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Yum! Enters Mongolia with KFC

Zacks Equity Research

Yum! Brands Inc.’s (YUM) signature brand KFC recently made its debut in Mongolia with the opening of a new restaurant in Ulaanbaatar. The restaurant named KFC Mongolia was unveiled by Yum!’s operational arm, Yum! Restaurants International (:YRI) in association with its franchisee,Tavan Bogd Group.

Ulaanbaatar is a major city and the capital of Mongolia. It has a major historical importance and is considered to be the financial hub of the country. The strategic location of the restaurant makes it a perfect fit to attract a huge customer base, going forward.

Four more KFC branded restaurants are scheduled to be launched in Mongolia by the end of the year. Apart from this, as per the company’s franchise deal with Tavan Bogd Group, it will introduce another 15 KFC restaurants and a drive-thru unit in the country over the next five years.

Mongolia is now considered as one of the fastest growing economies in the world. Hence, we believe that Yum! has chosen wisely and will be able to capitalize on the increasing potential in Mongolia. 

Yum! generates more than half of its revenues from its international division. The company seeks opportunities to expand in the emerging overseas markets owing to the massive retailing potential in those areas.

Assuming the current pace of development, Yum! would have about four restaurants per one million people in the world's 10 largest emerging markets by the year 2020. This provides Yum! a ready opportunity for future growth.

Some other restaurateurs trying to expand in international markets include McDonald's Corp. (MCD) and The Cheesecake Factory Inc. (CAKE). Cheesecake recently announced the launch of 12 new restaurants in Latin America over the next eight years.

Yum! currently carries a Zacks Rank #3 (Hold). However, the shares of peer Bloomin' Brands, Inc. (BLMN) carrying a Zacks Rank #1 (Strong Buy) are worth considering.

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