Yum set to explore China's provinces

smaller cities will soon see kfc, pizza hut outlets

Associated PressDecember 8, 2012 

NEW YORK — The Louisville-based owner of KFC and Pizza Hut is bringing its fast-food menus to new parts of China, with plans to set up shop in smaller cities throughout the country.

After establishing itself in China's biggest cities in recent years, Yum Brands is focusing on populating the country's less urbanized regions. Building that infrastructure in those outposts of the developing nation will give it the kind of advantage that McDonald's established decades ago in the United States, CEO David Novak said at the company's investor conference Thursday.

Yum, which also owns Taco Bell in the United States, is already the biggest Western fast-food chain in China, with about 5,400 locations, compared with 1,600 for McDonald's. The nation's economic growth has been a boon for Yum, helping it register annual profit growth of at least 10 percent over the last several years. But with competition intensifying and economic growth slowing, Yum has hit a snag as well.

Last week, Yum said it expects a key sales figure to fall 4 percent in China in the fourth quarter, marking its first decline since 2009. A year earlier, sales at established restaurants had surged 21 percent.

Also pressuring results in China are the company's rising labor and rental costs in big cities such as Shanghai, Beijing, Guangzhou and Shenzhen. As a result, the company said it would be more selective about its expansion in such metropolitan areas.

But executives noted there is still plenty of room for growth in smaller cities. While Yum has nine restaurants for every 1 million people in larger cities, it has just two per million people in smaller cities.

In 2013, Yum plans to build 700 restaurants in China. This year, the company had predicted it would build 650 but ended up building more than 800.

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