

Well, I'm proud to say that we are doing very well. We had a record setting year of development in 2019, which was fantastic. Then 2020 hit and you thought, "Well, shoot! We were on a roll, and now what's going to happen?" Well, this year we are opening restaurants in a faster pace than ever. We are set, hopefully, to have a record year in 2021, and our going forward looks strong. All four of our brands have been positive, same store sales growth on a two year basis. So while 2020 was a challenging year, I would say we've come out stronger, and I stand by the fact that we were healthy going into COVID. It's a good lesson, I think, in saying a healthy business is always a good thing. We never want to be complacent. We're always pushing.

Tracy:

We think with the state of the consumer now, to your question, the consumers, they're looking for variety. They're looking for safety. I loved your comments at the opening of the session about Taco Bell, how you can meet the needs of a lot of different consumer preferences. In this day and age, we believe that a lot of our consumers found comfort in our safe food and the tradition of our brands during the pandemic, and we got a lot of customers back that perhaps they hadn't had a bucket of chicken in a long time. Maybe they had not sat around a Pizza Hut pan pizza for a long time and they've rediscovered it. So it's been really powerful for us.

Tracy:

The other thing I would say is consumers, their preference for different points of access now, not everyone wants to walk into the restaurant. People want to be able to order delivery. People want to be able to do curbside. I want to say we're over 41,000 of our 53,000 restaurants that offer delivery now, and some of our restaurants, they didn't have drive-throughs and they didn't do delivery. They very quickly pivoted to that during the pandemic. They were able to learn from the other brands and pick it up quickly.

Tracy:

So the consumer is telling us through their buying habits that they're enjoying our food, they would like more of us, which is why we're able to put so many more units in the ground, 10 units opening a day sometimes. So I think the future's really bright for Yum! and we're pleased that there's always more work to do. We don't want to be complacent and we want to grow and grow faster and grow faster each and every year, but we're in a strong place.

Pete:

So I can say that my own consumer behavior has really changed because I almost exclusively order over the app now, which has been a lifesaver when I do have very picky eaters or certain allergies or things people like, but I imagine on your end that's a wonderful opportunity because you now know when I order, how I order, what I order, what I'm interested in. I know I get ads served up to me now because of that. How has your digital and tech strategy both in the development of the app but also using that information accelerated over the last two years?

Tracy:

It's accelerated at an incredible rate with so many people like yourself, Pete, moving over to the apps. First of all, we launched some new apps or KFC business in the US launched their first app. In other cases, we have modified the apps that we already had to make them easier to use for the consumer. So to your point, that technology push that all companies have been on, I mean, certainly every company out there is trying to be more technologically savvy, for Yum! and for our brands, the acceleration has been incredible. We've been setting records in terms of more users coming to digital, which is good for us. It helps us to understand the consumer preference more. We understand exactly what they want, how they want it, when they want it, and that's good for us to be able to then meet their needs going forward.

Tracy:

So we've been very open about that we're leaning into the technology side of our business more than ever. If you think about a standard restaurant years ago, you would've either parked and walked in or you might have gone through the driveway. Well, now, from a point of access, you might order on the app and you want it delivered to you. You might order and you want to go get curbside. You might order through an aggregator and want someone else to deliver it to you. There's a million different ways. Well, maybe a million is too many, but you get my point. There's so many more access points now that the technology that we use to track that, to optimize around that, the store operations can be quite complex with all of those different points of access.

Tracy:

So it's a journey that we're on. We're realizing we've been quite open that some of the technology acquisitions that we've done, some of the investments that we've made, we've shifted dollars within the company to the digital and technology space for that very reason so we can make sure that we keep meeting the consumer where they are because as they become more technologically savvy, then we have to follow.

Pete:

I want to talk a little bit more about the technology. How are you using technology to recruit and onboard and train new team members?

Tracy:

Yeah. One of the things that we believe is really most important to us is how do you make sure where technology meets operations, that that becomes a value add for us. So being a restaurant general manager or a team member in one of our restaurants, they're tough jobs. That's a lot of pressure. That's a lot of people's meals that they want it the way they want it to the point that you made about people want to customize their food for their kids and for themselves. So we're using technology now in a way to make sure that that makes the role of the team member and the RGM easier.

Tracy:

So putting systems in place that help the RGM realize, as an example, when to drop the next set of chicken wings, when to put the pizza in the oven, which pizza should go out with which delivery driver when. Now, that might sound somewhat basic. Obviously, those are things that we've done for years, but in this day and age, with the volumes increasing, the customer demand being more customized, it's super important for us. So we're using technology solutions. We've just recently acquired a company called Dragon Tail, and the whole point of that is that it helps optimize the in-store operations using technology so that the team member and the restaurant general manager basically have an easier time running the restaurant.

Tracy:

The goal being when they have an easier I'm running the restaurant, they can focus more on the customer experience. They can make sure that the team members around them are knowing what they should be doing and when, that they can serve the customers in the way that they should. So we're using technology as a way to improve store operations, but quite frankly, all in service to the customer experience.

Pete:

More customer interest, more technology. One of the things that there isn't more of seems to be labor. Particularly in this country, there's a dislocation of labor. What does the future of work look like for restaurant employees at Yum! and across the sectors as both less workers and more automation has to fill the gap for those less workers?

Tracy:

Well, I personally think that there's a bit of myth out there that in some ways there's a theory that will overtime we won't need the workers. We'll just automate so much that technology can do it. Heck, you hear stories about we're going to have robots in restaurants, all of this. That might happen in some parts of the world, I guess, but certainly not at Yum!. Our thought is quite the opposite. Our thought is we want to ensure that the roles that we have for team members, for shift managers, for restaurant general managers, these are high quality roles. The role of technology is to simplify that.

Tracy:

Think about the tasks that a team member would have, something that's perhaps dull or mundane. How can we use technology to do those sorts of tasks? Thus freeing up the people that work in our restaurants to be able to have more fulfilling roles, talking to the customers, communicating with one another, learning teamwork, strategic planning for the restaurants.

Tracy:

So we really view it as a way to say the future of the frontline workers should be quite bright. These are important roles. Sometimes they're stepping stones to much bigger jobs and sometimes in their own right they're quality roles. Yum! did a survey not long ago of not our own workers, but all different fast food workers around the globe to say, "What do you really want when you come work in a restaurant environment?" I was so pleased with the findings in that where there seems to be a myth out there that sometimes people say, "I'll take a job in a restaurant just as a first time, dead end type job," and that's not the case at all.

Tracy:

The workers, the team members told us themselves they've got goals for themselves. They like the industry. They want to grow in their careers. So we feel that this is really good news for us because the more at Yum! we can put technology in restaurant to make their world easier, make the jobs that they do better, easier, and free their time up to do more value added tasks, that's a win-win, and if that enables them to grow their career in our industry, then, I mean, it's win all the way around.

Pete:

Can you explain how you're using the Heartstyles method to support what you call people first culture and how is it being deployed already and how will it continue to grow across the company?

Tracy:

Absolutely. Well, Heartstyles has been around Yum! for a long time, and historically or years ago, it was used primarily above restaurants. So you think of it perhaps more at first as a leadership development tool. So people go through the Heartstyles journey, which is a lot of self-reflection. You learn about yourself and then you get feedback from your peers, your coach, people on your teams. It really talks about behaviors and what are the behaviors that each and every one of us manifest each day. How do they impact other people? Are those behaviors beneficial to us and those around us or not?

Tracy:

Well, taking a tool like that and being able to get that to the masses of the people that work in our restaurants, that could be truly life-changing. We were able to do that in certain markets. Our Australian market at KFC has been using it in restaurant for years, in our South Africa market. So after seeing the success that they had in terms of things like reduced turnover once people go through Heartstyles, higher engagement scores. If a restaurant general manager had been through Heartstyles, the engagement scores from their team were better because they knew how to be a better manager. They knew how to relate to people more and more.

Tracy:

I always say being a restaurant general manager and having on average 30 direct reports, all different shifts all day long, that's a big job. So by taking a tool like Heartstyles and using it to develop our restaurant general managers, develop their character, their skillsets, their understanding of how their own behaviors manifest, it's really, really important. So when we purchased Heartstyles, the whole goal was to say, "We don't want this to just be for above restaurant leaders. Wouldn't it be phenomenal to get it to all RGMs and have that be part of our ongoing curriculum?"

Tracy:

Then honestly, my aspiration is that over time, if you're a team member, so maybe you're 21 years old or 19 years old or 50 years old and you're joining one of our restaurants to work as a team member, it's part of your onboarding down the road was this program. It could really be life-changing for people and teaching them behaviors that there's no way they would get anywhere else. I think it's an indication of our commitment to culture not only above restaurant, but definitely on the front line.

Pete:

I think one of the things that I find interesting is this idea of how do you integrate new people and also new businesses into a larger company, and Heartstyles have a unique acquisition, but you were essential part of a much more traditional acquisition with the deal to get the habit grow, to join the Yum! Brands family. What made you decide to get into the burger business, and for audience who may not be near one of those locations, what what made that the right target for Yum!?

Tracy:

The way that we think about acquisitions is threefold. We say we're always on the lookout. We don't do it frequently, obviously, but for your more traditional larger scale type acquisition, which is where habit falls, and I'll come back to that in just a minute. Secondly, what are acquisitions that are perhaps enablers for our underlying business? We've talked about Heartstyles. We bought Collider several years ago, which is a consumer insights function that's been fantastic for us and then now, we're purchasing capabilities in the technology space.

Tracy:

So our strategy has always been to be pretty planful about what we acquire and when because it takes a lot of time and effort to do that. Habit Burger was a great find for us in terms of it's mostly on the East Coast and West Coast. Fantastic menu. Oh, my goodness. I wish they were everywhere, but burgers and lots of other things, a very, very expansive menu. When we purchased them, they were about 300 units, really well run, very similar culture in terms of the importance of taking care of team members. Company-owned, though, and what we found was this could be a great way for us to take them global, if you will, a company that's not a startup by any stretch, they've been around 60 years, but at the scale of 300 units, wouldn't it be amazing to use our existing franchise base that we have from KFC, Taco Bell, and Pizza Hut to take our franchisees and give them the opportunity to expand Habit Burger both within the US and then internationally as well?

Tracy:

So it was a sweet spot for us and they are the most phenomenal brand. I have enjoyed getting to know their people and they've assimilated so well. If you can believe that you close on a deal literally in March of 2020 as the world is shutting down. We couldn't have predicted that timing, obviously, but we love having Habit Burger as part of the Yum! family. They've got a very relevant and distinctive brand where they are. They are scalable so there are development opportunities across the board. It's in incredibly well run. It's strong operations, and they have the same belief in culture and talent. So a lot of that alignment made it the right choice for us and we're thrilled to have them as part of the family.

Pete:

To zoom out a little bit, there's been significant consolidation in the QSR space. A deal was actually announced earlier this week from a competitor. How do you see that continuing across the overall industry? You said you're very selective, but what role acquisitions play in your continuing growth strategy?

Tracy:

Well, the good news is when you're opening as many restaurants as we are between Pizza Hut, and Taco Bell, and KFC, our organic growth prospects are huge. When we talk about focus, that's really where we want to play. We want to scale Habit Burger. We want to lean into all of the opportunities that we have with Taco Bell, KFC, and Pizza Hut. We're always on the lookout for more traditional acquisition targets, but the companies and the brands that we have right now, the growth is huge. So we definitely want to stick with that unless the right opportunity comes along.

Pete:

Well, I guess that leads us to our final question. We're recording this in December 2021. It won't come out until after the New Year. So when you're sitting down with David and the rest of the executive team to discuss the coming months, what is Yum!'s business priorities for 2022 and beyond?

Tracy:

Well, the good news is we feel that our strategy is in the right place right now, our recipe for growth and good. We don't have any interest in changing them. They're working for us, but we do want to sharpen our priorities. The technology space, the digital space, how we go even faster, accelerate those efforts even more is really important to us. We feel that there's more room to go and how do we become more digitally savvy inside the company and also for our consumers.

Tracy:

In addition, as the consumer changes, we want to make sure that we are relevant and more focused on having cravable food, the trends that the consumers want, being able to customize what you want, whether it's vegetarian, whether it's all of the things we talked about earlier, making sure that the customer needs are met faster and faster by our brands, that we stay attuned to that is important. Mostly, the growth that going forward that we believe is attainable, we want to go after it. Yum! came into this phase in a strong place, and I believe the future's really bright and our growth prospects are fantastic.

Pete:

Well, we look forward to seeing that bright future. Thank you so much, Tracy, for joining us Inside the ICE House.

Tracy:

Thanks, Pete. I appreciate it.

Pete:

That's our conversation for this week. Our guest was Tracy Skeans, the COO and Chief People Officer of Yum! Brands. That, of course, is NYC ticker YUM.

Pete:

If you like what you heard, please rate us on iTunes so other folks know where to find us. Got a question or comment you'd like one of our experts to tackle on a future show, email us at [email protected] or tweet at us, @IceHousePodcast.

Pete:

This show is produced by Stephan Capriles with production assistance from Ken Able and Ian Wolf. I'm Pete Asch, your host, signing off from the Library of the New York Stock Exchange. Thanks for listening. Talk to you next week.

Speaker 1:

Information contained in this podcast was obtained in part from publicly available sources and not independently verified. Neither ICE nor its affiliates make any representations or warranties expressed or implied as to the accuracy or completeness of the information and do not sponsor, approve or endorse any of the content herein. All of which is presented solely for informational and educational purposes. Nothing herein constitutes an offer to sell, a solicitation of an offer to buy any security or a recommendation of any security or trading practice. Some portions of the preceding conversation may have been edited for the purpose of legal clarity.

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Information contained in this podcast was obtained in part from publicly available sources, and not independently verified. Neither ICE nor its affiliates make any representations or warranties, express or implied, as to the accuracy or completeness of the information and do not sponsor, approve, or endorse any of the content herein, all of which is presented solely for informational and educational purposes. Nothing herein constitutes an offer to sell, a solicitation of an offer to buy any security, or a recommendation of any security or trading practice.