KFC's chicken safety scare in China dragged down parent company Yum Brand's predictions for 2013. (Cao Jun / Los Angeles Times) |
An uproar in China over the safety of chicken sold at KFC โhas been longer lasting and more impactful than we ever imagined,โ according to the chief executive of parent company Yum Brands.
But even after a โsharp sales declineโ brought on by reports last month of poultry pumped up with excessive antibiotics, Yumโs David C. Novak said the company will forge ahead in Asia.
China was responsible for 42% of Yumโs profit last year, Novak said in a conference call Tuesday with analysts. Residents are becoming wealthier and are increasingly eager to mimic American fast-food habits.
In such a massive market -- especially one that has recently begun lashing out against mislabeled, ill-prepared and counterfeit products -- a food safety slip-up from a major brand was bound to have severe consequences.
โWe donโt know how long it will take us to recover,โ Novak said. The company says โthere is no questionโ that it will โfall well shortโ of its 2013 goal of 10% earnings per share growth, instead estimating a mid-single-digit decline.
KFCโs same store sales started out healthy in September, then slumped in October and kept declining in November. The measure tanked in December, ending up down 8% over the quarter. In January, the company expects the gauge to plummet 41% for KFC.
For Yum, the trouble began after Chinese Central Television broadcast an investigative report last month linking antibiotic-laden chicken to suppliers for KFC China. The story sparked a probe by Shanghai regulators, which didnโt result in a fine or further action.
Instead, authorities asked KFC to bolster its supply chain review tactics. Novak also told analysts that Yum will launch โan aggressive marketing campaign shortly after the Chinese New Yearโ this month.
In 2012, Yum opened up 889 new units in China. Novak said he hopes his company will eventually dominate the Asian superpowerโs fast-food sector the same way McDonaldโs reigns in the U.S.
โWe will stay the course in China,โ he said. โWe will continue to grow the business with leading brands in every significant category.โ
Over the year, Yumโs global revenue rose 8% to $13.6 billion. Net income rose 21% to $1.6 billion, or $3.38 a share.
China brought in more than half of the yearโs sales, with $6.9 billion -- a 24% increase.
Yumโs stock sank as much as 4% to $61.23 a share during early Tuesday trading, nearing the companyโs 52-week low of $61.05.
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