YUM Brands Inc (the parent company for KFC, Taco Bell, and Pizza Hut) has managed to profit greatly from their investments in China. They bet heavily on the ever expanding Chinese market, opening over 4,000 KFC restaurants by the end of 2012. Compare that with YUM’s 18,332 total locations in the United States (including Taco Bell which has not yet been introduced in China). In 2012, half of the company’s 4.2 billion dollar profit came from Chinese consumers. YUM has been a model for other commercial brands hoping to make it big in China.
Unfortunately, YUM’s projections for 2013 aren’t quite so rosy. A high profile probe into the company’s chicken suppliers set off a firestorm on the Chinese internet. Though the company was never official blamed for the food safety issues, the Shanghai Food and Drug Administration did warn YUM brands to improve their supplier oversight. However, much of the damage had already been done by the catalyst for the probe, a CCTV expose that aired a month earlier. Chinese netizens often use social networks such as Weibo to disseminate information quickly and food scandals are a favorite topic. In 2005 unsafe levels of iodine were found in Nestle China’s milk powder. The issue quickly spread across the Chinese blog-o-sphere and Nestle was forced to recall many of their products.
KFC saw similar backlash in recent months, as a result of their suppliers injecting dangerous amounts of steroids into chickens. YUM issued a warning to investors in February stating that profits in China were likely to shrink. In the forth quarter of 2012 sales dropped 6 percent across their major brands in China. January, 2013 saw a 41 percent drop in sales for KFC, and a smaller 15 percent stumble for Pizza Hut restaurants. While YUM has reaffirmed their commitment to the Chinese market, it is undeniable that the Chinese consumer has become more health savvy. It will be interesting to see how major brands such as YUM and McDonald’s continue to court the increasingly educated Chinese marketplace. Companies would do well to invest in their social network presence in order to combat the speed at which negative press is disseminated on the Chinese internet.