Once No. 1, KFC in China is getting burned by its rivals
When the Louisville-headquartered Yum Brands opened its first KFC restaurant in China in 1987, the brand was still called Kentucky Fried Chicken, the Chinese were getting their first taste of Western Imperialist fast food, and the communist country was just beginning to embrace market reforms that have turned it into the world’s second-largest economy today.
Within a year, the small branch, located just south of Bei- jing ’s iconic Tiananmen Square, was the busiest KFC outlet in the world. Top brass at Yum Brands, the parent company that operates KFC as well as Pizza Hut and Taco Bell, were bullish about their prospects in China’s roaring economy, setting the goal of eventually opening 20,000 branches.
“China is the biggest retail opportunity in the 21st century,” former Yum CEO David Novak told USA TODAY in 2012.
Nearly three decades after establishing its beachhead, KFC now operates in a different landscape: Not only does it have to compete with other popular Western brands, it must vie with a proliferation of homegrown Chinese fast-food outlets.
As a result, KFC is struggling to win customers back, a task made harder by a series of food scandals involving dirty ice cubes, recycling out-of-date meat and excessive use of antibiotics in its chickens. In one case, a TV report in China last year showed workers for a KFC and McDonald’s meat supplier, Shanghai Husi Food Co., reusing meat that had fallen to the factory floor and mixing fresh and expired meat.
Yum in China has been dealing with the aftermath of the safety scares. The average Yum China restaurant generates about $1.2 million in revenue, down from about $1.7 before the food supplier incidents in 2012, according to company data.
Two weeks after a disappointing third-quarter earnings report, Yum Brands announced Tuesday it is spinning off its China operations — which includes nearly 7,000 restaurants — to create two publicly traded entities.
Yum China will have exclusive rights to KFC, Pizza Hut and Taco Bell on the mainland. Yum China will pay a percentage of its revenue to Yum Brands.