Yum CEO says time, not cash, to cure China sales drop

Tue Feb 5, 2013 5:06pm EST
 
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By Lisa Baertlein

(Reuters) - KFC parent Yum Brands Inc YUM.N on Tuesday said time, not ad spending, is the cure for a steep sales decline at its restaurants in China that was sparked by a food safety scare late last year.

The fast-food operator makes more than half of its overall sales in China, and customers there began shunning Yum's restaurants in December after news reports and government investigations focused on chemical residue found in a small portion of its chicken supply.

The company was not fined by food safety authorities.

Yum has built a dominant position in China on the back of its industry-leading food quality and the current crisis underscores how vulnerable even the strongest restaurant chains are to quick shifts in consumer perception.

The company has nearly 5,300 restaurants in China, mostly KFCs, and quickly responded to the crisis with free beverage and ice cream promotions - which went nowhere, Chief Executive David Novak said on a conference call with analysts.

"There's not a whole lot we can do right now that's going to turn the tide. We need some time," Novak said, adding that Yum has no plans to increase its already significant advertising spending in China.

"We could be wasting a lot of money doing marketing right now," he said.

However, Yum is refining and strengthening its food safety standards. It also plans to begin an aggressive marketing campaign after the February 10 Chinese New Year to underscore its commitment to food safety and restore KFC's brand image.   Continued...