April 12, 2013

Yum Brands may not hit its double-digit profit growth

As it scrambles to deal with food scares and bird flu in its most lucrative market, Yum Brands Inc. is in danger of breaking its 11-year streak of double-digit profit growth.

US-listed firm, the world's largest restaurant company by number of outlets, said in a filing Wednesday (Apr 10) that the latest deadly avian flu outbreak would have a "significant, negative impact" on sales at Kentucky Fried Chicken stores in China in April.

Analysts said the company's problems in China - which accounts for more than half its global sales - were deeply rooted, and that sales which started slowing before the chicken scare would need more than a flu-jab to revive.

"KFC has got off to a very bad start this year, it's had a double whammy of incidents. But increasingly there's also much stiffer competition from local quick service restaurants firms," said Frank Gibson, an independent business consultant based in Shanghai.

"Longer term it will be hard for them to maintain the growth they have experienced in the past, but this will be more due to a more complex and dynamic environment than necessarily due to the issues they faced in the first quarter of this year."

Yum's troubles in China began in December when it was accused of selling chicken laced with excessive chemicals. It was cleared of any wrongdoing and publicly apologised over its handling of the affair, but that did not spare it being accused of "arrogance" by the state-run Xinhua news agency.

Sales were beginning to recover when they were hit again by a new outbreak of bird flu, which has killed nine people so far and stirred fresh fears about the safety of poultry products.