Fast food firm hit by China food safety scares
The company, which owns Kentucky Fried Chicken (KFC) and Pizza Hut, saw profits plummet 68% year-on-year to $152m in the three months to 7 September.
The losses were driven by an 11% sales drop in China – which accounts for a third of its revenue – as a result of ongoing consumer concern over the safety of chicken.
Sales at KFC China were only beginning to recover from December’s scare over antibiotics in its supply chain when bird flu hit in May, and the company said: “Third-quarter sales and profits were impacted by adverse publicity surrounding the December poultry supply incident and subsequent news of avian flu.”
It added that, based on KFC China sales for September, it was “unlikely” sales in its China division would recover in the fourth quarter.
However, chairman and CEO David C Novak said he was “confident” that Yum could deliver growth in the longer term. “Even with our recent challenges, KFC is unquestionably the category leader in China and we remain confident sales will fully recover,” he said, adding that the company’s Pizza Hut business in China continued to “deliver strong results”.
He stressed that China would remain a key market for Yum, which is planning to open at least 700 new units in the country this year.
Commenting on the results, Professor Qing Wang, who heads up marketing and innovation at Warwick Business School, warned that KFC China was at bigger risk from food scares than rival chains, such as McDonald’s, due to its exclusive focus on chicken as an ingredient.
However, he said that Yum’s China division would most likely recover despite China’s “obsession” with food safety.
“Unlike man-made food safety scandals, such as the poisonous infant milk incident, bird flu is unlikely to dent the reputation of the company. The sales decline may be temporary and can be averted with the right strategy,” he said.
He added that given the company’s huge reliance on the Chinese market, it was “almost unthinkable” for Yum to give up on China.
