• Mon
  • Dec 29, 2014
  • Updated: 3:38am

KFC owner set to grow on mainland

PUBLISHED : Thursday, 09 February, 2012, 12:00am
UPDATED : Thursday, 09 February, 2012, 12:00am

Fast-food chain giant Yum Brands will add at least 600 more outlets across the mainland this year on the back of continued strong sales growth in the world's second-largest economy.

United States-based Yum Brands, owner of the popular KFC and Pizza Hut chains, launched on the mainland a record 656 new restaurants last year and posted a 21 per cent increase in same-store transactions - a measurement of revenue from stores opened for a year or more - during the same period.

That resulted in a banner year with total domestic sales of US$5.6 billion, which accounted for a quarter of consolidated global sales of US$12.6 billion last year.

'We view China as the best restaurant growth opportunity of the 21st century,' Yum Brands chairman and chief executive officer David Novak told analysts in a conference call yesterday.

Yum Brands had a total of 4,493 traditional KFC and Pizza Hut stores on the mainland last year. It also operated more than 20 East Dawning restaurants, which offer dumplings and other Chinese cuisine served in a fast-food format.

'Our strategy in China is to have leading brands in every significant category,' Novak said. 'KFC is the clear leader in Western quick-service restaurants (QSR); Pizza Hut is far and away the Western casual-dining leader; and we're developing Pizza Hut Home Service.'

'We're also building East Dawning to be the premier mainstream Chinese-food QSR concept,' he said.

The company's mainland expansion accelerated last month after it completed the US$4.4 billion takeover and privatisation of Chinese hot-pot chain Little Sheep, which is famous for its Mongolian-style mutton dishes.

Novak described Little Sheep, which was founded in Inner Mongolia in 1999, as the 'leading hot-pot brand in Chinese casual dining'. He added: 'We are looking forward to strengthening Little Sheep's operational model and increasing its market leadership position.'

The former Hong Kong-listed Little Sheep has added 450 restaurants to the mainland network of Yum Brands. Richard Carucci, the company's chief financial officer, estimates the Little Sheep business will add about 5 per cent to mainland revenues this year.

'For the first quarter of 2012, given its strong sales over the Chinese New Year, we expect solid double-digit same-store sales growth [on the mainland],' Carucci said.

But he pointed out that higher labour and raw-ingredient costs in the mainland market prompted Yum Brands and others in its industry to increase prices in the second half of last year. Another modest increase is expected in the first half of this year.

'One of the great things we've had in China is we've had positive cash flow for at least five years there, even though we've continued to ramp up development there,' Carucci said.

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.

$74.8b

The value in US dollars of the mainland fast-food industry last year, according to market research firm IbisWorld

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