Bird flu, slowdown hit sales at fast-food chains

The bird flu scare and the economic slowdown hit the sales of some Western fast-food chains in China last month.

Yum! Brands Inc's same-store sales in China declined an estimated 13 percent year-on-year in July, with a 16 percent decrease at KFC and only 3 percent growth at Pizza Hut, Yum! Brands said on Monday.

Meanwhile, McDonald's Corp - Yum! Brands' main rival - also saw a sales decrease in China.

The company said on Aug 8 that comparable sales in Asia-Pacific, the Middle East and Africa decreased 1.9 percent in July, "reflecting negative results in Japan, Australia and China".

China's economic growth slowdown may be an important reason behind the declines, some analysts said, although McDonald's attributed the lower sales in those regions partly to the shift in timing of Ramadan.

Muslims across the globe observe Ramadan as a month of fasting.

"Due to the economic slowdown, consumption is weak, while the costs of raw materials, human resources and rents are all on the rise," said Li Weihua, deputy director of the franchise research center of the China University of Political Science and Law.

Yum! Brands also had to deal with the effect from the negative publicity surrounding a bird flu scare.

"KFC's sales and profits in China were significantly impacted by the intense media (coverage) surrounding Avian flu, as well as the residual effect of the December poultry supply incident," said David Novak, chairman and CEO of Yum! Brands.

At the end of 2012, food regulators in Shanghai said that third-party tests revealed that eight batches of chicken supplied to KFC by Liuhe Group Co had excessive levels of antibiotics.

The fast-food chain's business in China was greatly affected, although it said that all the supplies from Liuhe were stopped in 2012.

In the second quarter of 2013, Yum! Brands' same-store sales in China decreased 20 percent and its operational net profit declined 63 percent in the country.

To soothe consumers, KFC announced new quality-assurance measures in February, including eliminating uncertified poultry producers, as well as improving control of suppliers and communication with the public.

Yum! Brands is optimistic about winning back the consumers' trust.

"The China division same-store sales are expected to continue to recover over the course of the year and be positive in the fourth quarter," the company said in a regulatory filing.

The company's target is achievable, as the Avian flu scare is fading away, Li said.

He said that international fast-food chains have always seen some cases of bad publicity in China but that they have always been able to manage them.

And Western fast-food chains still have space to develop in the country, Li said.

"Western fast-food, no matter whether it is KFC or McDonald's, may be everywhere in big cities, but they are still very fresh in smaller cities, which make up the majority of the country," he added.

Yum! Brands has announced plans to continue its expansion drive in China. The company will open 700 restaurants in China this year, said Sam Su, chairman and chief executive officer of Yum! Brands China.

The Chinese market, where Yum! Brands operates 5,726 stores, contributed more than half of the company's total revenue last year.