Same situation faced by McDonald’s Corporation (NYSE:MCD)
McDonald’s Corporation (NYSE:MCD) is also going through a similar situation. Due to its revenue decline in China, its Asia Pacific regional performance saw growth of just 0.9%. The company also has witnessed a sales decline in the Chinese market, but not to the extent Yum! is facing. This is because only 3% of its overall operating profits come from this region while almost half of Yum!’s profits are based in China.
It was also negatively impacted by the bird flu. May results were better than April’s, which declined 0.6%. McDonald’s Corporation (NYSE:MCD) expects to recover from this soon, and continue to grow globally.
On a positive note
Fortunately, Yum! has built an envious local supply chain that will allow it to respond to changing tastes. The business is currently focused on rebuilding its reputation, and is also considering non-traditional food items in its Chinese menu. It sees its primary opportunity among China’s middle class, which is expected to grow to 600 million people within the next decade.
Management is aiming for 14,000 locations in China just for KFC. Currently, China has one Pizza Hut for every five KFCs. If this ratio continues, investors can hope for nearly 3,000 Pizza Huts as well, bringing the total count to more than 17,000 restaurants in China — an increase of over 200% from today’s count.
Despite the ongoing struggle, the company plans to open about 700 KFCs and Pizza Huts at different locations during the year. It is working toward gaining Chinese confidence back, and ensuring that chicken is safe to eat. Yum! is engaging in promotional and advertising campaigns to boost sales in China. One may think that it may be a disadvantage for this company to concentrate most of its businesses in China. But the integral point behind this is that most of the revenue of this company comes from this region only.
The domestic market is getting saturated for these-fast food giants. So these companies are increasing their reliance on overseas diversification. Yum! is expected to create shareholder value with its recent development strategies.
Foolish wrap up
Yum! Brands, Inc. (NYSE:YUM) is positive about its future as the company has weathered similar storms in the past. It is striving to work toward a stronger business in emerging economies, particularly China (being the most profitable market for this brand). One may doubt owning this stock, but these pitfalls are part and parcel of the game, and soon this company is expected to recover its sales.
Investors may be a bit wary now, but things are going to change for the better in the near future. Yum! is also focusing on the African market, where the number of KFC outlets is increasingly on the rise. Once the Chinese market gains momentum and the African market expands, this brand will again emerge as a potential company that calls for long-term investment.
The article This Fast-Food Giant Is Expected to Recoup Its China Sales originally appeared on Fool.com and is written by Abir Karmakar.
Abir Karmakar has no position in any stocks mentioned. The Motley Fool recommends Burger King Worldwide and McDonald’s. The Motley Fool owns shares of McDonald’s. Abir is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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