I was initially intrigued on reading that restaurant operator Yum (NYSE: YUM) was forging a new tie-up to open its KFC and Pizza Hut restaurants in appliance stores owned by Suning (Shenzhen: 002024), one of China’s top retailers, in what seems like a good expansion opportunity. (English article) But after some more consideration, this kind of a move almost looks to me more like a sign that Yum, after years of relentless expansion in China, may finally be running out of good growth opportunities in the huge market and is now having to look for newer, less obvious areas for expansion. If that’s the case, look for Yum’s phenomenal China growth to slow markedly in the next couple of years, putting a big damper on one of its few big growth stories that has made the company a popular investment choice even as many of its other major global markets remain sluggish. Let’s look at the actual news, which has Yum planning to open 150 new restaurants under its KFC, Pizza Hut and newly acquired Little Sheep hot pot brands in Suning stores over the next 5 years. This latest announcement comes as Yum now has 5,000 restaurants in China, with plans to open another 600 in the near future, further consolidating its spot as the country’s biggest operator ahead of the second largest player, McDonalds (NYSE: MCD), which has about 1,500 stores now and is aiming for 2,000 by the end of next year. Yum’s Suning tie-up looks similar in its less conventional nature to McDonalds plan announced last year to build up its drive-through business catering to a growing number of Chinese car owners. (previous post) That plan was followed by news in November that Yum itself was forging its own new partnership with oil major Sinopec (HKEx: 386; NYSE: SNP; Shanghai: 600028) to open restaurants in gas stations. (previous post) McDonalds is also exploring greatly expanding its franchising business, similar to what it already does in the US. While I applaud all these new moves for their innovation, they also seem to reflect the increasingly apparent reality that China’s first- and second-tier cities where Yum has found most of its success so far are quickly becoming saturated, with fewer and fewer attractive new opportunities for expansion. Gas stations and now Suning appliance stores certainly get lots of traffic, but it’s far from clear to me that either of these new initiatives will provide a big new growth area, as people who go to these places don’t usually come to eat a meal, though perhaps they might enjoy a snack during their visit. All that said, I would expect many of these new initiatives, including this new Suning tie-up, to produce very mixed results, contrasting sharply with the stellar performance of most of Yum’s existing China stores. If that’s the case, I wouldn’t be surprised to see Yum’s China growth slow quite a bit in the next 2 years, which seems almost inevitable, and for many of these new initiatives to ultimately end up as only modest successes or perhaps even as failures.
Bottom line: Yum’s latest tie-up with Suning appliance stores is the latest in a growing number of unusual new initiatives that show it may be reaching the saturation point in China.
Related postings 相关文章:
◙ Yum’s New China Strategy: Fill Up With Gas, Food
◙ Growth-Hungry McDonalds Explores Risky Franchising Route
◙ McDonald’s Revs Up for China Drive-Thru 麦当劳寄望“得来速”汽车餐厅拓宽中国市场
The signs of economic slowdown in China are growing louder by the day, but you would never know it from looking at the latest bullish news from 2 of the country’s top restaurant operators, Yum Brands (NYSE: YUM), operator of the KFC and Pizza Hut chains, and upscale coffee seller Starbucks (Nasdaq: SBUX). It seems like the Chinese papers are filled these days with more forecasts of gloom as China’s exporters take a hit from sluggish demand in their 2 biggest markets, the US and most notably the European Union as it struggles through its debt crisis. Today the papers reported that retail sales during the week-long Chinese New Year holiday posted their weakest gain since 2009 at the height of the financial crisis. Despite that, Yum reported that sales at its China restaurants, consisting mostly of KFCs, grew 21 percent in the fourth quarter, while its operating profit for the country was up 15 percent, far better than the figures for its global business as a whole. (
Just weeks after getting regulatory approval for its purchase of leading hot pot chain Little Sheep (HKEx: 968), KFC parent Yum Brands (NYSE: YUM) is making headlines once again for yet another tie-up, this time with Sinopec (HKEx: 386; NYSE: SNP), China’s top oil refiner. (
Some 7 months after Yum Brands (NYSE: YUM) first announced its bid to buy leading hot pot chain Little Sheep (HKEx: 968), China’s anti-monopoly regulator has finally approved the deal, in a major breakthrough not only for Yum and Little Sheep but also for China. (
More than half a year after announcing its plan to purchase top Chinese hot pot chain Little Sheep (HKEx: 968), Yum Brands (NYSE: YUM), owner of the KFC and Pizza Hut chains, has learned it will have to wait just a bit longer for the anti-monopoly regulator’s decision on the deal — an potentially ominous sign for a regulator that has shown a past tendency to consider nationalistic elements alongside commercial ones in such deals. But at the end of the day, the fact that the regulator hasn’t vetoed this deal yet indicates some debate is probably taking place in the organization, and I still think the chances of an approval are greater than 50 percent, especially as China tries to show its commitment to fair trade in light of US Congress legislation that would punish Beijing for manipulating its currency. According to a new statement filed by Little Sheep to the Hong Kong Stock Exchange, the initial 30 day period for China’s Commerce Ministry to consider Yum’s purchase, worth some $500 million, ended on July 27. (
After a couple of years of a low-key approach and not doing much, China’s anti-monopoly regulator is finally getting to work by investigating China Telecom’s (HKEx: 728; NYSE: CHA) dominance in the country’s broadband market. I’ll admit this is an interesting case, and have to applaud the regulator for following up on complaints by names like China Unicom (HKEx: 762; NYSE: CHU) and China Tietong that China Telecom unfairly uses its dominant position to keep others out of the market. (
