Though the report hasnt been widely published in English yet, the stock shed some 4% in trading on Friday. Yum Brands representatives did not respond to requests for comment.
Its not clear what the government hoped to clarify by releasing tests that more than a year old from a farm that KFC no longer uses, particularly when the Shanghai FDA says it will publish recent test results in a few days. Its possible this signals a prioritization of food safety in the new Xi Jinping administration, says Junheng Li, head of research at China-focused research firm JL Warren Capital, though she thinks that KFC-Chinas real problem has little to do with government attention.
KFC-China was successful back in the day because they localized their menu, adapting it to local taste, Li told me. Among younger demographics in first- and second-tier cities, chicken has been around for too long, so that now, trendy Chinese food concepts are outperforming KFC and other foreign fast foods.
Yums 5,000 restaurants in China are growing revenue faster than the companys larger base of locations in the US. But shopping centers are no longer discounting rents for KFCs, says Li, meaning that the company is facing 100-250% hikes, wringing margins. Then theres the reality that young shoppers are increasingly spending their renminbi online, where e-retailers like Taobao and 360buy.com offer selection, price transparency, and convenience that traditional shopping centers struggle to compete with. KFC-Chinas plan to combat these trends is to expand in lower-tier cities, where markets are not yet saturated.
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