Oct 9 Yum Brands Inc's chief executive
said on Wednesday the company still must fully convince diners
in its top market of China that food at its KFC restaurants is
safe, following a pair of safety scares, and predicted 2014
would be a "strong bounce back year."
Shares in Yum tumbled 7.8 percent to $65.75 on the New York
Stock exchange on Wednesday.
Yum's sales at restaurants in China have taken a beating
since chemical residues were found in chicken from some of its
poultry suppliers in China late last year. That was followed by
a bird flu outbreak in China this spring.
On Tuesday the company said Yum's China same restaurant
sales fell 11 percent in the third quarter, and 11 percent in
September, the first month of the China divisions' fourth
quarter, and that it would take longer than expected for those
sales to rebound.
Yum is the biggest U.S. restaurant operator in China and
that market traditionally accounts for more than half of the
company's operating profit.
Up until this year, Yum's stock was considered a popular way
to invest in China - the world's fastest-growing major economy.
Executives during a conference call with analysts on
Wednesday attributed the China sales decline to the "one-two
punch" of a social media-fueled chicken supply safety scare and
bird flu in the country.
But analysts have said China's middle-income diners have cut
their spending due to government austerity measures. KFC also
faces stronger competition from local eateries, and the company
may have opened too many fried chicken restaurants in China,
those analysts have said.
"I think what we really have here is a country-wide issue of
trust," Chief Executive David Novak said on the call. "That's
what we're getting after."
Chinese consumers are wary about locally available food
following repeated and sometimes deadly food-contamination
scandals. A recent Pew Research report said almost one-quarter
of Chinese people felt that food safety was a "very big
Yum already has taken steps to strengthen the quality of its
poultry supply chain by culling weak performers.
On Wednesday, it unveiled plans for its "I Commit" food
quality campaign in which KFC employees, suppliers and poultry
farmers will tell diners that the chicken chain's food is safe.
Executives on the call said a new beef burger that they
hoped would boost sales in September also fell far short of
The China division's fourth quarter began in September and
ends in December. Its weak start prompted Yum in its earnings
report on Tuesday to retract its forecast for a fourth-quarter
recovery in China restaurant sales.
Executives say they are confident they can secure ample safe
poultry supplies even as they plan to build at least another 700
restaurants next year in China, where KFC outlets account for
roughly 4,500 of the company's more than 6,000 restaurants in
"We're confident a full recovery is in store, but more time
and effort is required," Novak said on the call.
The company declined to say when it expects China same-store
sales to rebound, but Chief Financial Officer Patrick Grismer
said Yum expects those sales in the fourth quarter to improve
from the third quarter.