Corporate China | Coke's smoggy battle, KFC's 'dead chicken bounce'
Yum's big jump in second-quarter China sales represents a dead-cat bounce due to unusual factors last year, and the company's best hopes lie in a new overhaul of its KFC stores.
The latest news is decidedly cloudy from two of the world's biggest food and beverage operators in China, with beverage leader Coca Cola (NYSE: KO) and fast-food giant Yum Brands (NYSE: YUM) fighting battles on different fronts. Yum has just reported financial results that show a nice jump in same-store sales for its flagship KFC restaurants during the second quarter. But the year-ago figures were extremely depressed due to several one-time factors, meaning current same-store sales are probably still below levels from two years ago. Meantime, media reports say Coke is offering generous incentives to attract foreigners to work in Beijing due to the city's heavy air pollution, reflecting a recent broader problem faced by many multinationals.
Coke and KFC were two of the earliest big foreign food and beverage companies to come to China, arriving more than a quarter century ago. Each have each been handsomely rewarded for their early decisions, and now count the market as one of their largest. But both have established huge China-based operations to earn their big profits, which makes them vulnerable to the rapid changes that are an integral part of China's business landscape.
KFC was already seeing a sharp business slowdown two years ago due to saturation of its restaurants, which now number more than 4,000 in China. Those same KFC stores were a novelty when the company first entered the market in 1987, but have become common by now and are even considered downscale by some. Sales were already sagging, but then suddenly plummeted in the first half of last year due to a food safety scandal, followed by bird flu outbreak that saw consumers abandon the restaurants in droves.