KFC Eyes the Chinese Market
With sales dropping at home, Yum! Brands Inc, owner of the Kentucky Fried Chicken and Pizza Hut brands, is planning to expand its business in the Chinese market, which could make the country its biggest source of profit within a decade.
KFC was the first foreign fast food company to move into China, opening its first outlet in 1987. Since then, Yum has become China’s biggest restaurant chain with $2 billion of annual sales and over 2,500 KFC and Pizza Hut outlets.
But like many foreign firms in China, the US fast food giant has discovered it can’t just rely on a foreign brand name for growth and must instead adapt to local tastes and lifestyles. By offering a menu with dishes similar to the food that tens of thousands of Chinese have every day, Yum boosted its sales by 12% in the first quarter, while those in other international destinations and the US were 5% and 3% respectively.
And now Yum intends to increase its lead and plans to add 425 restaurants in China this year while McDonald’s, its nearest rival in the country, has said it aims to open at least 125 stores in the country in 2008.
Yum CEO David Novak has said he envisages eventually having over 20,000 restaurants in China. “We’re in the first inning of a nine-inning ball game in China,” Novak said recently. He also has predicted China’s contribution could reach 40% by 2017, exceeding 30% for the US by then.
So far, investors are welcoming the China strategy. Operating profit of Yum’s China division surged 30% to $375 million last year, accounting for over a quarter of the firm’s total operating profit of $1.36 billion, which rose 8%.
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