Bird flu, slow­down hit sales at fast-food chains

China Daily (Hong Kong) - - BUSINESSCOMPANIES - By WANG WEN wang­wen@chi­nadaily.com.cn

The bird flu scare and the eco­nomic slow­down hit the sales of some Western fast-food chains in China last month.

Yum! Brands Inc’s same­store sales in China de­clined an es­ti­mated 13 per­cent yearonyear in July, with a 16 per­cent de­crease at KFC and only 3 per­cent growth at Pizza Hut, Yum! Brands said on Mon­day.

Mean­while, McDon­ald’s Corp — Yum! Brands’ main ri­val — also saw a sales de­crease in China.

The com­pany said on Aug 8 that com­pa­ra­ble sales in Asi­aPa­cific, the Mid­dle East and Africa de­creased 1.9 per­cent in July, “re­flect­ing neg­a­tive re­sults in Ja­pan, Aus­tralia and China”.

China’s eco­nomic growth slow­down may be an im­por­tant rea­son be­hind the de­clines, some an­a­lysts said, al­though McDon­ald’s at­trib­uted the lower sales in those re­gions partly to the shift in tim­ing of Ra­madan.

Mus­lims across the globe ob­serve Ra­madan as a month of fast­ing.

“Due to the eco­nomic slow­down, con­sump­tion is weak, while the costs of raw ma­te­ri­als, hu­man re­sources and rents are all on the rise,” said Li Weihua, deputy di­rec­tor of the fran­chise re­search cen­ter of the China Univer­sity of Po­lit­i­cal Science and Law.

Yum! Brands also had to deal with the ef­fect from the neg­a­tive pub­lic­ity sur­round­ing a bird flu scare.

“KFC’s sales and prof­its in China were sig­nif­i­cantly im­pacted by the in­tense me­dia (cov­er­age) sur­round­ing Avian flu, as well as the resid­ual ef­fect of the De­cem­ber poul­try sup­ply in­ci­dent,” said David No­vak, chair­man and CEO of Yum! Brands.

At the end of 2012, food reg­u­la­tors in Shang­hai said that third-party tests re­vealed that eight batches of chicken sup­plied to KFC by Li­uhe Group Co had ex­ces­sive lev­els of an­tibi­otics.

The fast-food chain’s busi­ness in China was greatly Yum’s year-on-year de­cline in China same-store sales in the

sec­ond quar­ter af­fected, al­though it said that all the sup­plies from Li­uhe were stopped in 2012.

In the sec­ond quar­ter of 2013, Yum! Brands’ same­store sales in China de­creased 20 per­cent and its op­er­a­tional net profit de­clined 63 per­cent in the coun­try.

To soothe con­sumers, KFC an­nounced new qual­ity-as­sur­ance mea­sures in Fe­bru­ary, in­clud­ing elim­i­nat­ing un­cer­ti­fied poul­try pro­duc­ers, as well as im­prov­ing con­trol of sup­pli­ers and com­mu­ni­ca­tion with the pub­lic.

Yum! Brands is op­ti­mistic about win­ning back the con­sumers’ trust.

“The China di­vi­sion same­store sales are ex­pected to con­tinue to re­cover over the course of the year and be pos­i­tive in the fourth quar­ter,” the com­pany said in a reg­u­la­tory fil­ing.

The com­pany’s tar­get is achiev­able, as the Avian flu scare is fad­ing away, Li said.

He said that in­ter­na­tional fast-food chains have al­ways seen some cases of bad pub­lic­ity in China but that they have al­ways been able to man­age them.

And Western fast- food chains still have space to de­velop in the coun­try, Li said.

“Western fast- food, no mat­ter whether it is KFC or McDon­ald’s, may be every­where in big cities, but they are still very fresh in smaller cities, which make up the ma­jor­ity of the coun­try,” he added.

Yum! Brands has an­nounced plans to con­tinue its ex­pan­sion drive in China. The com­pany will open 700 restau­rants in China this year, said Sam Su, chair­man and chief ex­ec­u­tive of­fi­cer of Yum! Brands China.

The Chi­nese mar­ket, where Yum! Brands op­er­ates 5,726 stores, con­trib­uted more than half of the com­pany’s to­tal rev­enue last year.

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