Yum! Brands (YUM) Chairman & CEO David Novak on India & China Expansion

Outside the U.S. Yum! Brands opened three new restaurants each day in 2004 making it one of the fastest growing retailers in the world. CNBC spoke to Chairman & CEO David Novak about expansion into India & China. Expansion into China is important enough to Yum! Brands that it has its own division within the company.

CNBC: Tell us about your China and India expansion.

Novak: The thing we have in China is what most companies would kill for. We have the infrastructure and the people capability to truly execute. We have our own distribution company. We're in every province but Tibet. We've been there since 1987. We have a local management team that understands the Chinese customer, understands how to work with the government, understands just how to do business with the Chinese, so it's a tremendous competitive advantage that we have. And this year the China division will open over 400 restaurants, so we're doing quite well, especially with KFC and Pizza Hut but we're nowhere close to tapping the potential there.

One more year, we're going to open up well over a thousand restaurants outside the United States. We're going into India... we're already in India with a 100 Pizza Huts. We are the #1 most trusted brand in the food service business in India, with Pizza Hut. We're now developing KFC, which is doing quite well, and is profitable at the unit level, so we're excited about the prospects of India. We also just did a deal with a company in Russia which is the #1 brand in Russia for fried chicken.

So we're really looking at China, India, and Russia as the three international markets that we want to build scale in. And there's obviously a lot of people there, and we're really just on the ground floor, so it's really exciting.

CNBC: I'm sure you go to China a lot and I'm curious - just give us your reflections about the growth of the economy there, given that it's such an important part of our own economy.

Novak: I started going over there 8 or 9 years ago. I remember going into Beijing. All you'd see were bicycles. We stayed at supposedly the nicest hotel. It was… you know… not a nice hotel, by our standards. Today if you go into Beijing, you’ll see cars, you’ll see new hotels, you’ll see a booming economy… you’re lookin’… everybody’s got a cell phone. There’s like 330 million cell phone subscribers in China. You’ve got an economy and people that are starting to make money. It’s just an economic powerhouse. It changes. It changes every six months. When you come back, you see something new, you see more… you just see more happening. It’s a very very vibrant place. And one of the impressions I also have is that the workforce wants a better life. They have a very hungry workforce, that they want to be educated, that they’re ambitious, they like to make money, and they’re committed to growth… business growth, personal growth, and I’m very very impressed by the Chinese people and their intelligence and their work ethic and it’s one of the reasons why we have such a great business. I mean, I think about 70% of our restaurant managers have at least a college education. So you got an unbelievable workforce there that has ambition. That’s why our operational excellence in China is the best in the world. We have a global operating platform and we measure performance around the world – China is at the very top.

And we also find in India, we find much of the same thing. Pizza Hut, a primarily dine-in chain in India, our people, if you walk into the Pizza Huts in India, when you have a birthday party our team members come out and sing, at the breaks they do rap songs, you know, the service culture is tremendous, and we’re there… we’re at the forefront. We have a chance to… I look at it like we’re where Glenn Bell was when he started Taco Bell, where Ray Kroc was when he started McDonald’s, we’re there… we have the chance to create these businesses from scratch and turn them into unbelievably big businesses where there’s a billion people.

CNBC: The guy’s name was Bell?

Novak: That’s right, Glenn Bell.

CNBC: Would you try to make like a Hunan Chicken at KFC?

Novak: We… we do… we have different flavor variants in China, in different countries. We will develop local products. In China you can order Original Recipe, the same Original Recipe with the eleven herbs and spices that are famous here in the United States, that’s what you’re going to get in China. If you go into Pizza Hut, you can order our famous pan pizza.

CNBC: You gave the eleven herbs and spices recipe to the Chinese!?

Novak: We do so many good things for the world.

CNBC: Those eleven herbs and spices are going to show up everywhere now. They gave it away folks! I mean, do you see Coke doing that?