Yum! Brands

KFC parent Yum Brands warns on China sales; shares slump 7.5pc

PUBLISHED : Thursday, 10 October, 2013, 12:00am
UPDATED : Thursday, 10 October, 2013, 4:01am

KFC parent Yum Brands warned that it would take longer than expected for its restaurant sales in China to rebound, delaying a recovery in the market that accounts for more than half of the company's overall operating profit.

Its New York-listed shares fell 7.5 per cent on Tuesday as investors digested the news, which came after months of Yum executives reassuring investors that restaurant sales in the country would return to growth in the fourth quarter.

Yum's sales at established restaurants in China have taken a beating since December last year, when a social-media-fuelled food-safety scare over chemical residues in chicken from some of its suppliers pummelled sales. That was followed by a bird flu outbreak that destroyed many diners' appetite for poultry.

The Kentucky-based company operates more restaurants in China than any other US brand and said it remained confident in its business in the world's fastest-growing major economy.

"KFC is unquestionably the category leader in China, and we remain confident sales will fully recover," chief executive David Novak said in a statement.

Yum attributed its China woes to the December scare, but some analysts suggest that its problems are of a different nature. They say China's middle-income diners - who flock to KFC - have cut their spending because of government austerity measures.

KFC also faced stronger competition from local eateries, and the company might have opened too many fried-chicken restaurants in China, the analysts said.

"We are seeing a slowing consumer spending environment in China," Edward Jones analyst Jack Russo said.

Yum would "have to continue to run the restaurants really well and get messaging out there that consumers will be fine coming into the restaurants".

Yum's same-restaurant sales in China fell 11 per cent in the third quarter. Those sales then dropped a steeper-than-expected 11 per cent last month, which is the first month of the China division's fourth quarter.

Yum would launch "an aggressive marketing campaign to fully restore consumer trust in the brand", spokesman Jonathan Blum said. He said trust in the KFC brand had improved in China since December but that it was not yet fully restored.