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Yum completes spinoff of China division

Yum China Holdings Inc. looks ahead to new chapter in the country

Yum Brands Inc. completed the separation of its Chinese operations Tuesday, culminating a rocky, four-year stretch in which the business there has been beset by food safety concerns, economic issues and global politics.

Yum China Holdings Inc. began trading Tuesday morning on the New York Stock Exchange under the ticker symbol “YUMC”. It will operate as the single largest franchisee of Louisville, Ky.-based Yum! Brands, which will concentrate on franchising its KFC, Pizza Hut and Taco Bell chains.

“After 30 years in China, we are incredibly excited to begin a new chapter as an independent company focused on growth in China,” Yum China CEO Micky Pant said in a statement. 

Yum’s China business began in 1987, when KFC opened the first Western quick-service restaurant inside the communist country. The business took off over the past 15 years, along with the Chinese economy. KFC became the preeminent restaurant chain in the country, while Pizza Hut grew into the largest casual-dining concept.

The company now has more than 7,300 restaurants in China, and more than $6.9 billion in annual revenue, accounting for more than half of Yum! Brands’ total revenue in recent years. 

But a controversy over the use of antibiotics in food in 2012, and a food safety scare two years later, hammered same-store sales at KFC. Economic concerns then impacted Pizza Hut sales. Revenue at Yum China has been flat since 2012, as sometimes steep declines in same-store sales offset rapid unit growth, leading to pressure on Yum! Brands to spin off the business.

Yum! Brands announced its spinoff plans earlier this year. 

Yum China will look to grow Yum! Brands’ three chains, and perhaps other concepts, in China. The company will pay a 3-percent royalty fee to Yum! Brands in the process.

Yum China says it can continue to ride the wave of Chinese economic growth. The company expects the economy to continue to grow in inland cities, with the middle-class population in those areas growing from 13 percent in 2002 to 39 percent by 2022. 

That will expand the number of areas where KFC and Pizza Hut could grow. In addition, Yum China is preparing to debut the first Taco Bell in the country, which will give the company another brand to grow.

“China presents an outstanding opportunity for high-quality restaurant concepts, with unprecedented urbanization, a rapidly growing middle class and ongoing investment in world-class infrastructure,” Pant said. 

As an independent company, Yum China will invest in new restaurants, increase digital engagement and delivery, he said. 

Meanwhile, Yum! Brands will focus on franchising. The company is selling company-owned restaurants to franchisees to concentrate on the franchising aspect of the business. 

Yum! Brands plans to reach less than 1,000 company-owned locations by the end of 2018. The company has 43,000 locations across the three brands.

“We’re going to concentrate on growing,” Yum! Brands CEO Greg Creed told Bloomberg TV Tuesday. “We’re going to be more focused, more franchised and more efficient.”  

The company will turn its focus to growing same-store sales and new units worldwide, he said.

Contact Jonathan Maze at [email protected]
Follow him on Twitter: @jonathanmaze 

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