February 7, 2013

 

A significant drop in Yum Brands Inc.'s fourth quarter profits was experienced as a result of chicken safety fears in China, its largest overseas market.

 

The company reported on Tuesday (Feb 5) that net profit dipped 6% to US$337 million in the three months to December 29.

 

The Louisville, Kentucky-based fast food giant said same-store sales in China declined 6% in the quarter, compared to a 3% rise in the US, following media reports that excessive antibiotics had been used by some of KFC's former chicken suppliers in China.

 

During Yum's third quarter, China contributed more than half of its overall revenue of US$3.57 billion, and according to Tuesday's figures the country also generated roughly 40% of Yum's profit.

 

KFC's first branch opened in China in 1987, and today Yum said it has nearly 5,000 restaurants in more than 800 Chinese cities.

 

David Novak, the chairman and chief executive of Yum, said on Tuesday that despite the setback, the company would still be accelerating its development plans in China, and would open hundreds more outlets this year.

 

"Although we cannot predict how long it will take to restore sales, we are steadfast in our belief that the power and popularity of the KFC brand in China will ultimately drive a full sales recovery," said Novak.

 

In a statement on the latest figures, Yum said, "The negative affect on the KFC brand (in China) over the past seven weeks has been intense, but we are more committed than ever to continue to strengthen our efforts, restore confidence in our customers and win back their brand loyalty."

 

Ma Wenfeng, a food industry analyst with Cnagri.com, said Yum's China performance was not only caused by its chicken supply woes, but a wider slowdown in the country's catering industry, caused by the economic slowdown.

 

Ma added that annual sales growth across the catering sector was more than 10%, but that in the past eight months that rate dropped to 2.5%, the slowest rise since the 2003 SARS outbreak.

 

Last month, McDonald's Corp, Yum's largest rival in China, said the chicken scare had also taken a small bite out of its business. The scare "minimally impacted" McDonald's sales in China during the fourth quarter and continues to hurt business this year, said chief executive Don Thompson in a conference call with analysts.

 

McDonald's sales for China at established restaurants fell 0.9% during the fourth quarter.