Reporter's Notebook

Tough-luck clucks in China

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For the first time in years, restaurant companies probably wouldn’t want to be KFC in China.

Actually, I take that back. Sure, the flagship chain in Yum! Brands Inc.’s once world-beating China division took it on the beak in the first quarter, when an avian-influenza scare mixed with a hangover from December’s supply chain controversy brought about a 24-percent decrease in same-store sales. But KFC will rise from the ashes like a Phoenix by 2014.

For now, however, KFC’s biggest Western competitor in China, McDonald’s, is having a little more success regaining its footing in the Middle Kingdom after its sales also suffered from avian-flu panic in Shanghai.

McDonald’s officials noted repeatedly on Friday during the company’s first-quarter earnings call that same-store sales in China fell 4.6 percent in the period but added that the brand’s more than 1,700 restaurants there would strive to maintain customers by emphasizing options beyond chicken as well as multiple dayparts and price tiers.

“We saw a switch out of chicken consumption, but fortunately we have other proteins to switch people into,” said Tim Fenton, McDonald’s chief operating officer and the former president of its Asia/Pacific, Middle East and Africa, or APMEA, division. “Avian influenza impacts a lot of APMEA, not just China. We’ll continue to move on beef, fish, breakfast and McCafe. We’re also continuing to look at what we do in food safety with our suppliers.”

Concerns about the safety of eating chicken certainly hurt McDonald’s, chief executive Don Thompson said, as 60 percent to 70 percent of consumers in APMEA, especially in crucial markets like China and Japan, prefer chicken as their favored protein. But McDonald’s believes it is set up better than KFC to grow its way out of trouble in China because it is known for more than its chicken, with the greatest equity in burgers from a Western brand built in that country.

KFC has a diverse menu in China as well — far more differentiated than its chicken-heavy offerings in the United States. But that protein is KFC’s calling card around the world, including China, which might provide a more prolonged drag on the brand’s long climb back to its former dominance of the market.

It should be interesting to hear further elaboration about China sales from Yum! Brands officials on Tuesday, when the company reports first-quarter earnings.

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Reporter's Notebook is NRN's newsroom blog, where our editors give their points of view on news happening in the restaurant business.

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