Oct 11 As Yum Brands Inc prepares for
the spinoff of its China division later this month, investors
want assurances that KFC and Pizza Hut restaurants can overcome
challenges after the chain stumbled in its top growth market.
Yum opened its first KFC in China near Beijing's Tiananmen
Square in 1987, beating major rivals to the country, where it is
the biggest Western restaurant operator with more than 7,300
The company, which is hosting its annual investor meeting in
New York on Tuesday, said an independent China business has the
potential to triple the number of restaurants there over the
long term. The spinoff is set for Oct. 31.
But Yum China's once-predictable growth has been called into
question as it has grappled with internal and external
challenges in recent years. Those include marketing blunders,
rising competition, bird flu outbreaks, food safety problems and
slowing economic growth.
Earlier this month, executives blamed anti-U.S. protests
sparked by political tensions in the South China Sea for a
surprise 1 percent drop in sales at established China
restaurants during the latest quarter.
While the sales were still down "modestly" during the
quarter that started Sept. 1, executives said they would return
to positive territory.
The company said the protest has not caused lasting harm to
the brand, a feeling echoed by Wu Zhenqi, 24, a customer who
works in the financial industry in Shanghai.
"I already don't see much anti-U.S. sentiment (toward it) or
get that sort of feeling from other people either," he said.
Yum Brands Chief Executive Officer Greg Creed said investors
Primavera Capital and Alibaba Group Holding Ltd
affiliate Ant Financial, which will buy a $460 million stake in
Yum China, would give the company a competitive advantage with
local market knowledge and digital expertise. Among other
things, Ant's popular Alipay service has been increasing its
reach in the country's restaurant industry.
Analysts say KFC, which accounts for roughly 70 percent of
Yum's restaurants in China, still has plenty of room to add new
units but suggest it may have a limit lower than the company's
China has about KFC 4 stores per million people and its
level of "Peak KFC," or restaurant penetration, is likely to be
equal to Japan's at 9 stores per million people, rather than the
13 stores per million people in the United States, Bernstein
Research analyst Sara Senatore said in a recent note.
Yum shares rose 3.1 percent to $90.12 in early trading on
(Reporting by Lisa Baertlein in Los Angeles; Additional
reporting by Shanghai newsroom; Editing by Jeffrey Benkoe)