- The Washington Times - Friday, January 14, 2005

LOUISVILLE, Ky. — China’s relentless appetite for the colonel’s chicken has KFC booming in the world’s most populous country, with 1,200 locations, soaring profits and a menu that mixes in bamboo shoots and lotus roots.

At a time when its sales in the United States are wavering, KFC is dominating even McDonald’s in China and turning the goateed visage of Kentucky Fried Chicken founder Col. Harland Sanders into a ubiquitous symbol of America.

“We are really positioned as a part of the fabric of life in China,” said David Novak, chairman and chief executive officer of Louisville-based Yum Brands Inc., parent company of KFC.

Yum’s operating profits in China exceeded $200 million in 2004 — more than half the company’s burgeoning international profits. And the pace of 275 locations opened in the country last year is expected to be matched this year.

Sam Su, president of Yum’s China division, called China “the ultimate marketplace” and predicted that as the Chinese economy grows it will someday surpass the number of KFC restaurants in the United States. Here, there are 5,453 stand-alone locations and 1,277 multibrand outlets featuring other Yum brands.

“In many parts of China, the local municipal governments actually view the arrival of a KFC as a sign of the city coming of age,” Mr. Su said in a phone interview from that country.

A restaurant industry analyst said KFC’s recipe for success in China includes a solid business plan guided by a management team intact for years.

“For many companies, China is a hope and a dream — maybe a very realistic hope and a dream — but for Yum it’s reality today,” said Joe Buckley with Bear Stearns & Co. “It’s an important piece of the company that still has plenty of growth potential ahead of it.”

Yum’s China operations represented about 15 percent of the company’s operating profits in 2004, a figure expected to reach about 18 percent this year, Mr. Buckley said.

Chinese fast-food consumers have shown a preference for chicken, giving KFC a leg up. “It’s an advantage to be the chicken brand, given that scenario,” Mr. Buckley said.

Other Yum brands also are vying for Chinese customers.

Yum opened at least 39 Pizza Hut restaurants in China last year, for a total of 146 outlets, and Mr. Su predicts a bright future for the chain.

“With the rising income and economic growth, there’s no reason to doubt that Pizza Hut will be a huge brand,” he said.

Taco Bell is testing a casual dining format in China, and Yum is even dabbling in Chinese fast food with one test restaurant in Shanghai.

“We are working on a model that hopefully can work across China,” Mr. Su said of Yum’s Chinese fare. “If that happens, it’s going to be a huge business opportunity.”

But KFC is clearly at the forefront of Yum’s expansion. More than 100 KFC restaurants have sprung up in both Beijing and Shanghai. The chain has spread to every Chinese province and region except Tibet. KFC restaurants have reached 280 Chinese cities, compared with just 20 cities in 2000. Yum’s revenue in China topped $1 billion last year, up from $261 million in 1998.

Elsewhere around the globe, KFC opened about 50 new restaurants last year in Britain, another high-growth market for Yum, raising its total chicken outlets to 660.

Yum had operating profits of $116 million in Britain and $55 million in Asian markets excluding China last year, with KFC representing 60 percent of the amount.

In the United States, KFC has struggled in a crowded fast-food sector, including burger chains that added chicken to their menus. KFC’s domestic same-store sales have trended mostly downward the past two years, though Mr. Novak predicts a 1 percent to 2 percent uptick this year.

In China, KFC has outpaced rival McDonald’s, which has its own expansion plans.

McDonald’s has more than 600 restaurants in China and plans to open about 100 more this year, comparable to last year. Its plans call for 1,000 restaurants in China by 2008.

“We’re very bullish on China,” spokesman Walt Riker said. “We’re aggressively expanding the business.”

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