Yum Says Novak to Leave CEO Role, Become Executive Chairman -- Update

By Dow Jones Business News, 
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By Julie Jargon

Yum Brands Inc. named the head of its Taco Bell operations as its next chief executive, promoting a company veteran who has had success with new products at a time when other parts of Yum's business have struggled.

The company on Thursday said current Chairman and CEO David C. Novak will become executive chairman on Jan. 1, handing over the main responsibility for day-to-day operations to Greg Creed, a 20-year veteran of Yum who has been CEO of Taco Bell since early 2011.

Mr. Novak will form an office of the chairman focused on corporate strategy that will include Mr. Creed and Sam Su, Yum's China boss and vice chairman. All Yum divisions will report to Mr. Creed, who also will join Yum's board of directors.

Taco Bell is the smallest of Yum's three main divisions, with 6,060 outlets as of March, compared with 18,847 KFC restaurants and 15,011 Pizza Huts. The vast majority of Taco Bells are in the U.S., while KFC and Pizza Hut are heavily international.

Yum's revenue from U.S. Taco Bell restaurants declined to $1.5 billion last year from $1.8 billion in 2010, the year before Mr. Creed took over. During that time, Yum's overall U.S. sales declined 38%, weighed down by a sharp decline in U.S. revenue at KFC.

Taco Bell has also rung up some significant recent successes under Mr. Creed, seizing much of the fast-food zeitgeist in the U.S. with products like Doritos Locos Tacos, with shells formed from Doritos chips, which has been one of the chain's best-selling products ever. Taco Bell also came out with a "Taco Fresco" line of Chipotle-like burrito bowls and other items intended to appeal to more health-conscious customers.

Mr. Creed also steered the brand through a difficult time in 2011, when a lawsuit accused the company of using filler in its taco meat. The suit was dropped, but the attention from the suit hurt sales. Mr. Creed ran ads and letters thanking the plaintiff for giving Taco Bell the opportunity to explain that its tacos are all meat.

In the most recent quarter, U.S. same-store sales at Taco Bell slipped 1%, a slower rate of decline than the company's other fast-food brands.

KFC sales had boomed for many years, driven largely by its China business under Mr. Su. But KFC sales in China began to decline in late 2012 after Chinese media reported on the use of growth hormones and antibiotics by two KFC chicken suppliers.

China sales bounced back in the most recent period, however, as the company recovers from food-safety concerns related to KFC chicken suppliers more than a year ago. The company in March launched a new menu and marketing campaign in China, and it plans to tap Chinese celebrities to promote its new products.

Mr. Novak, who has led Yum since 1999, is a charismatic executive, widely liked by employees. He has led every Wall Street investor meeting with a cheer, making analysts stand up and form the words "Y-U-M" with their arms. The author of a book called "Taking People With You," he has maintained an internal blog in which he shared photos and ideas gleaned during his trips visiting Yum locations around the world.

When asked in a 2012 Wall Street Journal interview which products he favors, Mr. Novak singled out the Taco Bell Fresco line, saying "I eat that everyday almost, at the company cafeteria or when I'm in restaurants."

Total pay for Mr. Novak dropped 29% last year to $10 million as the company said his overall performance for the year missed targets, according to a March filing. Mr. Su's $10.3 million in pay for 2013 marked a 38% decline from the previous year.

Michael Calia contributed to this article.

Write to Julie Jargon at julie.jargon@wsj.com

Subscribe to WSJ: http://online.wsj.com?mod=djnwires


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