KFC and Pizza Hut owner Yum Brands (NYSE: YUM) has banked on the China story for much of its growth over the last decade, building itself into one of the world’s biggest China plays by deriving more than half of its revenue from the fast-growing market. So it was almost inevitable that the company would take a big hit when the China market started to stall, which is exactly what has happened in Yum’s latest earnings report. That report saw Yum make the somewhat shocking announcement that its China same-store sales to fall around 4 percent in the fourth quarter from year-ago levels. (English article)
Tag Archives: KFC
China Retail Slows As New Mega-Shops Open 中国零售业放缓 大型零售店继续开张
The China retail scene is buzzing with conflicting signals from these last few weeks, as established names like Tesco (London: TSCO) sound negative notes amid a rapid economic slowdown, even as newcomers like Apple (Nasdaq: AAPL) and Forever 21 open massive new stores. In fact, there really aren’t too many contradictions in this latest news, since these new mega-stores were probably in the planning stages before China’s economic slowdown began. Thus these newer stores are more indicators of investments for the future rather than bets on the present.
Denny’s Takes a Bite of China 丹尼餐厅进军中国市场
I was pleasantly surprised today to read that Denny’s (Nasdaq: DENN), one of my favorite US diner chains, is testing the Asia market with plans to open restaurants in China, part of a broader move that is seeing mid-sized restaurant chains pile into the market in a bid to copy the success of top names like KFC (NYSE: YUM) and McDonalds (NYSE: MCD). I also like the fact that Denny’s, known for its 24-hour breakfast menu, is taking a go-slow approach to China, with plans to open a modest 50 stores in the country over the next 15 years through a joint venture with local partner Great China International Group. (company announcement)
Burger King Build-Up: Strange Partner Choice 汉堡王在华组建合资公司：奇怪的合作方
China’s lucrative but increasingly crowded fast food market is about to heat up a notch, following a new announcement by Burger King that it will significantly ramp up its China business under a new joint venture. (company announcement) The size and rapidity of this build-up certainly caught my attention at first; but a closer look at the announcement reveals a strange choice of partners for this new initiative that raises doubts for me about whether this venture will really succeed, especially with the fierce competition in the market from much better run operations by sector leaders KFC (NYSE: YUM), McDonalds (NYSE: MCD) and a growing number of mid-tier players. (previous post)
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Yum’s New Tie-Up Smells of Slowdown 百胜在苏宁店内开餐厅
I was initially intrigued on reading that restaurant operator Yum (NYSE: YUM) was forging a new tie-up to open its KFC and Pizza Hut restaurants in appliance stores owned by Suning (Shenzhen: 002024), one of China’s top retailers, in what seems like a good expansion opportunity. (English article) But after some more consideration, this kind of a move almost looks to me more like a sign that Yum, after years of relentless expansion in China, may finally be running out of good growth opportunities in the huge market and is now having to look for newer, less obvious areas for expansion. If that’s the case, look for Yum’s phenomenal China growth to slow markedly in the next couple of years, putting a big damper on one of its few big growth stories that has made the company a popular investment choice even as many of its other major global markets remain sluggish. Let’s look at the actual news, which has Yum planning to open 150 new restaurants under its KFC, Pizza Hut and newly acquired Little Sheep hot pot brands in Suning stores over the next 5 years. This latest announcement comes as Yum now has 5,000 restaurants in China, with plans to open another 600 in the near future, further consolidating its spot as the country’s biggest operator ahead of the second largest player, McDonalds (NYSE: MCD), which has about 1,500 stores now and is aiming for 2,000 by the end of next year. Yum’s Suning tie-up looks similar in its less conventional nature to McDonalds plan announced last year to build up its drive-through business catering to a growing number of Chinese car owners. (previous post) That plan was followed by news in November that Yum itself was forging its own new partnership with oil major Sinopec (HKEx: 386; NYSE: SNP; Shanghai: 600028) to open restaurants in gas stations. (previous post) McDonalds is also exploring greatly expanding its franchising business, similar to what it already does in the US. While I applaud all these new moves for their innovation, they also seem to reflect the increasingly apparent reality that China’s first- and second-tier cities where Yum has found most of its success so far are quickly becoming saturated, with fewer and fewer attractive new opportunities for expansion. Gas stations and now Suning appliance stores certainly get lots of traffic, but it’s far from clear to me that either of these new initiatives will provide a big new growth area, as people who go to these places don’t usually come to eat a meal, though perhaps they might enjoy a snack during their visit. All that said, I would expect many of these new initiatives, including this new Suning tie-up, to produce very mixed results, contrasting sharply with the stellar performance of most of Yum’s existing China stores. If that’s the case, I wouldn’t be surprised to see Yum’s China growth slow quite a bit in the next 2 years, which seems almost inevitable, and for many of these new initiatives to ultimately end up as only modest successes or perhaps even as failures.
Bottom line: Yum’s latest tie-up with Suning appliance stores is the latest in a growing number of unusual new initiatives that show it may be reaching the saturation point in China.
Related postings 相关文章:
◙ Yum’s New China Strategy: Fill Up With Gas, Food
◙ Growth-Hungry McDonalds Explores Risky Franchising Route
◙ McDonald’s Revs Up for China Drive-Thru 麦当劳寄望“得来速”汽车餐厅拓宽中国市场
Lipton Faces Tempest in a Teabag 立顿遭遇“小题大作”
I’ve been quite amused by the latest Chinese media frenzy surrounding Unilever’s (London: UL) Lipton tea brand, which looks more like a tempest in a teapot than a real scandal. Still, this latest brouhaha does underscore the negative publicity that both foreign and domestic consumer brands face from an increasingly aggressive Chinese media that seems determined to uncover the latest food safety scandal. Let’s take a look at the actual facts, or at least my understanding of them, and readers can decide for themselves what to believe. The case stems from a Greenpeace report saying it found unsafe levels of some pesticide residues in 4 Lipton teabags it selected randomly for testing. (English article) Greenpeace added the “unsafe” definition it used was based on European standards that are stricter than Chinese, and I have no doubt that it knew that part of the message would be largely ignored by local media looking for the latest food safety scandal, in a country where such scandals have become quite common these days. The latest such scandal has seen several capsule makers shut down after media reported they were using industrial gelatin instead of edible consumer grade product. While that kind of scandal is certainly very real, this Lipton story — and several others recently surrounding big foreign names like KFC (NYSE: YUM), WalMart (NYSE: WMT) and Carrefour (Paris: CA) — are far less serious and more often involve mislabeling or other misleading advertising issues rather than actual food safety. So let’s get back to the Lipton story, which saw Chinese health officials themselves come out and say that Lipton’s tea bags were in compliance with Chinese health standards, which Greenpeace no doubt already knew when it issued its original report. Not to be deterred, however, overzealous reporters at the official Xinhua news agency put out their own report after interviewing some tea farmers, who said they did actually spray pesticides on their tea plants even after the health officials said the residue was carried by the wind from other crops. What’s more, Xinhua and other reports also criticized Lipton for using inferior grade tea in its tea bags. Now wait a minute — I thought this was a story about dangerous pesticides, not about the use of lower quality tea, which should come as a surprise to no one since Lipton isn’t really known as a premium product. At the end of the day, it looks to me like Lipton and Unilever have done nothing really wrong in this case, and that Greenpeace — which does good work in general — knowingly took advantage of the sensitivity about food safety to issue its misleading report. While the story is a bit humorous in my view, I’m sure Lipton is hardly happy as it’s probably losing lots of sales due to the negative publicity. At the end of the day Lipton will obviously survive this pseudo-scandal, which once again underscores the very real dangers that both foreign and domestic consumer brands face from an overzealous Chinese media eager to report the latest food safety scandals.
Bottom line: Lipton has become the latest victim of a pseudo food safety scandal promulgated by an overzealous Chinese media eager to uncover such negative news.
Related postings 相关文章:
◙ McDonalds, Carrefour Latest Targets in Consumer Assault 家乐福、麦当劳被中国政府“点名
◙ Wal-Mart Pork Brouhaha Spotlights Food Risk 沃尔玛“标签门”表明中国严打决心
◙ Starbucks to the Rescue? 星巴克出手救助？
McDonalds, Carrefour Latest Targets in Consumer Assault 家乐福、麦当劳被中国政府“点名
I have to admit, I’m starting to strangely enjoy China’s latest campaign that has big state media — CCTV in particular — chasing big-name foreign companies in a bid to improve the country’s record for food safety. You may ask why I feel this way, as I also believe that these foreign companies being targeted are much more responsible in terms of food and product safety than many Chinese firms. The answer is because these foreign companies are so high-profile that they quickly capture national and global headlines, drawing attention to the issue and providing a warning for smaller Chinese companies that are engaged in much worse violations. At the same time, these big foreign companies have the resources to easily weather such negative publicity, which is usually quite short-lived as I suspect that all sides know these cases are designed more to draw attention to the issue than to actually punish the big foreign firms. The latest such high-profile attack has come this week against 2 industry titans, leading French supermarket and general merchandise seller Carrefour (Paris: CA) and fast food giant McDonalds (NYSE: MCD). (English article) According to Chinese media reports, CCTV has run a story attacking Carrefour for mislabeling ordinary chicken as a premium product at some of its stores, while McDonalds was guilty of selling chicken wings past their permitted sale period at a Beijing store. Both instances look quite trivial to me, as clearly no one’s safety was threatened by these practices. I suspect food safety officials will quickly investigate the matter and perhaps slap both Carrefour and McDonalds with small fines to show everyone that any kind of mislabeling or other misrepresentation is unacceptable. Meantime, business will quickly return to normal, as the public already considers these large multinationals much more reliable in terms of food safety than most domestic chains and local eateries. This latest attack follows a string of similar investigative reports from CCTV, including a “scandal” that erupted late last year when China’s leading TV operator revealed that Wal-Mart (NYSE: WMT) had committed the “grave offsense” of mislabeling regular pork as organic. (previous post) Likewise, KFC (NYSE: YUM) also came under attack last year for selling soy milk made from powder rather than fresh product, even though the company had never even claimed that its soy milk was fresh. In both instances, the news created a small storm for a few weeks before quickly blowing over as business returned to normal. I’m sure that investigative reporters from both CCTV and other major news outlets will continue to scour Beijing and other big cities in search of the latest minor violations by major western companies. Such attacks are likely to do little damage on such big corporations, and could even help them win points with the government and food regulators who conveniently use them as models to send a broader message to the market on the importance of food safety and intolerance for businesses that threaten public health.
Bottom line: New media attacks on McDonalds and Carrefour are part of a broader government food safety campaign, and will have little effect on these global corporate giants.
Related postings 相关文章:
◙ Wal-Mart Pork Brouhaha Spotlights Food Risk 沃尔玛“标签门”表明中国严打决心
◙ Pepsi’s New China Shot Ignores Bigger Issues 百事联手康师傅抢占中国市场
◙ Mid-Sized Players Join China Fast Food Feast 国外中小快餐企业抢滩中国市场
Mid-Sized Players Join China Fast Food Feast 国外中小快餐企业抢滩中国市场
The big boys like KFC, McDonalds (NYSE: MCD) and Starbucks (Nasdaq: SBUX) aren’t the only ones hoping to feast on China’s growing appetite for fast food, with 2 mid-sized players, ice cream specialist Dairy Queen and Pizza Hut also announcing big new expansion plans to cash in on the trend. For investors, these expansions by smaller players spotlight that China offers interesting potential for not only the big names, but could also make mid-sized players an interesting bet. Then again, these more mid-sized companies come with a bit more risk, as they often lack the resources of the bigger names to execute their expansions, and are more likely to withdraw from the market at any signs of trouble, creating potentially big losses. Let’s look first at Dairy Queen, a well-known US brand that has been quietly expanding in China over the last few years. The company, owned by billionaire investor Warren Buffett, recently opened its 500th store in China, and says it plans to add another 100 stores by the end of this year, after opening 131 new stores in 2011. (company announcement) Meantime, Pizza Hut, owned by Yum Brands (NYSE: YUM) has announced it will open at least 150 new stores this year as it expands into third- and fourth-tier cities, part of a trend that is seeing restaurant operators move into smaller, less affluent Chinese cities in pursuit of growth. Both Pizza Hut and Dairy Queen represent a group of lower-profile foreign restaurant operators that have found varying degrees of success in China, joining other similar sized players like Japan’s Yoshinoya, Hong Kong-listed Ajisen (HKEx: 538) and US pizza chain Papa Johns (Nasdaq: PZZA). A key component to the success for both the larger and smaller players is finding a strong Asia partner to help navigate the often tricky China market, where foreign companies are often subject to much more scrutiny than local companies. Ajisen got a good lesson in the potential perils of the market last year, when many Chinese consumers boycotted the chain after it falsely claimed that its soups were made with fresh ingredients, dealing a huge blow to the company’s revenue. Negative campaigns like that could easily force some of these smaller companies to incur big losses and even withdraw from the market, spotlighting one of their biggest vulnerabilities. But if they have the right partner and backing, some of these companies could also look like strong bets to profit from China’s growing appetite for western fast food.
Bottom line: New expansion plans by Dairy Queen and Pizza Hut in China spotlight the market’s big potential for mid-sized fast food companies.
Related postings 相关文章:
◙ Yum, Starbucks Forge Ahead in Face of Slowdown 百胜和星巴克逆势强劲增长
China OKs Nestle Buy, Opens Door for Big Brand M&A
Following its landmark decision last month to let KFC operator Yum Brands (NYSE: YUM) purchase Little Sheep (HKEx: 968), China’s largest hot pot chain, Beijing has once again approved another foreign acquisition of a domestic big brand, this time allowing Nestle (Switzerland: NESN) to buy candy maker Hsu Fu Chi (Singapore: HSFU), a move that should encourage more such M&A. (English article) China’s controversial 2009 decision to veto the purchase of leading domestic juice maker Huiyuan (HKEx: 1886) by Coca Cola (NYSE: KO) sent a chill through the cross-border M&A market for major Chinese brands, as many interpreted the move — theoretically made on anti-monopolistic concerns — as a nationalistic reaction by Beijing technocrats reluctant to see a promising domestic name swallowed up by a foreign multinational. The veto created so much concern that it took more than 2 years for another company, Yum, to try a similar acquisition, again testing Beijing’s commitment to free trade and openness to letting its healthy companies get acquired by foreigners. This rapid succession of approval for the acquisition of Little Sheep followed by Hsu Fu Chi, Nestle’s biggest purchase in China to date, seems to indicate that China will take a more balanced approach to foreign M&A of its healthy brands in the future, which could provide a nice lift for stocks in other listed big brands like Huiyuan that enjoy a strong reputation in China. Of course, China will now expect reciprocal treatment in the West, such as for Shanghai-based food maker Bright Food’s pending acquisition of Australia’s Manassen, announced in August. (previous post) I don’t see any problems for this kind of cross-border M&A in popular consumer areas like food and restaurants, though the tech space may continue to be sensitive as evidenced by the derailment of Huawei’s planned purchase of a small US tech firm early this year. (previous post) All that said, this latest approval by China’s anti-monopoly regulator should breathe some healthy new life into cross border M&A in the consumer sector, bringing good news for both acquirers and acquisition targets both inside and outside China.
Bottom line: China’s approval of the sale of a leading candy maker to Nestle reaffirms its new commitment to allowing big consumer brands be purchased by Western firms, paving the way for more such acquisitions.
Related postings 相关文章:
◙ Little Sheep Gets Swallowed: Good for Yum, Good for China M&A 小肥羊被收购对百胜和中国是双赢
◙ Bright Finally Finds Tasty M&A in Australia’s Manassen 光明食品终於觅得“佳偶”
Yum’s New China Strategy: Fill Up With Gas, Food
Just weeks after getting regulatory approval for its purchase of leading hot pot chain Little Sheep (HKEx: 968), KFC parent Yum Brands (NYSE: YUM) is making headlines once again for yet another tie-up, this time with Sinopec (HKEx: 386; NYSE: SNP), China’s top oil refiner. (English article) But Yum is less interested Sinopec’s oil refining prowess, and has its eye instead of the company’s 30,000 gas stations located across China, many of which could host new outlets for Yum’s KFC and Pizza Hut stores. I have to say that this strategy looks quite intriguing, as Sinopec’s vast chain of gas stations in China would instantly complement Yum’s own 3,500 KFCs and 560 Pizza Huts throughout the country, providing real estate and other infrastructure that Yum could instantly use to quickly open lots of new stores to boost its already strong position as China’s leading fast-food operator. The strategy looks similar to rival McDonalds’ (NYSE: MCD) launch earlier this year of a major new initiative to open drive-through restaurants, catering to China’s new generation of young, affluent car owners. (previous post) I personally like Yum’s strategy a bit more, as opening outlets in Sinopec stations will give it lots of new locations to choose from, and allow it to quickly build outlets in the ones that it likes. The McDonalds strategy looks a bit more time-consuming, calling on the company to explore locations and then build new restaurants on its own. The big question, of course, is will Chinese consumers want to purchase fried chicken, pizzas and maybe even hot-pots-to-go at the same place that they fill up their car with gas? Honestly speaking I’m not sure what the answer is, as I’ve never seen this concept at gas stations outside China. In the US many gas stations house convenience stores, but it’s far less common to see actual restaurants inside them. That said, I don’t see why the concept won’t work, and would give this latest tie-up between Yum and Sinopec and strong chance of success.
Bottom line: Yum’s new tie-up with Sinopec will allow it to expand its KFC and Pizza Hut business to thousands of Chinese gas stations, tapping China’s new generation of car owners.
Related postings 相关文章:
◙ McDonald’s Revs Up for China Drive-Thru 麦当劳寄望“得来速”汽车餐厅拓宽中国市场
◙ Little Sheep Gets Swallowed: Good for Yum, Good for China M&A 小肥羊被收购对百胜和中国是双赢
◙ Starbucks Wide Open for China Business with New JV 星巴克在云南建合资厂
Little Sheep Gets Swallowed: Good for Yum, Good for China M&A 小肥羊被收购对百胜和中国是双赢
Some 7 months after Yum Brands (NYSE: YUM) first announced its bid to buy leading hot pot chain Little Sheep (HKEx: 968), China’s anti-monopoly regulator has finally approved the deal, in a major breakthrough not only for Yum and Little Sheep but also for China. (company announcement) This deal looked smart for both Yum and Little Sheep from the start, but investors had worried that the Commerce Ministry would use the anti-monopoly excuse to veto it over concerns that were more nationalistic in nature. Such a veto, which had led Little Sheep’s Hong Kong-listed shares to trade well below Yum’s offer price, would have sent a chill through the market, demonstrating that China was unwilling to let its best-known brands be purchased by foreign buyers following the Commerce Ministry’s 2009 veto of Coke’s (NYSE: KU) purchase of Huiyuan (HKEx: 1886), China’s leading juice brand. Interestingly, Huiyuan’s shares shot up 16 percent as well after approval of the Yum-Little Sheep deal, as investors bet that perhaps Huiyuan itself could become a takeover target again under the Commerce Ministry’s new enlightened approach, perhaps by Coke rival Pepsi (NYSE: PEP), which announced a major overhaul of its own China strategy earlier this week. (previous post) Following the Little Sheep decision, I would expect to see strong gains in shares of not only Huiyuan but also other up-and-coming Chinese brands in the weeks ahead, as investors bet that they could also now become takeover targets. Likewise, we could also see gains in shares of mid-sized Western consumer brands, as Western governments will now also be under pressure to approve such deals to show their own commitment to fair trade. As to Yum and Little Sheep, I would look for rapid expansion for the Chinese hot pot chain both at home and perhaps even abroad towards the end of next year, after Yum, China’s largest fast-food operator through its KFC brand, has a chance to learn more about the company and formulate a plan to leverage its strong name and popular hotpot format.
Bottom line: China’s approval of Yum’s purchase of Little Sheep will open the door to more buying of well-known consumer brands by both Western and Chinese firms in each other’s markets
Related postings 相关文章:
◙ Little Sheep Left Waiting at Regulator’s Door 小肥羊仍在监管机构大门外苦等
◙ Yum China: Little Sheep Getting Tangled in Trade Friction? 百盛收购小肥羊案卷入中美贸易摩擦？
