“This continuous sales decline is part of the side effect of slowing economic growth in China and concerns over food security issues,” said Minghang Yen of CIconsulting. “From the poultry food scare to the bird flu, fast food brands like KFC, and McDonald’s too, have been experiencing a tough period of time so far in 2013.”
As fast food restaurants continue to expand rapidly throughout the country, consumers are increasingly doubtful towards safety and product quality. According to Yen, continuous failure to meet standards has reduced their confidence across international fast food brands. This also contributes to a large part of the sales decline that KFC and McDonald’s have been experiencing.
Moreover, slowing economic growth has contributed to stagnant salaries across the country. Consumers are becoming less willing to pay for processed food and are increasingly returning to making their own food.
“Causes for declining sales consist of different factors,” said Yen. “The industry is currently suffering from series of damages caused by natural disasters like bird flu and men made problems like poultry scares.”
However, analysts are expecting a strong bounce back in 2014 for Yum! Brands. According to a note published by Citi Group, KFC has launched “Operation Thunder” to tackle food safety concerns. It also indicates that KFC’s sales growth dropped from 55% in 2012 to 36% in early 2013, before returning to 50% in July, 2013.
While the decline began in late 2012, the industry has still been witnessing a slow recovery in recent months. Besides, Yum! Brands is shifting its focus towards smaller markets where economic growth is much faster than in tier one and two cities along the coast.
As analysts believe that it usually takes up to an year for an industry to fully recover from a major damage, the fast food industry can expect a strong 2014.
“As China is slowly readjusting its economic structure and expanding its internal needs, opening up domestic market will be the major engine of economic growth in the next decade,” said Yen. “This means that the fast food industry still possesses huge room for development in the coming years.”