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Yum! Brands’ Expansion in China?

After years of rapid expansion in China, Yum! Brands is struggling to keep customers coming back. The American food company, which runs more than 7,100 KFC and Pizza Hut eateries, has reinvented its two classic brands in China. While KFC is a fast food restaurant offering Chinese rice porridges in addition to the chicken burger, Pizza Hut is an upscale Western restaurant.

In October 2015, Yum! Brands split off its China business unit after continuous declines of sales. Now it wants to take its Chinese unit public, perhaps in Hong Kong,and some investors are valuing it at US$7-8 billion.  It has received interest already from Primavera Capital and Hopu Investment. Furthermore, a consortium backed by sovereign fund China Investment Corp. is considering buying a majority stake.

Once the Yum! Brands’ top segment for profitability, The China unit is now hindering to performance, as other markets are expanding quicker and producing better results. Same-store sales declined 4% in 2015, while Yum! Brands’ fast food market share of fell dramatically. It represented 40% of all value sales in 2011 to 28% in 2014, and 24% in 2015.

Fast Food Industry in China: Yum! Brands’ Product Adaptation

With the new funds from the China unit’s public offering, Yum! Brands plans to open new locations, add new food to the menu, and refurbish existing restaurants. Recent marketing campaigns included adding pictures of fresh produce to give a healthy, nutritious vibe. However, the menu offers more local Chinese tastes such as rice porridges and egg tarts, which don’t resonate well with the decorations.

But there is still room for growth according to some experts. Matthieu David, the chief executive of Daxue Consulting, believes there is potential in lower-tier areas where Chinese people still regard foreign food as a novelty. KFC already well known in first-tier cities like Guangzhou or Beijing, and no longer has the wow factor. This may be an answer to Yum! Brands’ stagnant China growth.

See the Post on Forbes below: