KFC In Long-Overdue China Relaunch

Yum overhauls KFC in China

In a move that was long overdue, Yum Brands (NYSE: YUM) is taking the bold step of relaunching its KFC brand in China in a bid to reverse sinking sales as bird flu season heats up. Yum might like to blame its recent woes for KFC in China on a bird flu scare last year, or on a minor food safety scandal that briefly tarnished its image. But the reality is that the brand is showing signs of age, and really is in need of this kind of a major overhaul.
Yum was an industry pioneer when it became the first global fast food operator to enter China with the opening of a KFC in Beijing in 1987. I was living in Beijing at that time and personally remember the opening, which attracted huge attention from local consumers. Many had never eaten western food before, and were attracted for that reason. But many were also attracted by the broader dining experience that KFC offered, including a comfortable, clean eating environment and friendly staff.

Yum was not only a pioneer for its early entry to China, but also for a strategy of adjusting its menu to suit local tastes — a rare practice at that time. That kind of approach, combined with a strong appetite for foreign fast food, helped KFC to quickly grow in China to become the nation’s dominant restaurant china. Yum now has some 4,600 KFCs throughout China, or more than twice as many stores as its closest rival, McDonalds (NYSE: MCD).

But much has changed in the last decade, including the entry of many new chains and the rise of local imitators, giving Chinese consumers a much wider range of choices for a similar dining experience. KFC has done little or nothing to update its stores during that time, with the result that many feel outdated and old even though they’re still quite clean and efficient.

Compounding the problem, KFC was the subject of a food safety scandal involving excessive levels of antibiotics in some of its chickens in 2012. The company also suffered a major blow about a year ago when many consumers avoided its restaurants due to a bird flu outbreak, causing sales to plummet by 50 percent or more at some outlets.

With the bird flu threat now looming once again, Yum seems to finally be taking a more proactive stance by announcing this major relaunch for KFC, the first in China since it entered the market more 27 years ago. (company announcement) I’ll recap some of the relaunch’s major points here, though would recommend reading the actual announcement that contains many more details.

Highlights include a major overhaul of the company’s menu, including the introduction of 15 new products. Equally important, Yum says KFC will regularly update its menu with many more new offerings. Other elements of the overhaul include new restaurant design and uniforms, more use of social media, and the hiring of 2 big celebrities as brand ambassadors. Yum also plans to slow down its new KFC openings to focus on this relaunch.

As I’ve said above, I do think this overhaul is long overdue. Such rebranding campaigns are relatively common in competitive western markets, and I’m surprised that Yum didn’t take this kind of action sooner. I’ll have to see the actual new store design and other features of the relaunch before I comment more on its chances for success. But at least the company is finally thinking in the right direction. That means we could finally see KFC return to same-store sales growth later this year, assuming there are no new scandals or bird flu crises.

Bottom line: Yum’s China relaunch for KFC looks like a good plan to revive the aging brand, and could help the chain return to same-store sales growth by the end of this year.

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