Yum! Brands' Multi-Front Campaign Hits China

Look for Yum! Brands to advance swiftly in the Asian nation.

Apr 2, 2014 at 7:15PM

The year of 2013 was not the year to play chicken, unless of course you are Buffalo Wild Wings (NASDAQ:BWLD). Between McDonald's (NYSE:MCD) Mighty Wings failing to take flight and Yum! Brands' (NYSE:YUM) poultry scare in China, these two megasize fast-food companies were left spitting feathers. For this year, Yum! Brands has a great idea, starting from scratch.

Source:  Yum! Brands.

The scare that made consumers feel chicken
On national Chinese television in December 2012, a report came out claiming that Yum! Brands' KFC of China was using chicken suppliers that improperly used antibiotics. China Central Television stated, "KFC's control and management over food safety cannot be trusted completely by customers."

Ouch. This had a devastating result. The panic caused same-store sales across China to drop like a stone. Though Yum! Brands saw its Pizza Hut division's same-store sales jump by 4% for the year, the number for KFC China tumbled by 15%. In the final quarter the carnage slowed down a bit with just a 4% drop, but the number still remained relatively deep in the red.


Source: Yum! Brands.

Yum! Brands has been fighting hard to restore its image ever since. It cut over 1,000 suppliers. It ran a deep-discount promotion. It made many public statements. It has even been argued that Yum! Brands did too much, instead of letting the incident die out in the memories of consumers.

Sometimes time heals all wounds. You don't think we're going to hear McDonald's apologize for the Mighty Wings launch, do you? Negative publicity tends to go away on its own if you quit reminding consumers about it.

Maybe Buffalo Wild Wings should have used the opportunity to move in while KFC regrouped. After all, Buffalo Wild Wings has just barely started to open international locations, as it just opened its first restaurant in Mexico. CEO Sally Smith stated, "Sales are robust, which gives us confidence that the brand travels well." Buffalo Wild Wings plans to open a location in Dubai this year. Shanghai or Beijing could still be next. 

The new Yum! Brands move
While Yum! Brands was busy with its Taco Bell war on breakfast, it also announced a complete overhaul of KFC China. Instead of playing defense, Yum! Brands is going on the offensive and it's no longer talking about its past problems.

First up is a whole new menu. Yum! Brands is introducing 15 products to the menu all at once. Of these, 10 of them are brand-new and five of them are "re-launched versions of customer favorites." Next up are brand-new marketing strategies. This includes entirely new packaging, uniforms for employees, store designs, and even a new digital app. Finally, the company is bringing on two popular Chinese celebrities to promote the KFC brand and gain further trust among consumers.

It may just work and pay off handsomely. Despite the temporary problems, KFC was still named the No. 1 foreign brand in China for 2013 by the BBC. It has over 4,600 locations in 900 cities and it plans to open at least 700 more this year. This compares with just 1,800 McDonald's locations.

Foolish final thoughts
We may get a glimpse into how KFC China is doing with Yum! Brands on its earnings and conference call on April 22. Yum! Brands targets at least 20% growth in earnings per share this year. If it is successful in its initiatives, don't be surprised if it blows away that target. Fools should take a closer look at Yum! Brands. It only trades at an analysts' projected P/E of around 20 while McDonald's trades at 17, and the slight premium seems well worth it because Yum! Brands has much faster expected growth and the potential for a lot more.

Nickey Friedman has no position in any stocks mentioned. The Motley Fool recommends and owns shares of Buffalo Wild Wings and McDonald's. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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