Inflation in the U.S. is driving significant shifts in consumer behavior, with people increasingly seeking deals and opting for cheaper products. 

This trend, highlighted by Amazon’s CEO Andy Jassy, is affecting various industries, notably the food sector, where prices have surged. 

Yum! Brands (YUM), owning popular chains like KFC and Taco Bell, has capitalized on this trend, reporting strong sales growth and expanding its global presence. 

With its diverse and affordable menu options, Yum! is poised to benefit further as long as inflation continues.

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With inflation persisting in the U.S. economy, consumer behavior changes are becoming entrenched.

The Federal Reserve has been aggressively raising interest rates to slow inflation, but Fed Chair Jerome Powell acknowledges that achieving the long-term 2% target will be challenging.

One of the clearest indicators of shifting consumer behavior comes from Amazon (AMZN). In a recent conference call, Amazon CEO Andy Jassy noted customers are increasingly looking for deals and trading down to less expensive products.

This trend of “trading down” is impacting many industries as inflation eats into household budgets.

The food industry in particular has seen stark impacts of inflation. Food prices rose nearly 10% in 2022, the highest rate since 1979. As the cost of dining out increases, consumers are trading for cheaper alternatives.

One company that has benefited from this inflation-driven shift is Yum! Brands (YUM), one of the largest restaurant players in the world.

Yum! owns brands like KFC, Pizza Hut, Taco Bell, and Habit Burger Grill, providing a diverse portfolio of relatively inexpensive dining options.

In the most recent quarter, Yum! reported system sales growth of 10%, driven by 6% same-store sales growth and 6% unit growth. For full-year 2023, Yum! exceeded $60 billion in system sales and saw record development with over 4,700 net new stores.

Yum!’s large global footprint of over 60,000 restaurants in 150 countries gives it the scale to offer affordable menu items that appeal to cost-conscious consumers. With its presence across quick-service restaurants and cuisine types, Yum! is well positioned during periods of heightened “trading down”.

As long as inflation persists, Yum! stands to continue benefiting from consumer behavior changes.

As the lowest-cost leader in its industry, Yum!’s diverse portfolio makes it an attractive option for consumers seeking good value during high inflation.

If Amazon is correct that “trading down” will persist, Yum! is well-placed to capture greater returns.

Best regards,

Joel Litman & Rob Spivey
Chief Investment Strategist &
Director of Research
at Valens Research