Yum trims full-year outlook as sales ebb

A customer walks past a KFC store in Shanghai July 22, 2014. [Photo/Agencies]

Yum Brands Inc on Wednesday lowered its full-year profit forecast, hurt by slower-than-expected sales recovery in China following a food safety scare in July.

According to industry sources, this is the second time this year that the company, which operates Pizza Hut and KFC restaurant chains, has revised its earnings estimates due to the food safety scandal, and is something that could hurt it for a longer period.

The company had earlier this month indicated that its full-year same-store sales in China would decline by a mid-single digit figure. Yum said the recovery in sales has been much lower in China than anticipated. It had earlier cut the forecast to 6-10 percent from at least 20 percent earlier.

A television report in early July showing improper meat handling by one of the company's suppliers - Shanghai Husi Food - scared away customers in China, Yum's biggest market by sales.

US-based fast-food chains McDonald's Corp and Burger King Worldwide Inc and coffee chain Starbucks Corp also landed into controversy as they also procured meat from Shanghai Husi.

Yum said on Tuesday it expects 2015 profit to grow by at least 10 percent, while expecting operating profit in the China division to grow by at least 15 percent.

Following the food safety scandal, Yum has been urging its customers in China to visit more than 1,000 of its kitchens and two suppliers to understand the safety measures being incorporated.

Customers can register online to book a visit. A tour led by the manager of a Shanghai restaurant this month showcased employees washing hands thoroughly and checking the oil used in the fryers and the water used for the food.

Tour participants, however, were not allowed to use their mobile phones, take pictures or video, or record any audio.

James Roy, associate principal of China Market Research Group, said food safety issues have dented consumer confidence and Yum's same store sales performances in China. Yum, a global brand, used to be seen as a company that epitomizes extreme safety in China. But the food scandal has made it clear that such perceptions are not correct.

"Even a minor safety issue can cause long-term damage to brands," Roy said. Chinese consumers have been provided with more alternatives for meals and they are willing to spend more money on more premium options than brands under Yum, he said.

"Yum will struggle for a while to regain consumer confidence in China, given the changed competitive atmosphere," he said.