The Rising Influence of Rising Affluence

[DewDiligence]

YUM expects mid-single-digit comps and 700 new restaurants in China during 2013:

http://blogs.wsj.com/corporate-intelligence/2012/12/06/yum-brands-says-the-chinese-still-love-kfc/

Yum China executives said that high rent and labor costs in populous cities such as Shanghai have eaten into profits, so they will be focusing more of their growth on so-called “lower-tier” cities across the Mainland.

The company said it is boosting its round-the-clock offerings at KFC, it’s biggest chain in China, with expanded breakfast, lunch, dinner, late-night and delivery options and more “value” offerings. At its Pizza Hut restaurants, the company is providing free afternoon drink refills, which they say competes head-on with Starbucks. They’re also expanding the Pizza Hut menu beyond pizza to include broader offerings of both Western and Chinese food. For example, Pizza Huts in China will offer a new sizzling steak and are testing breakfast items.

“I believe in our China business model as much today as ever,” Mr. Novak said.

The -4% projected China comps in 4Q12 are likely an anomaly, but I’m still wary of a foreign restaurant chain that derives 2/3 of its overall operating profits from China. I may be making a mistake, but I haven’t used the recent selloff to buy in.