YUM China Swings to Recovery

Jan 7 2014, 4:28am CST | by

YUM China Swings to Recovery
Photo Credit: Forbes Business

Research is contributed by Yifeng Mao, the Head of Research at Goldpebble Research based in Singapore.  Opinions expressed are our own.

Disclaimer: We currently do not have a position in YUM

KFC China

According to the Goldpebble Consumer Product Monitor, YUM has quietly increased prices by 0.5 to 2 RMB, depending on the item on the menu recently.  We followed up with store visits in Beijing, Shanghai, Shandong, Chongqing and our findings have confirmed price hike of around 5% year-on-year.  The price increase has been unannounced and rarely noticed.  We suspect it is to avoid further friction with the government and local media.

We are also seeing new product offerings, including golden extra-crispy chicken, larger buckets of chicken wings and new openings of dessert corners to cross-sell to existing traffic within stores.   KFC China has started to swap out its main product of ‘finger licking good’ fried chicken to golden extra-crispy chicken, to lower the cost.  Golden crispy chicken is easier to make and spices are locally sourced.

As such, we now expect  approximately 5% year-on-year SSSG (Same Store Sales Growth) for KFC China in December and into 2014, higher than the street consensus.

The long waited recovery follows a catastrophic year of endemic food hygiene and safety concerns, starting from the 45-day chicken scare in Oct 2012 and a CCTV expose on the issue in Dec 2012. That was quickly followed by the bird flu outbreak and scandals over bacteria-ridden ice cubes, tissue paper with fluorescent agents, and barrels contaminated with whitening chemicals in the spring of 2013.  I have provided detailed analysis of the events throughout 2012 in my latest book Tiger Woman On Wall Street.

As a result, SSSG (same store sales growth) for KFC China slumped to -20% in Q1 and Q2 2013 and -10% in Q3 2013. It further narrowed to 0% growth in November.  YUM China management appears to be under increasing amount of pressure to re-deliver growth before Q2, a seasonally weak quarter.

Pizza Hut

Both Pizza Hut brands (Pizza Hut Casual Dining, Pizza Hut Home Service, Pizza Hut Express) continue to grow at approximately 10%. Pizza Hut brands combined represents just under 10% of YUM China’s total revenue. However, they are an important growth driver in China.  In 2013, among approximately 400 new stores openings, half are Pizza Hut stores.

In China, Pizza Hut offers a premium dining experience, with localized flavors and alcohol offerings, and the chain is popular among young Chinese as a venue for dates and parties.

Long-Term Trends Still Cautionary

Nevertheless, we continue to believe that the KFC brand has passed the peak cycle of growth in China especially in the populated big cities. In addition, the strengthening of food safety practices by the local and central governments implies that supermarkets and established chain restaurants will be frequent targets of rigorous inspections if problems are found. Relative to the local businesses, multinational operators are more likely to be targeted of the heightened crackdown.

According to Goldpebble’s broad Consumer Pricing Monitor, the food price inflation in China is likely to be higher than the reported CPI (Consumer Price Index) of 2.5%, led by food, wages and commercial rent.  YUM China’s profit margins are unlikely to rebound back to the 20% level in 2012.

Source: Forbes Business


Don't miss ...


<a href="/latest_stories/all/all/30" rel="author">Forbes</a>
Forbes is among the most trusted resources for the world's business and investment leaders, providing them the uncompromising commentary, concise analysis, relevant tools and real-time reporting they need to succeed at work, profit from investing and have fun with the rewards of winning.


blog comments powered by Disqus

Latest stories

Power outage across Bangladesh as national grid collapses
Dhaka, Nov 1 (IANS) Power outages Saturday hit several places in Bangladesh, including the capital Dhaka, due to the collapse of the national grid.
Drugs to abet cancer cells suicide found
London, Nov 1 (IANS) British scientists have found a drug combination that can trigger the self-destruct process in lung cancer cells -- paving the way for new treatments.
Climate change threatens global health security: UNEP
San Juan, Nov 1 (IANS/EFE) The rapid propagation in recent years of infectious diseases such as Malaria, Chikungunya and even Ebola is one more example of how climate change threatens global health security.
US-Japan joint rain radar mission to end next year
Washington, Nov 1 (IANS) After 17 years of groundbreaking 3-D images of rain and storms, the joint NASA and Japan Aerospace Exploration Agency Tropical Rainfall Measuring Mission (TRMM) will come to an end next year, the US space agency said in a statement.

Latest from the Network

Circus tiger kills girl in China
Beijing, Nov 1 (IANS) A circus tiger killed a girl in China's southwestern Chongqing Municipality Friday, according to the theme park. The eight-year-old girl was attacked by the tiger when she slipped into a closed...
Read more on Politics Balla
Another Burkina Faso army officer seizes power
Ouagadougou, Nov 1 (IANS) Burkina Faso's senior military officer Isaac Zida, who was in command of the presidential guard, Saturday announced he has seized power as head of state during the interim period. "I now...
Read more on Politics Balla
Bharat-Nepal Shiksha Maitri Karyakram launched
Kathmandu, Nov 1 (IANS) In the line with the announcement made by Indian Prime Minister Narendra Modi in the first week of August, the "Bharat-Nepal Shiksha Maitri Karyakram" for Nepalese students pursuing...
Read more on Politics Balla
1,273 people killed in Iraq violence in October: UN
Baghdad, Nov 1 (IANS) A total of 1,273 Iraqis were killed and 2,010 others were injured in terrorist attacks and violence in October in Iraq, according to a statement issued Saturday by the UN Assistance Mission for...
Read more on Politics Balla
Sarah Hyland wants funny boyfriend
Sarah Hyland wants a boyfriend who can make her laugh. The 'Modern Family' actress, who recently secured a three-year restraining order against ex-boyfriend Matthew Prokop after claiming he abused her for four years...
Read more on Celebrity Balla
Kim and Kanye name new home after Downton Abbey property
Kanye West and his wife Kim Kardashian West have named their new home after the property from 'Downton Abbey'. The loved-up couple - who wed in Florence, Italy in May, and have one-year-old daughter North West together...
Read more on Celebrity Balla
Nicki Minaj slammed for arriving six hours late for photoshoot
Nicki Minaj has been dubbed ''incredibly rude'' after turning up six hours late for a photoshoot. The 31-year-old rapper arrived at 2am to shoot photos for a future issue of Billboard magazine in New York, and has since...
Read more on Celebrity Balla
Danny DeVito doesn't like One Direction, despite being in their video
Danny DeVito doesn't like One Direction, despite appearing in their video for 'Steal My Girl'. The pint-sized 'Matilda' actor featured in a clip for their new single which was unveiled last week, but explained that he...
Read more on Celebrity Balla
Power outage across Bangladesh as national grid collapses
Dhaka, Nov 1 (IANS) Power outages Saturday hit several places in Bangladesh, including the capital Dhaka, due to the collapse of the national grid. Reports of power cuts were coming in from several other places...
Read more on Business Balla
Space plane crash: Sir Branson 'shocked' but to 'persevere'
New York, Nov 1 (IANS) Richard Branson, founder of the Virgin Group, was "shocked and saddened" by the news of the Virgin Galactic passenger space plane crash but said that he would "persevere". The space plane...
Read more on Politics Balla