Yum Brands (NYSE: YUM) has a new recipe that’s powering growth at Taco Bell

Yum Brands (NYSE: YUM)—the restaurant holding company that operates iconic brands like Taco Bell, KFC and Pizza Hut—has spent much of this year perfecting a new, high-tech recipe that’s turning out to be more than just a gimmick. From point-of-sale ordering to individualized marketing, artificial intelligence is being integrated across operations, and it’s driving both top- and bottom-line growth that’s setting the company apart from competitors as many still face a challenging macro environment with cost-conscious customers.  

“It’s really what we call the AI factory within that ecosystem that leverages our massive data assets that we’ve built, which enable us to know our consumers,” CFO Chris Turner told investors during a recent conference call about efforts being deployed at Taco Bell. “It leverages the fact that we have the POS in the store, the digital menu boards and the ability to actually bring these to life at the store and through our loyalty programs and through our connections with customers in the app.”

The strategy began to take shape in early 2024, with Yum naming a Chief Digital & Technology Officer in January who went on to say the company would adopt an “AI-first mentality.” The executive, Joe Park, this month detailed ongoing efforts to go beyond an AI-powered ordering system being installed across drive-throughs with marketing campaigns that can be individually tailored instead of sending one-size-fits-all messaging. The company, for example, is now using AI to decide when to deliver customized emails, and Park said the process has been much faster than relying on the testing methods marketers typically use.

“Compared to traditional digital marketing campaigns, they generate double-digit increases for us in consumer engagement,” Park said, adding that additional technology can be used to personalize ordering kiosks with promotional offers that could vary based on the time of day, location, weather or other purchase history. “As we collect more data, we see AI playing a role in personalizing the menu board that you see or the kiosk that you’re at, to know what you would more likely purchase at that moment, what kind of promos attract you.”

CEO David Gibbs said the digital engagement had been a key factor in fueling growth at Taco Bell, which “meaningfully outperformed” the industry and helped overall profits at the parent company increase 3% year-over-year in the third quarter. The Mexican-styled taco chain saw digital sales rise 30% after it adopted Yum’s technology platforms and now accounts for 75% of profit in the US, with both the Pizza Hut and KFC businesses “more challenged” at the moment. 

Amid the tech-forward efforts, Yum has seen its shares rise 8.6% over the past year. While that’s well behind the 32.3% gain the broader S&P 500 index has seen over the same period, it’s well ahead of struggling peers that have been fighting to revive demand from customers still smarting from inflation and on the hunt for deals. McDonald’s (NYSE: MCD)—which earlier this year ended a test of AI drive-through technology—gained 5.1% over the past 12 months, while Restaurant Brands International (NYSE: QSR) declined 1.6%.

Turner, Yum’s CFO, said the company will be able to learn from what it’s doing at Taco Bell and roll it out to its other chains, and that suggests there could be further upside in store. “At Taco Bell, we now have AI-powered forecasts, driving both our labor scaling and inventory management processes,” he said, adding that the AI solutions would be scaled across its other brands throughout 2025.

Taco Bell has indeed emerged as a leader when it comes to deploying cutting edge technology, but the question now becomes if the resulting bump is just a one-off. The AI-fueled marketing may catch eyeballs initially, but consumers could harden as others inevitably start to deploy similar tactics and flood inboxes with more customized offers than any single person needs. Yum is clearly hoping that a first-mover advantage will turn into a long-lasting edge, but it will likely face intense competition in the future as restaurants battle it out for both hungry stomachs and frazzled attention spans.