Yum! Brands Throws Down a Challenge to McDonald's and Burger King

The fast-food company has purchased a fast-casual burger chain.


Daniel B. Kline, The Motley Fool

Jan 6, 2020


Yum! Brands (NYSE:YUM) has traditionally operated restaurants seen as an alternative to the more traditional burgers and fries establishments offered by McDonald's (NYSE:MCD) and Restaurants Brands International's (NYSE:QSR) Burger King. The company owns Taco Bell, Pizza Hut, and KFC -- three non-burger chains that greatly expanded the fast-food market.


These days, McDonald's and Burger King face all sorts of burger-focused challengers. A number of companies have launched or expanded higher-end fast-casual burger chains that put pricing and quality pressure on the established burger-based players.


After focusing on being the alternative for so long, Yum! has decided to jump on that burger-based trend and take on the big players more directly by buying the Habit Burger Grill (NASDAQ:HABT) chain for $14 per share, or approximately $375 million.


What is Yum! doing?


It's a bold move that gives Yum! a brand that can stretch its appeal to new consumers. It's entering a very crowded space, but it can leverage what it already knows about its existing customers to deploy new Habit locations.


"As a fast-casual concept with strong unit economics, The Habit Burger Grill is a fantastic addition to the Yum! family and has significant untapped growth potential in the U.S. and internationally," said YUM! CEO David Gibbs in a press release.


Habit, he explained, offers higher-quality burgers than a traditional fast-food chain, but at a value price. That should position it well within the Yum! portfolio.


"The transaction is a win-win because it allows us to offer an exciting new investment to our franchisees and to expand an award-winning, trend-forward brand through the power of Yum!'s unmatched scale and strengths in franchising, purchasing and brand-building," said Gibbs.


Why this is good for investors ...


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