Yum! Brands

Yum ready to gobble up more of mainland market

PUBLISHED : Saturday, 21 July, 2012, 12:00am
UPDATED : Saturday, 21 July, 2012, 12:00am


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Fast-food chain giant Yum Brands put its mainland expansion plan into high gear after setting a new goal to add 700 restaurants this year in the world's second-largest economy.

That would be a record build-out for a single market in a year by the United States-based company - owner of the popular KFC and Pizza Hut dine-in chains - after it previously targeted 600 new store openings across the mainland.

Chairman and chief executive David Novak told analysts in a conference call yesterday that subsidiary Yum China, the company's biggest profit-contributing division, was expected to post 'modest margin improvement in the second half of this year and double-digit profit growth'.

Novak described the mainland unit's 4 per cent decline in operating profit last quarter as 'short-lived', as inflation in the domestic market moderates, and new restaurant menu and pricing initiatives get on track.

Shanghai-based Yum China is the country's leading restaurant developer, responsible for about 5,251 stores - excluding licensees - in more than 800 cities on the mainland as of mid-June.

Justifying the lofty domestic store expansion this year, Novak said: 'The most compelling stat we have is we only have four restaurants per one million people in China, compared to nearly 60 in the United States. And the [mainland] consuming class is expected to double to over 600 million people by 2020.'

He said Yum China's sales in the quarter to June grew 27 per cent, driven by an 18 per cent increase in new stores opened and 10 per cent sales growth in existing restaurants.

The mainland subsidiary also runs Pizza Hut Home Service, Chinese fast-food chain East Dawning and hot-pot restaurant group Little Sheep, the former Hong Kong-listed company that Yum bought and privatised earlier this year.

'One of the things I'm most pleased with is that by the end of the year, our average unit volumes [average annual restaurant sales] will be US$1.7 million for KFC and Pizza Hut dine-in [stores on the mainland]', Novak said.

'Even more impressive, the top 10 per cent of our restaurants now have volumes of nearly US$3 million [each],' he said.

Yum's consolidated global second-quarter net profit advanced 5 per cent to US$331 million from US$316 million a year earlier. Total revenue rose 12 per cent to US$3.17 billion, from US$2.82 billion.

Market research publisher IbisWorld has forecast the mainland's fast-food industry will generate sales of US$147 billion by 2016, up from an estimated US$74.8 billion last year.