KFC sales in China hit by gov't chicken probe

Yum! Brands Inc, owner of the KFC fast-food chain, said fourth-quarter same-store sales fell more than projected in China as demand was hit by a government investigation into one of its former chicken suppliers.

Industry experts had predicted the negative impact of the probe, which is expected to be felt in the long term.

KFC sales in China in the last two weeks of December were affected by the adverse publicity associated with the probe into Chinese poultry suppliers, the US company said in a filing with the United States Securities and Exchange Commission on Monday.

China same-store sales fell by 6 percent year-on-year in the fourth quarter, compared with a previous estimate for a decline of 4 percent, the filing said.

Shanghai's food regulators said that tests conducted by a third-party agency from 2010 to 2011 found that eight batches of chicken supplied to the company by Liuhe Group Co had excessive levels of antibiotics. Yum said it stopped all supplies from Liuhe in August 2012.

The revelation sparked heated debate among Chinese consumers. The negative impact will linger for a long time for KFC, which relies heavily on domestic chicken suppliers, said Gao Jianfeng, general manager of the Shanghai-based Bogo Consultants.

With a huge number of restaurants demanding large quantities of chicken ― the main ingredient on their menus ― KFC won't be able rebuild its supply chain in the short term, Gao said.

He added that food safety issues in the Chinese supply chain, from chicken to fodder, are widespread.

“No single company can preserve its reputation in such an industrial chain,” he said.

An increasing number of fast-food consumers have started to go to other Western chains such as McDonald's or Burger King, he said.

Zhao Ping, a researcher at the Academy of International Trade and Economic Cooperation, said that due to their rising income levels, an increasing number of Chinese people are paying more attention to healthy eating, bringing new perceptions toward foreign fast-food brands and reducing their trust and appreciation of those chains.