Pizza Hut and KFC could be leaner and meaner if they did this one thing

Taco Bell, KFC, and Pizza Hut are all part of the same Yum Brands family, but it might be better for everyone if they went their separate ways.

The restaurant chains all work together under the same parent company, sharing resources between them. However, some analysts think that the companies would be better off if they didn’t have to share, and could make their own ways in the world.

“YUM! Brands remains one of the most bloated restaurant companies — which is a big opportunity for the creation of shareholder value,” Mark Kalinowski, an analyst at Nomura, said in a note to clients on June 22.

Spinning off each of the companies into individual brands would be one step towards creating that additional value.

Taco Bell is the most obvious candidate for a potential spin-off, according to Kalinowski. In addition to being a bit of an outlier, only performing well in the US as opposed to the global success of KFC and Pizza Hut, he suggests four main benefits of spinning off Taco Bell:

  1. “A more focused Taco Bell that wouldn’t have to compete with Pizza Hut and KFC for resources.”

  2. “A differentiated (and likely publicly traded) large quick-service restaurant brand with essentially zero exposure to international profit risk.”

  3. “Better structures at which to ‘trim the fat’ (cut unnecessary costs) at Taco Bell and at the remaining YUM! Brands.”

  4. “Perhaps even a better-managed Pizza Hut and a better-managed KFC, as neither would have to compete with Taco Bell for time, attention, and resources.”

It’s worth noting that the top restaurant stocks in the US are all single brands. McDonalds, Starbucks, and Chipotle have all built their value around a single restaurant, allowing for clarity and focus in the companies’ strategies, according to Kalinowski. Spinning off one or more of Yum’s brands would allow both the parent and spun-off companies to be “much more lean and much more mean.”

Yum has shown a willingness to make big spin-offs before. The company announced a separation of its China division in late 2015, and the China division has beat expectations since the announcement.

KFC, Pizza Hut, and Taco Bell have been slowly losing market share for more than 20 years, which might mean it’s time to break them up.

Yum Brands shares have risen around 17% so far this year.

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