KFC inks US$732 million deal with three Chinese suppliers

Fast food chain giant KFC plans to open more outlets in China this year and will source its materials from local suppliers at a deal worth RMB5 billion (US$732 million).

 

According to the agreement, DaChan Food (Asia) Ltd headquartered in Taiwan, Fujian Sunner Development Co Ltd and Shandong Xinchang Group Co Ltd will provide 280,000 tonnes of chicken for KFC over the next three years.

 

The order will be shared equally among the three suppliers, said John Ou, senior vice-president of DaChan Food.

 

The three-year purchase order gives sufficient confidence to KFC's domestic contracted suppliers to increase investment and upgrade technologies.

 

Han Jiahuan, board chairman of DaChan Food, said they plan to establish 300 chicken farms and 15 hi-tech processing factories in China in the future to meet the demands from their cooperation with Yum Brands Inc, China Division, the parent company of KFC.

 

Meanwhile, Fujian Sunner also plans to enlarge its farm scale from the current 60 million chickens annually to 96 million in 2010, according to Chairman Fu Guangming.

 

In addition, the purchase order also benefits China's rural areas in terms of employment and income. Producing the 280,000 tons of chicken is estimated to provide 180,000 job opportunities during the process of raising and slaughtering.

 

KFC opened its 2,600th store in Henan province last month. It had earlier said it would open 370 outlets this year, at the speed of at least one store everyday. Such a rapid expansion requires steady supplies of raw materials such as chicken.

 

During the past five years, KFC has opened a total of 1408 outlets. The fast foods operator has 2,600 outlets in China as of June 30, 2009.

 

Su Jingshi, president of Yum Brands Inc, China Division, said they have been determined to purchase raw materials from local suppliers since they entered the China market.

 

In the future, Su said, more qualified Chinese suppliers will be enrolled to meet their demands during rapid growth in China.

 

Yum currently has more than 500 domestic raw material suppliers in China, which provide more than 90 percent of the total purchases of Yum China Division. The chickens purchased by Yum China Division are mainly from local suppliers.