Due to falling sales and several health scares, Yum Brands Inc. (NYSE: YUM) the parent company behind KFC, Pizza Hut, and Taco Bell is separating their China branch from the rest of the company.
The new publically traded company will be called Yum China. It will pay Yum Brands a percentage of its sales.
The lagging sales in Chinese franchises reflect the slow down of the Chinese economy over the last few months. In 2011 Yum's revenues from China reached $5.6 billion, or 44% of worldwide profits. Its operating proft waas $908 million. In contrast last year's operating budget declined 8% to $713 million, and its revenues were flat at only $6.9 billion.
Some of these issues have also been linked to poor business decisions such as offering expensive high-end menu items such as steak at Pizza Hut, when Chinese consumers were looking for low-cost, high value options.
Another factor behind the split is recent controversies surrounding the meat suppliers to China's KFC, including claims of expired meat, misproper handling, and growth-hormone pumped chicken meat. This along with an avian flu outbreak in 2012 has hurt the chains reputation and drive customers to other fast food options.
Yum was the first fast food company to enter China in 1987. 6,900 of its 41,000 restaurants worldwide are located within the country. Until the recent downturn, China was the most exciting part of Yum's global brand.
The Chief Executive of Yum told the New York Times that separating out Yum China will allow for each company to operate with more individual resources and pursue independent goals. goals. This clarity will help attract long term investors to each brand, he added.
The China move makes sense for Yum, which wants to have 95% of its restaurants operated as franchises by 2017, as a way to reduce risk and generate income. The new company will be run by Mickey Pant, who was until recently head of the China division.