Even the tantalising prospect of 1.3 billion hungry consumers in the world’s most populous nation was not enough to tempt Yum! Brands.
After years of struggle, the owner of the KFC and Pizza Hut fast-food chains is to spin-off its Chinese operations in a belated admission that the country is a drain on its management and financial resources, not to mention its patience.
The announcement comes after the appointment to the Yum! board last week of Keith Meister, an activist investor who had led calls for a split, and an admission from Greg Creed, the chief executive, that the company’s Chinese turnaround had failed.
“Following the separation, each standalone company will be able to intensify focus on its distinct commercial priorities [and to] allocate its own resources to meet the needs of its business,” Mr Creed said yesterday.
Yum! shares rose 2.6 per cent to $73.63 in afternoon trading in New York after the company said that its Chinese operations would become a separate publicly traded company, paying its American-based parent a percentage of its sales.
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Yum! was once hailed as one of the few western companies to have successfully cracked the Chinese market. At the height of its success in the early 2000s, it was opening a new store every other day in the country. It is by far the biggest restaurant chain in China, with 6,900 outlets.
Yet it has been dogged by problems, including a series of food safety scandals — most recently in 2014, when a Chinese supplier was accused of selling expired meat to the chain, along with McDonald’s and Burger King. This month the company admitted mistakes at its Pizza Hut business, including offering high-price steaks when consumers were looking for value and at a time when the novelty appeal of western fast food was beginning to fade. It also has been slow to introduce mobile payments and ordering in a market of 885 million mobile phone users.
The split, which is intended to be tax-free to investors, is expected to be completed by the end of next year. Yum! Brands will continue to be led by Mr Creed, and Yum! China will be headed by Micky Pant, who was named chief executive of the China unit in August.
Mark Kalinowski, an analyst at Nomura, said the announcement was a positive step: “It will get Yum! Brands off of the China rollercoaster in a meaningful way and allow for better focus on enhancing non-China business lines.”