Yum Brands forges ahead in China

23 April 2012

BEIJING: Yum Brands, the owner of fast food chains KFC and Pizza Hut, is ramping up its focus on China, targeting the expanding middle class, untapped cities and young talent to fuel such progress.

The firm enjoyed sales growth of 28% in China in the last quarter, with like-for-like totals climbing by 14%. It also opened 160 branches in the last three months, a figure which could top 600 this year.

"The overwhelming macro trend that should affect consumer businesses in China is the fact that there's more consumers," David Novak, the CEO of Yum Brands, said on a conference call.

"Rising incomes are making our brands even more affordable for an increasing number of people, and the consuming class is expected to double over the next ten years to well over 600m consumers."

KFC now has 3,819 outlets in 800 cities across China, yielding average volume returns of $1.7m. "KFC is deeply rooted in China with its localised menu and broad appeal," said Novak.

Pizza Hut runs a more modest 662 restaurants, and, as with KFC, typically sees branches deliver cash profits within three years, the best performance on this measure globally.

More specifically, Pizza Hut has focused on innovation in the country, with around a quarter of the menu changing every six months, alongside offering regular promotions.

As well as its international brands, Yum also created the East Dawning chain in China, and purchased Little Sheep, the hot pot restaurant group.

"We have multiple brands," said Novak. "And I think the thing that I'm most impressed with is that we've got the operating and development capability to keep it going, plus the process and discipline and review processes that really make sure that we get the right sites and the right quality of sites."

The company's other initiatives have included establishing the "Whampoa Academy", a training school for its next generation of restaurant managers. It hired 10,000 trainees in 2011, with 15,000 scheduled for 2012.

It also has 900 staff on the development side of its Chinese business, some 90% of which work locally. Managers in this area have an average tenure of eight years, and help identify 50-60 new cities per year and specific sites for restaurants.

"I think that the China team arguably has done the best job of any retailer in the world," said Novak. "I think it's a great advantage that we have, that we can go to China and have such a stalwart example of how to really execute."

Data sourced from Seeking Alpha; additional content by Warc staff