Whistleblowing set off Yum! exits
A little more than a week after ET first reported the departure of three top executives of Yum! Restaurants India - CEO Sandeep Kohli, head of business development Ajay Bansal and recent hire CFO Anupam Bhattacharya, - tongues haven’t stopped wagg...
By Chaitali Chakravarty & Samidha Sharma, TNN |
NEW DELHI: A little more than a week after ET first reported the departure of three top executives of Yum! Restaurants India ��� CEO Sandeep Kohli, head of business development Ajay Bansal and recent hire CFO Anupam Bhattacharya, ��� tongues haven���t stopped wagging.
ET has been flooded with phone calls and e-mails on what necessitated the top-level reshuffle? Did they just suddenly leave on their own? The buzz grew louder because the threesome put in their papers with immediate effect without successors in place. Mr Kohli is known in the food and beverage industry, so are Yum! brands, Pizza Hut and KFC. This prompted us to delve deeper.
ET caught up with Mr Kohli last week to find the reasons behind his sudden exit from Yum!, a company he built from scratch. Was the separation from the company unpleasant? ���Not at all. I���d rather have people asking why am I leaving than when am I leaving. I���ll turn 50 this year and it���s time to move on and explore new opportunities.���
Was there no notice period to be served? After all, he was leaving a company where he had spent 14 years without any succession planning. ���An interim CEO will soon be in place,��� he said. ���There���s a notice period of six months which has been compressed. Once you���ve decided to leave, there���s no point sticking on,��� he added.
The company has named Vinod Mahboobani as interim managing director until a permanent appointment is made. A detailed mail to Mr Mahboobani, the Singapore-based legal counsel for the company business in India, Asia and the Middle-East since 2000, also went unanswered.
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The 55 odd employees housed at Yum!���s Global Business Park head-office in Gurgaon have been strictly forbidden to talk. The global headquarters at Louiseville wasn���t willing to confirm specific details when asked by ET. A mail to Yum!���s chief marketing officer Muktesh Pant went unanswered. In an e-mail response, the president of Yum! Restaurants International Graham Allan said, ���It���s our policy not to comment on rumour or speculation. What I can tell you is that Yum! Restaurants International confirms organisational changes to its leadership team in India, following the resignation of several executives as the company pursues additional growth in the marketplace. Over the last 14 years, Sandeep Kohli and his team have built a successful business and a solid foundation for our future growth in India.���
We would have taken Mr Allan���s response at face value had it not been for top sources who insisted there was more to it. Here���s what we were told. The seeds of discord at Yum! were apparently sown by a whistle-blower. It isn���t known whether he was an employee from the Indian subsidiary or a franchisee.
Either way, in the second week of January, Yum! International dispatched a seven-member team of auditors and legal experts from its global headquarters in Louiseville to investigate allegations of misreporting against Yum!���s Indian subsidiary. After a detailed investigation, involving interviews with employees and financial audit, the special team decided to act ��� within two days of completion of the investigation. Whether the investigation really uncovered all the aspects of the allegations isn���t clear.
For Yum!, the number of new stores ��� referred to internally as ���builds��� ��� is a crucial indicator of performance and an important disclosure made to shareholders in the annual report every year. For instance, in the 2005 annual report (the 2006 report will be released in April), the company had disclosed the opening of 1,554 stores around the globe.
Consistent new unit openings is one of the three drivers of shareholder value. The other two are improving same store sales growth and a better return on invested capital. Sources said that the Indian management had inflated the number of stores that became operational in 2006.
It is said that Yum! India���s travails started when the reporting structure was changed. Till 2005 end, it reported to Singapore, the Asia HQ. Meanwhile, Yum!���s business in Asia was going through a churn. China, which was till then a star performer, had slipped badly owing to a supplier issue and the Avian flu. That���s when the headquarters felt that the focus should be shifted to India, Russia and Continental Europe in 2006.
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Till even three years ago, India was hardly a critical market for Yum!. But as the India business assumed importance in its plan, in 2006, the Indian management was asked to report directly to the US HQ in Dallas. Though Mr Kohli agreed that the reporting structure had changed last year, he dismissed allegations that there was misreporting about the number of new stores built in 2006. ���That���s not true at all,��� he said.
Pizza Hut and KFC are run on the franchisee model, where the brand is licensed out to local partners in lieu of a royalty fee, which is about 5-6%. According to a prominent business partner, the Indian management decided to open stores indiscriminately, forcing a few of the existing franchisees to plan exits by reselling the franchisee license to another local player. ���When existing franchisees would oppose the plan to build new stores, Yum! India would appoint new franchisees to grow the business and meet targets, even at the risk of diluting the brand equity of Pizza Hut and KFC,��� said a franchisee.
���Apart from pressure to expand, there���s the issue of new franchisees being brought into the fray impacting the brand. There���s no defined territory and multiple franchisees are used within the same area,��� said another franchisee. ���We���ve made it clear that as a franchisee, we would not grow indiscriminately. Instead, we would follow a slow-paced growth, which would be profitable. Food retail has become challenging with margins dropping by the day,��� said a Western region franchisee.
For instance, in Chennai, there was only one franchisee ��� Pizzeria Restaurants ��� but in 2005, the RK Swamy Group was brought on board. Similarly, the Ravi Jaipuria-led Devyani International was the only franchisee till Gamma Pizza Kraft was given the licence to start Pizza Hut outlets in 2005. The latter runs two Pizza Hut outlets in Gurgaon.
Yum! India has around 15 franchisees in the country. With 125 odd Pizza Huts and 25 KFCs, the plan is to build at least 100 plus new stores in 2007. In addition, the parent company wants to build its own KFC stores in exclusive territories, which has further irked the franchisees.
Mr Kohli was forthcoming on why the management was aggressive on new store openings. ���India is an important market for every company. It���s no different for Yum! If some of the existing franchisees don���t want to invest in new outlets, the company would look for new ones,��� he said.
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However, sources attribute another reason to the random store openings. According to them, the bonus awarded to Yum! India���s management team depends on various factors, one of which is the performance against the targeted number of builds. It tended to show builds more than what were on the ground, by including stores which would come up in the next 2-3 months. This was done because the Indian subsidiary had fallen short of targets.
Conceding that the senior management���s bonus is linked to the number of stores opened in a year, Mr Kohli said: ���That���s not the only parameter. There are other things such as revenues and profits linked to bonus. Let me assure you Yum! India is doing extremely well (annual revenues of Rs 450-500 crore) and is profitable as well. Since we are in the growth phase, we plough back profits to grow the business.���
Meanwhile Yum! business partners feel that a new CEO will have his work cut out. ���The new team would have to take the franchisees into confidence and our interests should also feature on the company���s growth agenda,��� said a Yum! associate. And what of Mr Kohli? His bonus for 2006 is set to be paid out shortly and he plans to focus on developing real estate and logistics and back-end operations of the retail business. And if you want to get in touch with him, don���t mail on his Yum! id. ���It will bounce back,��� he chuckles. Mr Kohli has moved on.
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