Colonel Sanders Goes Tech

On 2 March 2021, fast food restaurant operator of brands such as KFC, Pizza Hut, and Taco Bell, Yum! Brands, announced the techquisition of Kvantum, an AI-based consumer insights and marketing performance analytics company. Then, three weeks later, on 24 March, Yum! announced a second techquisition – Tictuk Technologies, an omnichannel ordering and marketing platform company. (Transaction values were undisclosed for both deals).

THE COMPANIES

Tech - Kvantum: Founded in 2012 in San Francisco, CA (US), Kvantum develops and deploys algorithms and artificial intelligence models to help brands understand consumer behaviour and make informed media and calendar decisions. The company’s proprietary technology can measure the effects of marketing tactics in a designated geography across owned, paid and earned channels. Kvantum works with top Retail, CPG and eCommerce brands across US, Canada, APAC, MENA, South America, Mexico, Europe, and Africa. Over the past several years, the company claims to have helped clients increase their digital ROI from 30% to 60%, while maintaining spend levels.

Tech - Tictuk: Founded in 2016 in Tel-Aviv (Israel), Tictuk Technologies specialises in conversational commerce and technology solutions, having developed an intelligent online ordering system that guides customers to complete their orders in under 60 seconds through a variety of social media and chat channels. It also provides additional services such as analytics and reporting, marketing automation, coupons and promos, customer service, etc. The company has fully integrated its services into 1,100+ stores, including global brands such as Pizza Hut, KFC, Taco Bell, Subway, Wendy’s, TGIF, Starbucks, Shopify, etc.

Non-Tech - Yum! Brands: Founded in 1997 in Louisville, KY (US), Yum! Brands is a global leader in retail development with over 50,000 restaurants in 150+ countries and territories. The company’s family of brands includes KFC (ca 25,000 locations worldwide), Pizza Hut (17,000+ locations worldwide) and Taco Bell (ca 7,500 locations worldwide). As of December 2020, 98% of the company’s locations were operated by franchisees. In 2020, the company reported revenues of $5.7 billion and EBIT of $1.5 billion.

SUCCESFULLY PREVENTING FUTURE DISRUPTION

The month of March was a busy one for Yum! Brands. On 2 March 2021, the company announced that it had entered into a definitive agreement to acquire Kvantum. Then, 22 days later, it announced a second acquisition, this time the omnichannel and marketing platform, Tictuk Technologies.

These acquisitions are an example of how legacy brand operators can learn from the experiences of the pandemic and futureproof their business by adapting to the changes in the industry. 

We expect these “techquisitions” by Yum! will likely add value to the Yum! Brands’ businesses by:

1. Increasing online sales by allowing consumers to order and interact with the brands through a variety of social media and chat channels – including WhatsApp, Facebook Messenger, Telegram, SMS, QR codes, and email – using Tictuk’s platform, while collecting high quality, personalised data that can be used in data analytics (see #4 below)

2. Providing greater flexibility to consumers, as Tictuk’s technology seamlessly integrates with POS and existing payment systems, including delivery, curb side pick-up and in-restaurant dining

3. Increasing consumer engagement, as Tictuk’s platform also leverages a hybrid of chat, web, advertisements, and intelligent marketing technology 

4. Enhancing Yum!’s ability to apply consumer insights and data analyticswith Kvantum’s AI-based technology, to increase revenue and optimise its media budgets across locations and channels through data-driven marketing decisions

More than the expansion of the company’s online retail channels and corresponding potential increase in sales, these acquisitions highlight Yum’s focus on a data and analytics strategy that will allow it to engage more effectively with its consumers.

STRONG VALUE CREATION FROM THE TECHQUISITIONS

The market reacted favourably to the announcements, given the potentially transformative synergies associated with both transactions and the company’s ongoing efforts to build on its digital strategy.

By the end of the month, Yum! Brands share price increased by approximately 3.5% compared to an increase of approximately 1.8% in the S&P 500, implying an addition of a net $627 million to Yum! Brands’ market capitalisation.

CLEAR OPERATIONAL OPPORTUNITY

Yum! plans to combine Kvantum’s Artificial Intelligence and Machine Leaning approach to understanding human behaviour with the skillsets of the anthropologists and sociologists at Collider Lab, a culture-based consumer insights and marketing strategy consultancy it acquired in 2015. 

It believes that the two companies’ combined methodologies will yield even deeper consumer and brand insights and help advance its R.E.D. (relevant, easy to access and distinctive) marketing strategies around the world.

The acquisition also provides an additional revenue stream for Yum! Brands, as Kvantum will continue to offer their consultancy services to external clients outside of the restaurant industry.

In Tictuk, Yum! Brands acquired a lever to scale and offer its omnichannel ordering and marketing capabilities to more regions and franchisees globally, as well as to deliver additional ways for consumers to access its brands through social media and other conversational commerce channels.

"The right technologies will allow us to better serve customers (…) We’re excited about the opportunity Tictuk presents, as their solution delivers high impact by enabling our brands to achieve a truly omnichannel presence and provide frictionless ordering for customers in just a few clicks.”

- Chris Turner, CFO of Yum! Brands

Another important point to note with the two acquisitions is their “low-risk, high reward” nature – Yum! Brands had already been working with Kvantum in several international markets, and it had also already successfully deployed Tictuk’s platform in approximately 900 KFC, Pizza Hut and Taco Bell restaurants in 35 countries outside of the U.S. 

Both experiences were presumably deemed as successes and led to Yum’s desire to exclusively own the technologies, integrate both companies’ teams and leverage their capabilities to accelerate its digital strategy roadmap.

The company’s strategy seems to be paying off – Yum’s 2020 digital sales amounted to $17 billion, up 45% from the prior year – equating to 65% of total revenues.

According to David Gibbs, the company’s Chief Executive Officer, Yum!’s plan for 2021 will be to continue to intensify its focus on leveraging scale and on reinforcing the growth model with investments in digital technologies to enhance customer and employee experience, strengthen restaurant unit economics and enable the brands and franchisees to compete and win in a rapidly changing world.

UNLOCKING THE TRUE POTENTIAL OF LEGACY BRANDS

Yum!’s focus on its digital strategy and recent slate of techquisitions echoes that of one of its biggest competitors, McDonald's.

On 25 March 2019, McDonald’s acquired Dynamic Yield, an AI-based provider of personalisation and decision logistics technology, for a reported $300 million. 

This was the largest acquisition McDonald’s had made in 20 years and it was a software company, not another brand or a restaurant chain. The acquisition allowed the company to offer a more tailored digital experience to its consumers.

What really made it clear that this deal was part of a larger long-term blueprint to leverage technology in order to obtain a competitive advantage, as opposed to a one-off acquisition of a technology to gain exclusivity, was this quote by the company’s Global CIO:

“It’s probably less about the product and more about the data scientists that come with it, the people that come with it, and their ability to move quickly with us.”

- Daniel Henry, McDonald’s EVP and Global CIO

Later that year, on 22 October, McDonald's completed a second acquisition, this time of Apprente, a Silicon Valley-based company building conversational agents that can automate voice-based ordering in multiple languages. McDonald’s acquired the start-up to integrate its AI in voice-activated drive-thru, which could:

1. Cut down on service times

2. Allow restaurants to operate with smaller staffs and

3. Potentially be used in mobile and kiosk ordering

McDonald’s advancements in the tech space – including the development of McDonald’s Global Mobile App, Mobile Order and Pay, indoor and outdoor digital menu boards and self-order kiosks – have transformed customer experiences in and around its restaurants by giving customers more ways to pay and personalise their orders to meet their needs.

Since McDonald’s began investing heavily in tech in 2015, with its first digital self-service kiosks, the average number of employees per store went from 11.6 to 5.6 (2019) and EBIT increased by 25%. 

These results are tangible proof that the key to success for legacy brands is resilience in the form of investing in or acquiring technology companies.

THE QUOTE

"Technology strategies that elevate the customer and employee experience and lead to smart, data-driven marketing decisions are critical to keeping our brands R.E.D. (relevant, easy to access and distinctive) and delivering growth for our franchisees and shareholders”

- David Gibbs, CEO of Yum! Brands

Yum! Brands’ acquisitions of Kvantum and Tictuk are two examples of how a non-tech traditional company is actively engaging in the journey of transforming itself to deliver greater value to its shareholders and customers by properly positioning itself for the future.

The essence of such a transformation unfolding is embedded in a strategy execution methodology we have trademarked and call Techquisition, which my firm, Aquaa Partners, has designed and delivers to its clients every day as an experienced and trusted partner.

If you would like to learn more about why Techquisition is becoming the value creation strategy of choice today for ambitious C-suite leaders, check out my book, Go Tech, or Go Extinct, which dives deep into the topic:

Go Tech, or Go Extinct: How Acquiring Tech Disruptors Is the Key to Survival and Growth for Established Companies.

If you’d like to discuss Techquisition email me at [email protected]

Paul Cuatrecasas is the founder and CEO of the investment banking firm, Aquaa Partners, and the author of Go Tech, or Go Extinct in which he shares his revolutionary approach to transforming legacy companies into forward-thinking industry leaders through the strategic acquisition of disruptive technology companies. 

Source(s): Aquaa Partners, company websites, Financial Times, MergerMarket, TechCrunch, Pitchbook, Capital IQ, CNBC, Forbes, LinkedIn