Avian-Flu Scare Making Yum Sick in China

If you’ve noticed via their ads, Yum’s fast food chains of Taco Bell, Pizza Hut and KFC have all been pushing some unique products heavily in their newest ad campaigns. New Doritos flavored tacos, overseas inspired pizza crusts and boneless versions of original recipe chicken respectively. They’re putting money into these things and seeing a rise in sales by supposedly connecting with millennials and getting younger demographics back in their restaurants. However in their fastest growing market of China, poultry problems, most recently being the Avian-flu have made Yum take quite the hit in sales. Details for their positive growth in the US and continual slide in China after the jump.

By: , via Ad Age

Taco Bell U.S. Sales Strong, but Overshadowed by China Declines: The Avian flu is making Yum Brands‘ China sales sick. While the company has been enjoying strong sales in the U.S., particularly from its Taco Bell unit, much of that growth is overshadowed by poultry scares in China that have caused sales to plummet in recent months — most recently because of Avian flu concerns.

Same-store sales for the first quarter declined 20% in Yum’s China division, including a 24% decline at KFC and 2% decline at Pizza Hut. Same-store sales grew 1% at Yum’s international division and 2% in the U.S. segment.

Yum CEO David Novak said during a conference call today — much of which was dedicated to talking about the China division — that beginning the first week of April, publicity surrounding the latest Avian flu scare in China has had a significant, negative impact on KFC’s sales. KFC in China has been struggling since late last December, thanks in part to news from China Central Television, which reported that some KFC suppliers had been using unusually high levels of antibiotics in its chickens. During that quarter, sales in China were down 6%.

The company began to see a sales bounce-back around the Chinese New Year in February, but sales have dropped since Avian flu concerns surfaced earlier this month. Mr. Novak noted that Avian flu scares typically impact the business for a few months, but that the sales drops are ultimately short-lived. Yum last had an Avian-flu issue in 2005. He added that based on the first three weeks in April, the China division expects same-store sales to be down 30% for the month.

Mr. Novak said today that after the chicken-antibiotic news, the company went on an offensive to restore customer confidence, launching what he referred to as “operation thunder.” As part of that initiative, the company announced improvements to the supply chain, such as working with suppliers to “eliminate over 1,000 small and less-modern chicken houses where risk could be the highest. We want our suppliers to work with the most sophisticated chicken farms in China.” The company launched a quality assurance campaign that included 30-second TV spots.

Mr. Novak assured investors that Yum is poised to have a strong 2013 despite disappointments, noting that the company’s operations outside of China are solid and on-target.

Taco Bell sees 6% lift in U.S.
In the U.S., same-store sales for the first quarter increased…[Read Full Article Here]

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