10 Updates
YUM China Swings to Recovery
Photo Credit: Forbes Business

YUM China Swings to Recovery

Jan 7 2014, 4:28am CST | by

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...

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28 weeks ago

YUM China Swings to Recovery

Jan 7 2014, 4:28am CST | by

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

 
Update
10

6 weeks ago

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Jun 9 2014 7:54am CDT | Source: Business Times Malaysia

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KUALA LUMPUR: About RM47 million of contributions in the Teachers Provident Fund (KWSG) still remain unclaimed, the Dewan Rakyat was t ...
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Update
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6 weeks ago

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KUALA LUMPUR: AN emergency motion to debate the losses incurred by Malaysia Airlines last year, amounting to RM1.2 billion was rejected by the Dewan Raky ...
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7

6 weeks ago

MH370 Tragedy: Hisham: RM27.6 mil spent on 1st phase of SAR

Jun 9 2014 2:11am CDT | Source: Business Times Malaysia

KUALA LUMPUR: Malaysia spent some RM27.6 million in its first phase of the search operations for missing Malaysia Airline flight MH370, said Acting Transport Minister, Datuk Seri Hish ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
6

6 weeks ago

9.1m litres of diesel seized in a month

Jun 8 2014 1:11am CDT | Source: Business Times Malaysia

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PUTRAJAYA: The Domestic Trade, Cooperatives, and Consumerism ministry has seized some 9.1 million litres of diesel and property worth RM58 million since mounting ‘Operasi Diesel Selatan’ in the southern ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
5

6 weeks ago

Girl, 9, awarded RM2.78m compensation for medical negligence

Jun 6 2014 4:56am CDT | Source: Business Times Malaysia

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KUALA LUMPUR: A nine-year-old girl who suffered brain damage during her birth at a government hospital was awarded over RM2.78 million in compe ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
4

6 weeks ago

Malaysia's total trade in April up 12pc

Jun 5 2014 11:52pm CDT | Source: Business Times Malaysia

KUALA LUMPUR: Malaysia's total trade in April 2014 rose by 12 per cent from a year ago to RM123.86 billion due to growing trading activities, International Trade and Industry Minister Dat ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
3

7 weeks ago

Works Ministry to spend RM20m for upgrading works at 50 accident black spots

Jun 4 2014 11:35pm CDT | Source: Business Times Malaysia

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JOHOR BARU: The Works Ministry will implement upgrading works at 50 accident prone locations in the country that have been identified this year involving an allocation of RM20 mil ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
2

7 weeks ago

Najib launches loan scheme for Ramadan traders

Jun 4 2014 10:24pm CDT | Source: Business Times Malaysia

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PUTRAJAYA: Prime Minister Datuk Seri Najib Razak today launches RM45 million Ramada ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
1

7 weeks ago

Residents bring up objection against Kidex to Suhakam

Jun 4 2014 4:49am CDT | Source: Business Times Malaysia

PETALING JAYA: A group of 20 Petaling Jaya residents held a meeting with the Human Rights Commission of Malaysia (Suhakam) over their objection against the proposed RM2.2 billion ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 

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