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Yum Brands Sticks to Expansion Plans

29 July 2013

CHINA - Yum Brands Inc, the owner of the KFC and Pizza Hut restaurants, said it will maintain the speed of its expansion in China despite the tainted chicken scandal.

"Yum said it would open 700 eateries this year. We have no change to this plan," said Sam Su, chairman and chief executive officer of Yum China.

In July, the fast-food giant based in Louisville, Kentucky, said its second-quarter earnings fell 15 per cent as a result of decreasing Chinese sales caused by the country's bird flu outbreak and the effects of a food safety scandal.

According to the parent company of Taco Bell, KFC and Pizza Hut, same-store sales in China, which generated more than half of its total revenue last year, fell 20 per cent in the second quarter, including a 26 per cent decline at KFC but 7 per cent growth at Pizza Hut.

"Business in China has been picking up gradually," said Mr Su, as Yum's same-store sales decrease in China narrowed to 10 per cent in June from 19 per cent in May. He said he believes China sales will turn positive in the future as the company made food safety a top priority.

At the end of last year, Shanghai's food regulators said eight batches of chicken supplied to the company by Liuhe Group Co had excessive levels of antibiotics. Yum said it stopped all supplies from Liuhe in August 2012, but its China business has been greatly affected since then.

To help ease the dropping off of business and win back brand confidence, it announced new quality-assurance measures in February this year.

The moves include eliminating uncertified poultry producers; improving control of suppliers and implementing timely reporting and communications with the public.

"We have struck off 4,700 unqualified chicken houses and three poultry suppliers since February this year. The new measures will become long-term standards," said Mr Su.

Bian Jiang, assistant director of the China Cuisine Association, said the negative impact on Yum will not last long because of its effective prevention and treatment measures, as well as its timely and transparent information to the media and public.

"Currently, people are not panicking about chicken safety and have a restored confidence in the product, even after the bird flu incidents, which is a very positive sign for the whole industry chain," said Gong Guifen, deputy secretary-general of the China Animal Agriculture Association.

Yum's first branch opened in China in 1987. Today it has nearly 6,000 restaurants in the country.

McDonald's Corp, Yum's largest rival in China, said the chicken scare had also taken a small bite out of its business.

The world's largest restaurant chain released its second quarter results this week, revealing a global comparable sales increase of 1 per cent.

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