(Adds executive comment)
By Lisa Baertlein
Oct 11 Yum Brands Inc said it can triple
the number of restaurants in its China division, which is being
spun off after a string of sales setbacks that have raised the
risk profile of the company's top profit generator.
Yum opened its first KFC in China near Beijing's Tiananmen
Square in 1987, beating major rivals to the country. It has been
China's biggest Western restaurant operator for years and now
has more than 7,300 KFC and Pizza Hut outlets there.
"I really don't see any reason why we cannot have 20,000
restaurants in China," said Micky Pant, chief executive of Yum's
China division, which will be spun off on Oct. 31.
But Yum China's once-predictable growth has been called into
question. It has grappled with internal and external challenges
in recent years, including marketing blunders, rising
competition, bird flu outbreaks, food safety problems and
slowing economic growth.
Earlier this month, executives blamed anti-U.S. protests
sparked by political tensions in the South China Sea for a
surprise 1 percent drop in sales at established China
restaurants during the latest quarter.
Pant said those sales were recovering and described the
division's first same-store sales drop in five quarters as a
blip, telling Reuters, "the fundamentals of the brands in China
are very strong."
Pant said Yum China will have 15 percent earnings expansion
in the world's fastest-growing economy and that it will open
restaurants in burgeoning mega cities, major transportation hubs
and new shopping malls. The company also plans to open Taco Bell
and Little Sheep restaurants, albeit at a far slower pace than
its two dominant brands.
Partners Primavera Capital and Alibaba Group Holding Ltd
affiliate Ant Financial, which will buy a $460 million
stake in Yum China, bring competitive advantages such as local
real estate market knowledge and digital leadership, Pant said.
Yum China already is the biggest user of Ant's popular
Alipay service and the restaurant operator is investing in
making its mobile ordering system and loyalty programs even more
robust, executives said.
Analysts say KFC, which accounts for roughly 70 percent of
Yum's restaurants in China, still has plenty of room to add new
units but suggest its limit may be lower than the company's
China has about 4 KFC stores per million people and its
level of "Peak KFC," or restaurant penetration, is likely to be
equal to Japan's at 9 stores per million people, rather than the
13 stores per million people in the United States, Bernstein
Research analyst Sara Senatore said in a recent note.
Pant told Reuters he "can absolutely see getting" to 12 KFC
restaurants per million people in China, equivalent to a
tripling of the business.
(Reporting by Lisa Baertlein in Los Angeles; Additional
reporting by Shanghai newsroom; Editing by Jeffrey Benkoe and