Yum Brands Inc. (yes that is their real name), parent company of such artery-clogging food chains as KFC and Pizza Hut, is flying in the face of sensible business and accelerating new Pizza Hut franchise openings in China. Delicious.
Fox News (sorry) reports that even though business has slowed and competition is fiece, Yum execs are making the decision to move forward NOW:
“China remains the world’s fastest-growing major economy even though growth has cooled. Restaurants and retailers are flocking to its top cities, contributing to a spike in rents and labor costs that have bitten Yum’s restaurant profits.
‘We will be more selective in our pace of expansion in these areas,’ Yum China Chief Financial Officer Weiwei Chen said at the company’s investor meeting in New York City.
Yum shares rose 1.9 percent to $67.14 in afternoon trading as investors digested its new China plans. Last week, its shares tumbled from an all-time high of $74.74 hit just before Yum warned that it expected same-restaurant sales in China to fall 4 percent in the fourth quarter.
Yum has more than 5,100 restaurants in China, which contributes more than half of its overall revenue and operating profits. It already has announced plans to open 700 new units in China next year.”
Weird that they would release the news days after shares tumbled and growth expectations were dampened. Could this perhaps be a strategic announcement?
Possibly. But it’s a tough market right now, according to a more in-depth piece by Reuters. Though growth in China’s industrial sectors has sparked optimism with a recent surge, fast food is an entirely different business. Yum is expecting mid-single-digit growth in China next year, and posted dramatic declines in 2005 and 2009. The company is hoping to avoid that by getting aggressive.
“China’s smaller cities will become bigger cities due to the government’s urbanization efforts and Yum ‘will already be in position to take advantage of the larger and more affluent population,’ Investment Technology Group analyst Steve West said.
Yum is speeding up openings of Pizza Hut restaurants because they have better margins and less competition. Yum’s rivals in China include U.S. companies such as McDonald’s Corp, Subway, Papa John’s International Inc and Starbucks Corp.
Asian chains also turning up the heat. Those include Taiwan-owned Dico’s, a fried chicken chain that takes direct aim at KFC; Ajisen (China) Holdings Ltd, a Japanese-style noodle chain; and a host of Chinese chains such as Golden Jaguar, Yonghe King and Country Style Cooking.”
What do you think? Is bold action the best move, or would it be better if obesity epidemics didn’t spread to Asia?
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