Why China has been a bumpy ride for Yum! Brands

Volatility in China has caused a bumpy ride

China has been a bumpy ride for Yum! Brands (YUM). Issues relating to food safety have a long history of tarnishing big, fast food names such as Yum! Brands, McDonald’s (MCD), and Burger King (BKW).

Why China has been a bumpy ride for Yum! Brands

The previous chart shows the volatility in China same store sales at the end of 2013. It declined by 4% compared to a growth of 4% at the end of 2012 and a growth of 19% in 2011.

Food safety

Recently, a local TV channel broadcast workers repacking expired meat, which was supplied to McDonald’s and Yum! Brands, according to Reuters. In 2013, Yum! Brands ran into an issue with a supplier again. According to the Wall Street Journal, the government put two of its suppliers under review to determine whether its chicken contained antibiotics higher than permitted levels. 2013 also saw the outburst of the Avian flu. The effect of all these issues reflected in the same store sales numbers for 2013, which were -1% in China for the year compared to a 23% in 2012. Investors who would like to gain exposure to the restaurant industry can invest in exchange-traded funds (or ETFs) like the PowerShares Dynamic Leisure and Entertainment ETF (PEJ) and the PowerShares Dynamic Food and Beverage ETF (PBJ).

While there’s little the company can do to avoid the outbreak of deadly viruses or bird flu, it has been proactive in taking all the necessary steps that are in its control. For example, according to QSR web, Yum! Brands decided to drop the supplier that caused controversy for packaging expired meat. According to the Marketwatch, McDonald’s (MCD) also suspended the supplier and Burger King (BKW) followed suit. The company also introduced new menu offerings to mitigate this downside in China.