Yum! Brands: Increasing footprints in China, Eyes on India
Rajesh is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
The first mover advantage in China has worked wonders for Yum! Brands (NYSE: YUM). It is doing spectacularly well and dominating the fast food market in the region. Yum’s KFC, Pizza Hut and Taco Bell have delighted Chinese palates and preferences. Currently there are more than 3,800 KFCs and 660 Pizza Hut restaurants drawing long queues that satisfy Chinese taste buds. The company proposes to open 600 more restaurants in this year, which precisely means opening a new outlet every 15 hours. One wonders what is the recipe for success of this fast food giant?
Key ingredients in China: Hush hush…here’s unfolding the secret
This American fast food giant did not bring America to China, it rather mingled into the Chinese culture which is why it got widely accepted. The formula is to add local ingredients in both menu and management.
Understanding the culture of the mass, blending in their taste, accepting the regional flavor and adding it to the menu items is what enticed the Chinese population to its fast food outlets. KFC’s extensive menu features seafood, beef, fresh vegetables and rice dishes to fit the Chinese palates. So has Pizza Hut appealed to the mass and has become the top casual dining brand in the country.
Besides localizing the menu, Yum localized its management too. The company hires Chinese managers, gives them the decision making power and partners with state owned companies for expanding its business. It uses their expertise in making regional dishes to appeal the domestic taste buds.
Somehow McDonald’s (NYSE: MCD), the company’s closest competitor, could not modify its menu much from its US version and mostly offers US style burgers. However this doesn’t mean that McDonald’s hasn’t experienced success in the land. In fact it is set to open about 250 outlets this year to compete with Yum. However, as of now, Yum is the undisputed king.
Yum! Brands is experiencing phenomenal success in China, but this isn’t enough for the company. The fast food giant has its eyes set on other emerging markets as well. The company desires to replicate its China success in India.
India: Yum’s next growth destination
The Indian economy is dominated by young people with rising disposable income and growing middle class. While China’s population is aging with a median age of 39, 60 percent of the Indian population falls below the age 30. This offers enormous future opportunities in fast food. At present, Yum has 156 KFCs, 215 Pizza Huts and 3 Taco Bells in India. The company plans to invest $1 billion to pull up the total number of outlets to 2000 by 2020.
In its early days, Yum gave solid competition to major fast food rivals in India, but had to close most of its KFC units due to protests from farmers and ultranationalists. It started focusing on Pizza Hut until 2001 when it revived its KFC business in the country. Meanwhile, Domino’s Pizza (NYSE: DPZ) and Baskin-Robbins entered the race and have more outlets in India than Yum at the moment. McDonald’s is also rigorously expanding in this subcontinent. The other US-based food chain Dunkin' Donuts of Dunkin' Brands (NASDAQ: DNKN) has already made its debut in India before rival Starbucks (NASDAQ: SBUX) could launch its first coffee outlet in the second half of this year.
My Takeaway
The promising economic conditions of the emerging economies have lots to offer to Yum. The Chinese and Indian economies hold great potential and appetite for the menu. This is exactly why other US food chains, from McDonald’s to Starbucks, are flocking in these markets after serving the saturated domestic markets. So one thing is for sure: despite being successful, Yum has to work really hard. No gains are going to come without a fight.
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