Customers walk into a KFC restaurant in Shanghai. Yum Brands Inc, the owner of KFC and Pizza Hut, has 6,867 restaurants in its China division, which contributed 57 percent of the company's overall revenue. [Photo/China Daily]

Revamp of $31 billion fast-food firm announced to deal with challenges

Yum Brands Inc, the parent of KFC, Pizza Hut and Taco Bell, announced on Tuesday it is splitting off its China business into a separate company.

The spinoff of the $31 billion fast-food group will be named Yum China, and focus on the US company's huge but struggling restaurant business in the country, the AFP reported

In a statement reply to China Daily, the company said Yum China will become Yum Brands Inc's franchised dealer, with the ownership of the three major brands of KFC, Pizza Hut and Taco Bell. It is expected to expand the number of its outlets in the country to more than 20,000 from current 6,900.

"Following the separation, each standalone company will be able to intensify focus on its distinct commercial priorities, allocate its own resources to meet the needs of its business, and pursue distinct capital structures and capital allocation strategies," said Yum chief executive Greg Creed in a separate statement.

The efforts to split the Chinese operations from the rest of the company follow calls from activist investor Keith Meister, the founder of hedge fund Corvex Management, who wants the company to focus on the US.

In May, Meister suggest Yum could boost its networth by $16 a share if it exits China, which translates to an increase of about $7 billion in value.

Yum's China division contributed 57 percent of the company's overall revenue and 54 percent of its operating profit in the latest quarter.

Jason Yu, general manager of Kantar Worldpanel China, said Yum China contributed more than 50 percent of Yum's global revenue. The move to split its China business is to de-risk the business as the China market went through a phase of slowdown and transformation.

James Roy, associate principal of China Market Research Group in Shanghai, said Yum's business in China is big enough as it has more KFCs in the country than in the US. As a result, Yum may be finding it difficult to manage all of them under the same umbrella.

With Chinese consumers looking for healthier food alternatives, and with such facilities available even in second-and third-tier cities, the company may be facing more problems, he said.

The Louisville, Kentucky-based Yum has more than 41,000 restaurants in 125 countries and regions. The China division is dominated by KFC and Pizza Hut Casual Dining restaurants. Yum had earlier said that sales in the Chinese mainland continued to be difficult due to the ongoing volatility. The company said it expected same-store sales for the fourth quarter to range from zero percent to 4 percent, with positive same-store sales growth at KFC and negative same-store sales at Pizza Hut Casual Dining.

Yum revamped its top management team in China in August after incumbent chairman and chief executive Sam Su retired from his post.

Su, who was instrumental in the fast-food chain's expansion and setting up of more than 4,000 KFC restaurants in the country, will be replaced by Micky Pant, current CEO of the KFC unit.

The company also said that Joey Wat, 44, the president of KFC China, and Peter Kao, 58, senior vice-president and brand general manager of Pizza Hut China, have been promoted to the position of chief executive officer of KFC and Pizza Hut, respectively.

Wang Lin, a 29-year-old resident in Weinan, a city in Shaanxi province, said she has not been to a KFC for several years. "When they first opened KFC in 2003, my school friends and I were so excited and we took a bus together to eat fried chicken there," said Wang. "Now it would be funny to meet at KFC since there are so many other trendy restaurants to choose from."