Yum and McDonald's profits drop after supplier scandal

By Hao Yan (chinadaily.com.cn) Updated: 2015-02-05 14:54

Related stories: Despite sales slump, fast food moves ahead in China by Lian Zi, China Daily

Yum and McDonald's profits drop after supplier scandal

A customer visits a KFC chain in Jinan, Shandong province. Photo /Xinhua]

US-based fast-food chain giants may have watched sales slow in China since a food safety scandal in July, but that hasn't slowed their expansion plans there.

McDonald's Corp saw its same store sales in the Asia/Pacific, Middle East and Africa (APMEA) fall 2.2 percent in November, due to the ongoing fallout from a meat supplier problem in China.

China's same-store sales this year would be negative in the mid-single-digit range, impacted by adverse publicity in July, the company said.

"Sales continue to recover, but at a slower pace than expected," according to the statement.

The scandal began when Chinese television showed that Shanghai Husi, a supplier of Yum and McDonald's and others in China, was selling meat products past their expiration date.

Despite slumping sales, Yum said it hasn't given up on its expansion in China and announced it would open 700 new stores in China next year.

Yum's incoming CEO, Greg Creed, said, "We are firmly committed to returning to double-digit EPS growth in 2015, delivering at least 10 percent growth with the potential to do significantly better. We fully expect to bounce-back in China and benefit from tremendous sales leverage as sales rebound.

"We have solid plans to drive same-store sales growth and margin improvement in China, while continuing to open new restaurants with confidence in the world's fastest-growing economy."

Yum also expects to see 15 percent operating profit growth in its China division next year, according to its 2015 Overall Guidance.

Reuters reports that KFC has invited Chinese diners concerned about food safety issues to come see for themselves how they operate. Customers can book a visit on the official website KFC.cn.

"How is KFC's food prepared? Is the chicken safe? Are the restaurants hygienic?" reads KFC placemats.

"You can see our chicken farms yourself, and unravel the mysteries of KFC restaurants on the spot. You decide whether or not our food is safe," it says.

Yum will further share its strategies and global expansion outlook at its annual investor meeting on Thursday in New York.

KFC was the first quick-service restaurant chain to enter China in 1987. Today it has about 4,600 restaurants in nearly 1,000 cities there.

"We think China is the best restaurant opportunity of the 21st Century, with a consuming class that is expected to double from 300 million to more than 600 million people by 2020," the company said.

"There is no arguing with the strength of the KFC brand in China," said Zheng Yuhuang, a marketing professor at Tsinghua University and a member of?the Association for Consumer Research. "Its business in China is even more successful than that in US, as it offers lots of products that appeal to local Chinese customers' taste preferences."

"The company quickly published an open letter to customers on KFC's official website and changed its supplier right away in July," said Zheng, who still sees a huge potential for KFC to expand in China and win back Chinese consumers.