NOVEMBER 6TH 2015
AFTER SCANDALS, YUM BRANDS IS TO SPLIT ITS CHINA BUSINESS
For a long time, KFC and Pizza Hut (owned by Yum Brands Inc.) have been amongst the most successful foreign businesses in China. This Kentucky based group entered China in the late 1980s through their KFC brand. Back in the 1987, it was one of the first foreign fast-food chains to set up operations in the PRC.
For years, both the KFC and Pizza Hut brands experienced a great success in China, especially through catering to China’s growing middle class with restaurants that offered a higher level of service and food safety that was generally perceived on a better level than that of local competitors. Yum Brands, unlike their competitors (such as McDonald’s and Burger King), was opened to tweak their menu according to local preferences (adding more purely Chinese dishes to the menu) and thus reached a special status with Chinese consumers.
However, in last few years the corporation’s reputation (something that is very hard to regain once lost in China) was tainted by numerous food safety scandals – regarding minor meat supplier, bird flu outbreaks, as well as increasing competition from growing domestic brands. Any such problems in China have significant impact on the group globally – the China division of the group operates 6,900-restaurant and thus contributes to 54 percent of overall operating profit in the latest quarter. As a result, Yum Brands decided to split its China unit off in order to be able to better manage the aforementioned problems.
Meister has been calling for such a change for sometime. His argument lies in suggesting that through the split, the China unit managers would free to focus solely on their local business and thus be able it to benefit from increasing the unit’s local success. The lesson from such strategic step of one of the most successful foreign entities operating in China is clear – globally successful strategy is often bound to fail in China and companies need to work hard on adapting to fit the local specifics. Secondly, emphasis on quality and standards is essential since the growing local competition and demand of local customers makes it incredibly hard for companies to handle and survive such scandals that Yum did in China.
«Yum Brands to Split Off China Business», Wall Street Journal http://www.wsj.com/articles/yum-brands-to-spin-off-china-business-1445338830
«Lessons Learned: What Can We Learn From Yum Brands’ Success? Growth Does Not Happen by Accident» Center for Simplified Strategic Planning http://www.cssp.com/CD0311a/KFCLessonsLearned/
«KFC’s Radical Approach to China» Harvard Business Review https://hbr.org/2011/11/kfcs-radical-approach-to-china
«Yum Brands to separate China unit amid activist pressure» Reuters http://www.reuters.com/article/2015/10/20/us-yum-brands-restructuring-idUSKCN0SE1A820151020
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