The Rising Influence of Rising Affluence

[DewDiligence]

YUM to spin off China business:

http://www.wsj.com/articles/yum-brands-to-spin-off-china-business-1445338830

Yum Brands Inc…plans to split off its China business after years of unsuccessful efforts to get it back on track.

When the transition is completed by the end of next year, Yum China will be a separate, publicly traded franchisee of Yum Brands, the company said Tuesday. Yum China will pay its former parent company a percentage of its sales for the exclusive brand rights to KFC, Pizza Hut and Taco Bell, which isn't yet in China…

…Yum’s decision illustrates how difficult it can be to operate in the complex China market, even for a pioneer with a long track record. Yum was the first Western fast food company to enter China, with its KFC brand in 1987, and as recently as a few years ago, the China division was the star of Yum’s global portfolio. It now operates around 4,900 KFCs in more than 1,000 Chinese cities, as well as more than 1,400 Pizza Hut restaurants, nearly 300 Pizza Hut home delivery outlets, and a Chinese hot-pot chain called Little Sheep. Altogether, 6,900 of Yum’s 41,000 world-wide restaurants are in China.

… In 2011, the year before its problems began, Yum’s China revenues rose 35% to $5.6 billion, accounting for 44% of its global total, while operating profit rose 15% to $908 million… Last year, China revenues were flat at $6.9 billion and operating profit declined 8% to $713 million.

… The China move aligns with a broader shift away from owning restaurants toward pure franchising, Yum said. Yum plans to have at least 95% of its restaurants world-wide owned and operated by franchisees by the end of 2017 [excluding the Yum China spin-off]…

More details on the spin-off will be disclosed to investors in December.

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