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.
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.
If a guy wants to impress a girl in China, he takes her to Pizza Hut.That line makes me die a little inside.
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The stock fell Wednesday with the news that the company missed on both earnings and revenue in its most recent quarter.
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