Taco Bell Meth Lab Could Highlight Deeper Issues With Yum! Brands

On August 4, Taco Bell, a subsidiary of global restaurant conglomerate Yum! Brands Inc. (NYSE: YUM), made with the following statement on its website regarding its Cedar Rapids, Iowa Taco Bell:

We understand that two people, one an employee, entered our franchisee’s restaurant illegally, allegedly possessing suspicious items. Both we and our franchisee find this completely unacceptable. Our franchisee has been cooperating with Cedar Rapids Police to investigate this isolated incident. Although the suspicious items found in the restaurant were not used in the kitchen, the employee has been terminated and our franchisee is considering pressing criminal charges. The restaurant will reopen after it has been sanitized and inspected by the Health Department.

As it turns out, police found the “remnants of a meth lab” in the Taco Bell location. Two men, one of which based on the statement was a Taco Bell employee, were taken into custody. Investors can dismiss this as an isolated incident. However, this may highlight deeper weaknesses with Yum’s management. Here’s why.

Yum experienced has stakeholder mishaps before. Early last year, a video filmed a Pizza Hut district manager urinating in a kitchen sink in its Kermit, W.V., location. If the district manager did this, you tend to wonder what other employees might get away with.

Also, Yum got mixed up in a scandal when one of its vendors alledgedly sold stale meat to the company. The vendor, Shanghai Husi Food, also mislabeled expiration dates. While an investor can dismiss one isolated incident, several may lead investors and the public at large to speculate as to management’s capabilities.

Simply stated, Yum needs to do a better job of screening its vendors and employees. Management needs to tighten down on its day-to-day operations to make sure that its employees will not commit shenanigans such as those highlighted above. The company may also need to keep a closer eye on its franchisees.

Consumers could start to see Yum’s in a negative light, damaging the company’s brand over the long-term. As a result, consumers may feel compelled to spend their money at its competitors. This could hurt Yum’s fundamentals and subsequently its stock price.

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