Yum feeling the heat in China as July sales tumble

Tue Aug 13, 2013 6:29am EDT
 
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By Lisa Baertlein and Adam Jourdan

LOS ANGELES/SHANGHAI (Reuters) - The heat seems to be getting to KFC parent Yum Brands Inc in China, after the fast-food chain saw China sales slide in July, with some market watchers saying a lack of focus on cooling drinks and ice cream meant diners looked elsewhere as record hot weather gripping the country.

On Monday Yum reported a much steeper-than-expected 13 percent drop in July sales at established restaurants in China as the company strives to bounce back from the double blows of a food safety scare and bird flu outbreak in its top market.

The Chinese sales decline was something of a setback for Louisville, Kentucky-based Yum, which in recent months had seen same-restaurant sales declines ease.

"Because of the heat people were looking for cold drinks and ice cream, so McDonald's, Starbucks Corp, and Haagen-Dazs have been grabbing more share of the late afternoon and evening dining because they have better ice cream and drinks," said Shanghai-based Shaun Rein, managing director of China Market Research Group.

A review of KFC's China website on Tuesday backed this up, with almost every advertisement for hot food. McDonald's, meanwhile, had promotions for its ice cream McFlurry and shaved iced drinks specifically targeting an Asian market.

Local media reported that last month was the hottest July for 140 years, with temperatures hovering close to 40 degrees Celsius. The heat wave has held up so far in August and is expected to break in the middle of the month.

Shares in Yum fell $2.86, or 3.8 percent, to $71.61 in after-hours trading.

Analysts, on average, had expected a 7.1 percent decline in China's July same-restaurant sales, according to Consensus Metrix.   Continued...

 
People stand in front of a poster of KFC and Pizza Hut in Guangzhou, capital of south China's Guangdong province April 2, 2007. REUTERS/Joe Tan