#94 Yum-my Chicken

As the English edition of the Chinese newspaper Renminbao (People’s Daily) reports, fourth quarter sales at Yum! Brands, the parent company of Kentucky Fried Chicken (KFC) and Pizza Hut have significantly declined. What has happened in the Middle Kingdom that not only has a huge love for chicken dishes, but also for foreign brands, a market that has been promising nothing but growth for the fast food giant? It all started out with a media report on China’s national TV station CCTV in December 2012. The broadcast alleged that some poultry farms, among them suppliers to KFC, ignored regulations by using hormones and antibiotics, and triggered unfavorable media attention and social media activity. An investigation by authorities in Shanghai only resulted in some vague recommendations concerning a strengthening of KFC’s supply chain, but no fine was assessed and no further action was taken. Unfortunately, as is often the case in such circumstances, the good news got much less media coverage than the original bad news. And so the Chicken scare started to nest in the minds of the Chinese consumers. As the Economist reports in its February 9th issue, KFC’s January sales in China fell by a dramatic 41 %. What makes this even worse is the fact that Yum! doesn’t operate under the usual franchise system in China, but owns most of its stores. With currently approximately 5000 restaurants in 800 Chinese cities, this is a costly development to digest – probably worse than eating a big bucket of deep fried poultry. KFC’s example just shows how tricky it can be to operate in far-away markets. Cultural, geographical and legal distance make it very difficult to first perceive and interpret the early warning signals correctly and then to react quickly and appropriately. Often in such cases, foreign companies quickly pick up the stigma of being an imperialist monster that has no respect for the local environment and whose only interest is exploitation of the local market. Or, in this case in the words of the Economist, to be the “Yucky Kentucky”!

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