November 26, 2019

KFC China affected by increased poultry prices due to African swine fever

Yum China, who owns KFC in the country, buys a billion chickens annually - the company is significantly affected by the more than 33% increase in wholesale poultry prices in China because of African swine fever (ASF), reported South China Morning Post.

Fred Hu, founder of Beijing-based global investment firm Primavera Capital Group and non-executive chairman of Yum China said ASF has caused poultry prices to increase, leading to a switch from pork to chicken, which in turn has increased costs for poultry.

While he did not state how much the price hike has cost Yum China, Hu said the company is absorbing costs through improving operating efficiency, so rising costs are not passed to consumers.

He added that the company will not switch poultry suppliers.

ASF has cut swine supplies in China by more than a third, resulting in rising prices for pork as customers switch to more affordable meats. China's Ministry of Agriculture reported average wholesale chicken prices have gone up by more than 33%, compared to 2018.

According to a report by Anne Liang, equity analyst from financial services group Jefferies, and citing Frost and Sullivan, a United States business consulting firm, restaurant sales in China is estimated to hit 6,280 billion RMB (~US$891.9 billion; 1 RMB = US$0.14), a 10% growth from 2018 to 2022 – higher than the retail industry. The report also predicted Yum China to hit a US$600 million to US$900 million annual free cash flow in 2019 to 2022.

Yum China spun out from Yum Brands in 2016 and is listed on the New York Stock Exchange. Hu's Primavera Capital Group has invested US$410 million into Yum China.

The first KFC was opened in China in 1987, and there are now 6,000 restaurants located throughout the country.

-      South China Morning Post