The first few bites of fast food are always delicious. Overindulge, though, and the feeling is altogether different. For global companies, the same may be true of exposure to China. If so, Yum Brands, which owns and franchises Kentucky Fried Chicken and Pizza Hut restaurants, will find out the hard way.
At the company’s investor day last week, its management made a compelling case for investing heavily in China. It has more than 4,000 outlets there now, but is nowhere near saturation. The management points out that if that figure rises to 9,000 by 2020, there will still be only seven outlets per million people. There are 60 stores for every million Americans now. The economics of each store are impressive: a new store in a smaller Chinese city, according to the company, might cost something more than $500,000 to build but can ultimately bring in $300,000 in cash profits annually.
Given these two points, it is clear why the company wants to put its capital to work in China. It built almost 300 company-owned restaurants there in the first nine months of the year, and now owns, rather than franchises, more than 80 per cent of its stores in the country (McDonald’s, notably, is taking the opposite tack, emphasising franchising in China).
