Why China’s market is so important to Yum! Brands

Market Realist

Must-know: Yum! Brands quarterly overview 2Q14 (Part 4 of 13)

(Continued from Part 3)

China’s market accounts for half of Yum! Brands’ revenues

Yum! Brands (YUM) operated a total of 14,000 Kentucky Fried Chicken (or KFC) restaurants across the world by the end of June, 2014. By the end of the quarter, more than 90% of the profits for Yum! Brand’s KFC division was from outside of the U.S. market . KFC has performed strong in China.

Why China market and KFC are important for Yum! Brands

Together, China and KFC make up two thirds of the operating profits for Yum! Brands. Yum! Brand’s market system sales in China grew by 21% and same store sales grew by 15%. Operating income in this market grew three digits by 188%. With a strong growth opportunities prospect , the management also remains focused and committed towards China. Yum! Brands opened 104 new units during the same period. The China market is mainly KFC and it remains an important focus for coming years.

KFC brand

KFC profit grew by 12% constant currency over 1Q14. The management is planning to offer a higher quality offering along with its standard 6RMB breakfast and 15RMB lunch offerings. The higher quality offering is intended to bring a higher average check per customer thereby generating higher profitability. McDonald’s (MCD) competes aggressively at the pricing floor so premium may be a good strategy for Yum! Brands if it’s executed correctly. Also, Yum! Brands, revamped it’s menu in 4,600 KFC outlets spread across 950 cities in China along with introducing 15 new products. This revamp was well accepted with same store sales growing by 21%. Since the appointment of the new CEO in 2013, Burger King (BKW) has also been focusing on revamping the menu.

Investors who would like to gain exposure to the overall restaurant industry can invest in exchange-traded funds (or ETFs) like the PowerShares Dynamic Leisure and Entertainment ETF (PEJ) and the PowerShares Dynamic Food and Beverage ETF (PBJ).

Continue to Part 5

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