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Yum feels the heat in China

KFC owner's sales fall blamed on lack of focus on cold drinks and ice cream amid hot weather

PUBLISHED : Tuesday, 13 August, 2013, 10:00am
UPDATED : Wednesday, 14 August, 2013, 3:40am

The heat seems to be getting to KFC parent Yum Brands on the mainland, after the fast-food chain saw China sales slide in July, with some market watchers saying a lack of focus on cooling drinks and ice cream meant diners looked elsewhere as record hot weather gripped the country.

On Monday Yum reported a much steeper-than-expected 13 per cent drop in July sales at established restaurants on the mainland as the firm strives to bounce back from double blows of a food safety scare and bird flu outbreak in its top market.

The sales decline was something of a setback for Kentucky-based Yum, which in recent months had seen same-restaurant sales declines ease.

"Because of the heat people were looking for cold drinks and ice cream, so McDonald's, Starbucks and Haagen-Dazs have been grabbing more share of the late afternoon and evening dining because they have better ice cream and drinks," said Shanghai-based Shaun Rein, managing director of China Market Research Group.

A review of KFC's China website yesterday backed this up, with almost every advertisement for hot food. McDonald's, meanwhile, had promotions for its ice cream McFlurry and shaved iced drinks specifically targeting an Asian market.

Local media reported that last month was the hottest July for 140 years, with temperatures hovering close to 40 degrees Celsius. The heat wave has held up so far in August and is expected to break in the middle of the month.

Analysts, on average, had expected a 7.1 per cent decline in China's July same-restaurant sales, according to Consensus Metrix.

Consultants and analysts said that the weak showing in July suggested Yum's mainland recovery may take longer than expected.

"We worry that the miss confirms a tougher competitive environment and more cautious consumer spending," said Jefferies in an analyst note after the results.

Yum generates more than half of its overall operating profit in China, where it is the biggest Western restaurant operator with roughly 6,000 mostly KFC restaurants.

Yum executives have repeatedly said that the company has successfully dealt with crises in China before.

In a regulatory filing on Monday, they repeated their forecast for same-restaurant sales in the world's fastest-growing major economy to turn around in the fourth quarter.