Why the Chinese love KFC

Yum Brands, the owner of KFC and Pizza Hut, got into the Chinese market early on and is reaping the rewards of smart business decisions.

By Kim Peterson Feb 1, 2011 4:05PM
Credit: ©Eugene Hoshiko/APKFC is killing McDonald's (MCD) in China, making all the right moves in the world's second-largest economy.

KFC's owner, Yum Brands (YUM), now has a 40% market share in China compared to only 16% for McDonald's, Bloomberg reports. Yum opens a new restaurant every 18 hours. How is the company so successful? By doing a better job of becoming Chinese.

For investors looking for more exposure to China without buying Chinese stocks, Yum is one way in. Yum shares are at $47.66, up 33% from a year ago.

McDonald's focuses on selling the same style burgers that it sells in the U.S. And there's nothing wrong with that; the Chinese have taken to the burger with, er, relish.
But KFC has a totally different strategy. Next to its fried chicken, it sells bowls of rice porridge called congee that are often accompanied by pork, pickles and preserved eggs. Chinese KFCs also sell spicy tofu chicken rice, and a chicken wrap with a Peking duck-type sauce, Bloomberg reports.

The Pizza Huts in China, also owned by Yum Brands, sell wine, escargot and even scallop croquettes on their 106-item menu. They're aimed at wealthier, stylish customers. If a guy wants to impress a girl in China, he takes her to Pizza Hut.

Credit for some of the success goes to the Chinese executives Yum hired to run the operation instead of importing managers from the U.S. The executives were key in developing partnerships with local food providers -- and setting the style of the menus and restaurants.

And now, the Chinese look at KFC almost as one of their own. More than a third of Yum's profit came from China in 2010, and the company is putting all its energy into China going forward. Yum has 3,200 KFCs and 500 Pizza Huts in China.

Now, Yum is dumping its Long John Silver's and A&W restaurants so it can focus more attention on China. That has some investors worried that it's putting all of its eggs in one Chinese basket. One former executive told Bloomberg that in four years, China will contribute half of Yum's revenue and profit margin.

"If Yum's China business went south, it would kill the stock," one Chinese business expert told Bloomberg.

That isn't stopping Yum. And right now, it looks like it can't go wrong in China.

13Comments
Feb 1, 2011 6:24PM
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I was in Chongqing (Chung King) China for 3 weeks about 8 years ago, and could only get 'Western' or European food in the Yangtze Holiday Inn.  (They also required all their Chinese help to be able to speak English to work there - even the janitorial staff!).  Other than that, I had to eat the 'local' fare at the area restaurants.  It was a heaven to me when I discovered a KFC in the downtown district.  While I enjoyed the unique cuisine of China, I occasionally longed for something more Western, and went there a few times.  I didn't even know there were 'extras' on the menu aimed at the locals tastes.
Feb 2, 2011 12:26AM
Feb 2, 2011 8:01AM
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We are Americans living in Asia and we love Pizza Hut and KFC. Would never be caught dead in either in the States; but here, they are clean, very nice, almost high-end type places... couple weird menu items like spicy tuna pizza at Pizza Hut or rice served with a kid's meal at KFC; but the quality of food and atmosphere can't be beat and is nothing like either chain in America.
When I called my mom and told her my husband had taken me to Pizza Hut for my birthday, she laughed until she saw the pictures; then she didn't believe it was really a Pizza Hut. :)  
Feb 2, 2011 1:02PM
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I feel ripped off that China has such a high-end Pizza Hut, but those of us in the States are stuck with the low-quality version.
Feb 2, 2011 2:31PM
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If a guy wants to impress a girl in China, he takes her to Pizza Hut.
That line makes me die a little inside.
Feb 2, 2011 1:49PM
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I've been living in China for the past four years. I can tell you that there is a KFC everywhere in China from the small little town to several within walking distance from each other.  In downtown Nanchang I counted five separate storefronts all within range of each other. The demand here is just stunning.
Feb 2, 2011 10:57AM
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I have been to China 76 times over the last 20 years.  I usually go to KFC for Saturday lunch and Pizza Hut for Sunday lunch.  KFC and Pizza Hut are a welcome change to the Chinese food I eat all week.  And I do like Chinese food but I get tired of eating the same thing.
Feb 2, 2011 7:37PM
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In the ancient capital of Xian (where the famous Terra Cotta Warriors are) in 2001 I stood on the remaining section of the ancient city wall and climbed the guard tower to its highest window so I could take a photo of the City.  There, prominently displayed on a large part of a multi-story building, was the familiar KFC sign with Colonel Sanders smiling image.
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If yo ever saw the crap the Americans really eat, well weight scales are a banquet.. :(
Feb 2, 2011 10:49AM
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The Chinese love grease & KFC means grease!
Feb 1, 2011 4:35PM
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if yo ever saw the crap the chinese really eat. well kfc is a banquet.
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