Yum! Brands, Inc. (YUM) Ends Ties With Chinese Suppliers to Regain Reputation

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Even McDonald’s has an aggressive expansion plan for China. The company proposes to open 1,500 new restaurants across the world in 2013, of which about half would be in China ,where it presently has about 1,300 outlets. This would increase the total number of outlets to around 2,000 by the year end. Burger King Worldwide Inc (NYSE:BKW) which has just about 100 stores in China, is looking to rigorously expand in the coming few years. It aims to open up approximately 1,000 new outlets in the next seven years. However, it would be hard for the player to get a good grip of the market given Yum!’s and McDonald’s strong foothold. Despite this, the company is targeting China as part of its international expansion to fuel growth.

The chicken contamination scandal has not only brought down revenue, but has also shaken Yum!’s hard earned reputation here. The fast food giant has already warned of lower earnings per share this year. However, fixing the chicken scare is very important given the growth prospects that China offers. As per a report of McKinsey Global Institute, consumer spending is set to rise as high as $30 trillion by 2025 in emerging markets, which include China, India, and Brazil. The fast food industry is one of the sectors which shall be rewarded the most. With rising affluence and higher disposable income, consumers tend to increase their spending. As an effect of urbanization, people tend to eat out more, creating opportunity for the fast food sector.

Looking ahead
As of now, Yum!’s sales shall continue to fall in the first half of the year unless consumers get back their confidence. Unless the food safety issue is taken care of and the chicken scare lessened, it will be difficult to recover, especially since chicken forms an important part of Chinese cuisine. In the meantime, it is essential for Yum! to track all possible units that do not comply with normal food safety standards. Yum! has to ensure a high standard to maintain Chinese consumers’ trust in the KFC brand.

The article Yum! Ends Ties With Chinese Suppliers to Regain Reputation originally appeared on Fool.com and is written by Rita Chattaraj.

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