• by David Goetzl  @dgoetzl, February 14, 2007

Local television stations and newspapers in the Northeast might have received a multimillion-dollar windfall late last year as Yum Brands' Taco Bell fought to convince consumers that its restaurants were safe after an E. coli scare.

In December, an E. coli threat touched Taco Bell establishments in the Northeast, including New York City--resulting in the scare and a financial hit for the company.

Yum then launched a counterattack that led to a $20 million drop in fourth-quarter operating profits, partly because of marketing expenses. The company did not specify how much of the $20 million was spent on "crisis" advertising to convey the message that the chain's units had become safe.

Company officials Tuesday said its customer base is moving back on board--but it's still struggling to boost sales, particularly in the Northeast and by attracting fringe consumers. "We were actually surprised with how rapidly the brand is recovering from significant sales declines in December," said CEO David Novak on a conference call to announce results from the quarter. "The strength of the brand with core users is as strong as it was before the incident. The challenge is to get light users back in our restaurants."

In the fourth quarter in the U.S., same-store Taco Bell sales in the fourth quarter dropped 5%. In addition to Taco Bell, the company operates KFC and Pizza Hut, both of which had lackluster fourth quarters as well.

And they did not offer robust predictions for U.S. growth for the brands in 2007, citing a 1% or 2% forecast for same store sales at Taco Bell. For its Pizza Hut and KFC brands, 2% to 3% same-store growth was forecast.

They did say their Super Bowl ad for a new taquito product at Taco Bell could help bolster consumer appetites. And for the year ahead, they would look to expand the number of units of both the Taco Bell and KFC brands, and in the process "get national scale in terms of advertising that gets us higher volumes and allows us to really go in with the kind of sales levels that we think we can penetrate new markets with," Novak said.

Yum spends an enormous amount on marketing. Through the first 11 months of 2006, it spent $827.5 million, including $287.9 million on Taco Bell, according to Nielsen Monitor-Plus.

At KFC, same store sales in the fourth quarter dropped 1%, though Novak said "we remain very confident in our brand-positioning (and) our advertising."

Much of the optimism comes from the elimination of all trans-fats at the chain starting this spring, with research showing only 30% of customers are aware of the change, he said.

The third major chain inside the Yum portfolio, Pizza Hut, has also struggled (same store sales down 1% in the most recent quarter) and company officials plan to "develop a stronger everyday value marketing approach." The plan is to focus on its chicken wing WingStreet brand that is increasingly being offered within Pizza Huts, while there's hope that a January ad campaign touting value deals can help. Overseas, Yum has a strong presence in China where company officials are bullish on growth. And it has optimism about expansion into India and Russia as well.