I always knew Yum! Brands, Inc. (NYSE:YUM) won’t give up on China so easily! The company suffered a 6% decline in its fourth-quarter same store sales in China due to the recent food safety issues. But the company had to do something to gain back its customers’ confidence in China, from where it got almost 44% of its revenue last year, and Yum! is surely on the right track.
After the new regulation and supervision in China’s food manufacturing and processing industry started, media reports alleged that excess antibiotics and hormones were found in some chicken products sold at KFC outlets. Though Yum! Brands, Inc. (NYSE:YUM) was not fined by the Chinese food safety authorities, but due to this negative publicity, Chinese consumers completely stopped visiting the KFC stores as a result of which the company faced a sharp decline in its fourth-quarter sales.
Though Yum! Brands, Inc. (NYSE:YUM)’s same store-sales increased 3% in the U.S., 24% in India, and 3% at other international stores, driven by their new advertising and pricing strategies to attract budget-conscious customers, the falling numbers in China washed away most of the shine from its throne. Yum! Brands, Inc. (NYSE:YUM), which operates with a total of 38,200 restaurants worldwide, could report 1% rise in their overall revenue.
So obviously, Yum! Brands, Inc. (NYSE:YUM) had to take some measures to gain back customers confidence in China, as it has always been a very important market for the company.
Steps taken for fixing it up:
Yum! Brands, Inc. (NYSE:YUM) is fighting hard to re-establish its battered image in China. The company has announced that it would undertake steps to monitor its poultry suppliers in China to ensure food safety in its KFC outlets. Soon after investigations conducted by a third-party agency from 2010 to 2011 found eight batches of chicken, supplied to Yum! by Liuhe Group, with antibiotics levels that didn’t meet prescribed standards, Yum! stopped buying from Liuhe.
The company is keeping a close watch on its suppliers, and is conducting vigorous testing procedures to check their suppliers’ quality standards. The company is cutting ties with suppliers that source their chicken from small farms that are hard to regulate. Yum! has recently announced that it is eliminating 1,000 slaughterhouses from its network, from where 25 of their poultry suppliers source their chicken.
The same strategy was applied by its competitor McDonald’s Corporation (NYSE:MCD) , which faced a similar situation few months ago. When the burger chain suffered from allegations of containing antibiotics in their meat, it suppressed the negative publicity by telling consumers that it is detaching ties with the supplier in question. Luckily, McDonald’s Corporation (NYSE:MCD) was not much impacted with the news like Yum!, and thus, their same-store sales in China dropped just 0.9% in the fourth quarter, and their total profit rose 1.4%.