Yum China 1Q sales fall 20 percent

Yum! Brands Inc., the operator or franchisor of KFC, Pizza Hut and Taco Bell, reported that same-store sales for its 5,400-plus-unit system in China declined an estimated 20 percent in the first quarter, which encompasses only January and February.

The 20-percent decline comprises an estimated 24-percent decrease in first-quarter same-store sales at KFC, as well as a 2-percent drop at Yum China’s other major brand, Pizza Hut Casual Dining.

The figure includes a 2-percent same-store sales gain for February, made up of flat same-store sales at KFC and a 13-percent increase at Pizza Hut. The timing of Chinese New Year, a peak sales period for Yum China, affected results positively by a percentage in the mid-teens, the company said, offsetting a similar mid-teens negative effect in January.

Same-store sales in January fell an estimated 41 percent at KFC and 15 percent at Pizza Hut, Yum had stated previously.

Yum China has begun breaking out monthly same-store sales figures as a result of a severe sales downturn that began in December, and the company will continue to disclose monthly numbers until sales recover to positive territory, expected late this year at the earliest. March same-store sales for China will be disclosed April 10, the company said.

Same-store sales in China, which for years has been Yum Brands’ fastest-growing operating segment, producing more than 40 percent of the company’s operating profit in 2012, fell 6 percent in the fourth quarter.

The company’s problems in China stemmed from negative publicity surrounding an investigation of Yum’s chicken supply by Chinese food regulators. The inquiry followed a mid-December broadcast by China’s state-run national TV station of a report that several Chinese poultry farmers, including some that sold chicken to two of Yum China’s suppliers, gave an excessive amount of antibiotics to their flocks.

In late February, Yum China ended its supply chain relationship with more than 1,000 poultry farmers and announced further investments in quality control systems for its food supply in China. The company also rolled out a new marketing campaign meant to highlight its food quality and reassure its customers that its ingredients were procured from farmers who meet stringent guidelines.

In addition to more than 4,250 KFCs and more than 825 Pizza Hut Casual Dining units, Yum China also operates several hundred total locations of Pizza Hut Home Service, the Little Sheep casual-dining chain and its proprietary Chinese quick-service brand, East Dawning.

Louisville, Ky.-based Yum Brands operates or franchises more than 39,000 restaurants in more than 120 countries and territories.

Contact Mark Brandau at [email protected].
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