Not so Yummy!

You will know from reading Operations Insight 14.2 (page 347) that Yum! is an international multibrand fast food chain.  One of the things that has been driving growth in this business has been the opening of operations in the Chinese market.  Unlike in other parts of the world, Yum! has chosen to own and operate its own units, rather than franchise them.  This gives them higher margins, but increases its own exposure to that market.

In 2012, this strategy was highly successful. They opened 889 new stores.  As a result half of its $4.2 billion worldwide sales and two-fifths of its $500m operating profits were from China.  However, just as consumer confidence in Europe has been hit by the horsemeat scandal, Chinese consumer confidence in the KFC brand has been hit over concerns with regards high levels of antibiotics being found in chicken.  Last month, sales fell by 41% – suggesting that this market is extremely sensitive to food scares.  It remains to be seen if Yum! will be able to restore customer confidence, but in the short term it accepts that its global sales in 2013 will be down considerably on 2012.

Source: The Economist

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