Why Yum! Brands’ division in China is important

Yum! Brands’ division in China

Yum! Brands’ (YUM) division in China includes its business in mainland China. It’s the combined revenues from all the brands—Kentucky Fried Chicken (or KFC), Pizza Hut, East Dawning, and the Little Sheep. As of June 2014, the company had a total of 6,387 restaurant units—or 15% of the total system restaurants in China. The majority of the restaurants were KFC. It had 4,653 units. It was followed by Pizza Hut with 1,349 units.

KFC is Yum! Brands’ largest business in China. It’s one of the most successful U.S. brands in China. It runs two concepts with Pizza Hut—full service sit-in casual dining restaurants and the delivery restaurants. It also operates Little Sheep and East Dawning restaurant brand. It serves Chinese food to the customers.

KFC—most powerful brand

According to the Millward Brown, KFC was the most powerful foreign brand in China in 2013. McDonald’s (MCD) was ranked seventh. McDonald’s had ~2,000 restaurants in China, according to Restaurant News. Yum! Brands had three restaurants per million people in China as of 3Q13. It plans to increase this number to ten.

Looking deeper into the market

To understand the Chinese market’s growth more, let’s look at the unit economics. According to the company, KFC has a payback period of three years in Tier 3–6 cities in China—compared to five years in Tier 1–2 cities. Cities in China are classified into tiers based on gross domestic product (or GDP), infrastructure, and transportation. The higher the tier, the more developed the city.

This tier system helps a company gauge a region’s profit potential. Just like in China, it can also be found in India. We’ll continue this series by discussing a second emerging market for Yum! Brands—India.

Other international chains—like MCD, Starbucks (SBUX), Burger King (BKW)—are part of the Consumer Discretionary Select Sector SPDR (XLY). They’ve already entered the Indian market.

Click here to review Yum! Brands quarterly earnings for 2Q14.