Yum Chairman: Our China restaurants are ready to be their own public company

Though headquartered in Louisville, Ky., Yum Brands (YUM) is often associated with its ubiquitous presence in China. The owner of fast food chains KFC, Pizza Hut, and Taco Bell filed to spin off its China business into its own publicly traded company with the SEC on May 3. The new company will be called Yum China Holdings and the spin-off is expected to happen later this year.

“We’re creating two powerful independent companies that are interdependent on each other. China’s going to be spun off but it’s going to be Yum’s largest licensee and pay a licensing fee to Yum,” Yum Executive Chairman David Novak told Yahoo Finance.

The spin-off comes at an interesting time, as its China business, which Novak says accounts for 35% of Yum’s revenue, is on the upswing. Among Yum’s brands, KFC accounts for the largest piece of its pie in China; KFC represents 75% of Yum’s operating profit in China and posted 12% same-store sales growth last quarter.

China, while having served as a bright spot for Yum for the past decade, has also presented its fair share of challenges, given the country’s volatile market, food safety concerns and increased competition. Last year, the company opened 2,365 new restaurants, 743 of them in China, and the company expects to open 600 more this year. Yum has 400,000 employees in China alone.

Novak believes the spin-off is a logical step for Yum’s growth strategy. Though Chinese customers once had an insatiable appetite for American fast food, it’s been increasingly difficult to impress them. That’s why the company has been forced to innovate with new promotions like chicken bucket deals tied to the Lunar New Year. “We’ll be able to self-fund all of our growth in China,” he says. “We’ll have free cash flow and become more a China pure play. China has earned the right to go off and become a public company.”

Novak’s next chapter
Novak has been a part of the Yum family for over 30 years: he joined the company as CEO of KFC North America in 1994, served as Yum’s CEO from 1997 to 2012 and has since stepped into the role of executive chairman. He is retiring at the end of this month. Shares of Yum rose 850% during his tenure as CEO.

But Novak says one of his proudest accomplishments has been his ability to shape Yum’s work culture (he’s been known to hand out rubber floppy chickens and cheeseheads as symbols of recognition). He’s sharing his experiences and lessons in his new book called “O Great One! A Little Story About the Awesome Power of Recognition.”

He says there is a “global recognition deficit,” and writes in the book that 82% of people believe their supervisor doesn’t recognize them for what they do. “If you’re a leader, look at your leadership as a privilege. You can really use that privilege by showing people that they matter and you recognize what they do,” he says. “If you use recognition to reinforce the behaviors that you know are going to drive your company, I guarantee you’re going to have a great team and a great environment.”

Novak was a monumental player at Yum, but believes the company’s best days are still ahead. “I think Yum brands is an incredible company,” he says. “We’re in a state now where we’re changing for the better.”