Yum! Brands Inc. in china

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Case Details:

Case Code : BSTR266
Case Length : 23 Pages
Period : 1987-2007
Pub Date : 2007
Teaching Note :Not Available
Organization : Yum! Brands Inc.
Industry : Fast Food
Countries : China

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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"Since I'm always asked how big we think we can be in China, I'll give you my crystal ball answer: We're in the first inning of a nine-inning baseball game. We clearly have a long runway for growth in mainland China."¹

- David C Novak, Chairman and Chief Executive Officer, Yum! Brands Inc. in 2006.

"For many companies, China is a hope and a dream - maybe a very realistic hope and a dream - but for Yum it's reality today. It's an important piece of the company that still has plenty of growth potential ahead of it."²

- Joseph T Buckley, Senior Managing Director, Bear, Stearns & Company³, in 2005.

Two Decades of Success

In the year 2007, US based Yum! Brands Inc. (Yum)⁴ successfully completed two decades of operations in China. Yum's China division included operations in Mainland China⁵ , Hong Kong and Taiwan.

As of September 2006, Yum operated in Mainland China through more than 1,700 KFC restaurants, around 230 Pizza Hut casual dining⁶ restaurants, 33 Pizza Hut home service units, 3 Taco Bell stores and 4 East Dawning restaurants. The China division was Yum's largest international market with revenues of US$ 1.638 billion and operating profits of US$ 290 million in the financial year ending December 30, 2006.

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Yum had introduced several new products, which included beverages and desserts targeted at the young adult segment, marking its two decades in the country. (Refer Table I for sales of Yum in China).

For the financial year 2007, David C. Novak (Novak), Chairman and CEO, Yum, estimated that Yum's China division would post an increase of 20% in operating profit. During the year, KFC planned to add 300 more outlets while Pizza Hut planned to add 70 casual dining branches and 20 home delivery units in the country. Till the late 1980s, restaurants in China did not provide decent facilities and conveniences to their customers (Refer Exhibit I for more about Fast Food in China). The owners did not pay attention to décor and lighting, while customer service too was not of a high standard.

Yum entered China in 1987, opening an outlet in Tiananmen Square, Beijing.

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1] Annual Report, Yum! Brands Inc., 2006.

2] "China Hungry for KFC Chicken, Bamboo and Lotus Roots,"www.usatoday.com, January 16, 2005.

3] Bear, Stearns & Company is one of the largest investment banks in the world. The firm is a leading player in securities trading and brokerage, with revenues of US$ 16.551 billion and net income of US$ 2.05 billion in 2006.

4] Yum! Brands Inc. based in Louisville, Kentucky, is the world's largest restaurant company, with more than 34,000 restaurants in 100 countries across the world. The company's total revenues in 2006 were US$ 9.5 billion. Till the year 2002, Yum was known as Tricon Global Restaurants Inc.

5] Mainland China refers to the area administered by the People's Republic of China.

6] Casual dining restaurants are in a category between the fast food and fine dining restaurants and provide food that is moderately priced. The atmosphere is casual with food served at the table.