Yum! Brands, Inc. (YUM)’s Not So Yummy Time in China

Thus, though Yum! suffered in China, with a total of 38,200 restaurants worldwide, of which about 20 percent are owned by the company, its all-over revenue increased by 1% to $4.15 billion in the quarter.

What’s next?

China has always been a very important market for Yum!, as not only does the company earn most of its revenue from the country, but it has also placed big bets for the company’s future growth in the world’s second largest economy. Thus Yum! will surely not let go off the entire Chinese market so easily. The investigations conducted by a third party agency from 2010 to 2011 found eight batches of chicken supplied to Yum! by Liuhe Group had antibiotics levels that didn’t meet prescribed standards, and Yum! has already stopped buying from Liuhe. Also to regain the customer confidence and to reassure them of the safety of its food, the company will start a brand reputation quality campaign, along with “aggressive marketing plans.”

Yum! already operates more than 4,200 KFC restaurants and 800 Pizza Huts in China, and also plans to open at least 700 stores in China. The company is not only looking to regain its lost empire, but even planning to expand. Yum! is confident of wooing back its lost customer base and continue milking the cash cow that is China, the second largest economy in the world with the highest market potential.

Foolish take away:

The latest food scandal has made Chinese consumers skeptical about the quality of food served at Yum!’s KFC restaurants. Gaining this confidence back will definitely be a hard, but not impossible, task for Yum!.  The company expects sales at restaurants opened for at least a year in China to drop by 25% in the first two months of 2013. The company also doesn’t expect to have a growth in its EPS for the coming year. However, I personally don’t think Yum! will lose the battle. It’s definitely a bad phase for the company in China, but with its latest branding strategies and brand reputation quality campaign, the company might be able to regain its lost customers’ confidence. Also even in the midst of the setbacks Yum! still has plans for further business expansions. Also, its strong performance in other parts of the world might help the company maintain its position in the market. Investors should definitely keep an eye on this stock.

The article The Not So Yummy Time in China originally appeared on Fool.com and is written by Satarupa Bose.

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