A growing number of people has been salivating over the valuation of Yum China Holdings, lately. I want to set the record straight on two often-made fallacies.
Some entities just generate better economics from the exact same restaurant, than others.
On every $1,000 of (franchisee/licensee) sales that Yum China $YUMC generates, YUMC earns an operating profit of about $100. That is after all the investments in the restaurant, including the kitchen equipment.
All that I am pointing out is that Yum! Brands $YUM takes 3% of that $1,000. Yes, that's $30 out of the very same same restaurants, and YUM does not even have to pay for capital expenditures to earn it. The tax that YUM charges to YUMC equals about 30%! of YUMC's entire operating profit!
YUMC and YUM are very different economic models / mousetraps. I felt that a lot of (potential) investors did not understand that, while they probably should. Nothing more, nothing less.
Thanks for providing this direct comparison.
You should look at it on a per store ROIC. Full franchised business obviously would have higher returns - that's the purpose of franchising.
Some entities just generate better economics from the exact same restaurant, than others.
On every $1,000 of (franchisee/licensee) sales that Yum China $YUMC generates, YUMC earns an operating profit of about $100. That is after all the investments in the restaurant, including the kitchen equipment.
All that I am pointing out is that Yum! Brands $YUM takes 3% of that $1,000. Yes, that's $30 out of the very same same restaurants, and YUM does not even have to pay for capital expenditures to earn it. The tax that YUM charges to YUMC equals about 30%! of YUMC's entire operating profit!
YUMC and YUM are very different economic models / mousetraps. I felt that a lot of (potential) investors did not understand that, while they probably should. Nothing more, nothing less.