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KFC expansion plans undeterred by economic crisis

By Ding Qingfen (China Daily)
Updated: 2009-06-17 08:06

Despite the slowdown in the economic growth in China, KFC, the world's leading fast food chain, has not slowed its expansion in the country, on hopes that the robust local consumption aided by the nation's 4-trillion-yuan economic stimulus package could help it recoup the losses.

The fast food chain has decided to concentrate the bulk of its new outlets in the untapped central region, according to KFC executives.

The financial crisis has also not dented KFC's confidence in the growth potential of China's fast food market. This year, "KFC has and will be opening at least one more store everyday," said Han Jilin, general manager of KFC and vice-president of Yum! China.

The company plans to open around 370 outlets this year, he said.

That is expected to outnumber the new openings in all the previous years since its entry in 1987. During the past five years, KFC has witnessed the fastest growth in expansion, opening 250, 306, 230, 314 and 308 outlets from 2004 to 2008.

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Han made the remarks yesterday at the opening ceremony of China's 2,600th KFC store in Zhengzhou, provincial capital of Henan province. By the end of 2008, KFC had 2,358 restaurants in China, which means, during the past six months, the company has opened nearly 242 restaurants.

"China is KFC's fastest and most important market worldwide. The confidence has been growing stronger," said Sam Su, president of Yum! China Division.

The confidence is partly coming from the robust local consumption spurred by China's economic stimulus package amid the economic recession at home and abroad.

Yao Jian, spokesperson of the Ministry of Commerce, said on Monday that the package is and will be continuously taking off. From January to May, retail volume of consumer goods was 4.88 trillion yuan, up 15 percent from a year earlier, the MOFCOM figures showed.

But another more important reason that motivates KFC to be more aggressive lies in the comparatively higher profitability it has in China market thanks to its high brand awareness and the huge sales network.

Late last year, McDonald's, the global fast food behemoth that has been lagging KFC in China, announced it will open 175 stores this year, but recently, reduced the target to 150, citing the economic recession in China.

But media reports said the true reason behind the scaling down is the unsatisfactory sales in China market. From January to March, McDonald's global sales grew by 4.3 percent year-on-year, while the US grew by 4.7 percent. Although sales from Asia, Mideast and Africa went up by 5.5 percent, there was a drop in China. McDonald's CEO attributed the decline to the price-cut it launch in China since late 2008.

But the explanation seems unconvincing. Despite the promotion programs it conducted this year, KFC also earned a lot in China. In its financial report, Yum!, the parent of KFC, said its sales per store surged by 1 percent during the first quarter. Sales per store from the United States dropped by 2 percent, but it was a positive growth of 2 percent for the Chinese mainland.

"The large network we have in China has helped us save quite a lot in purchasing raw materials, and the high brand awareness helped us attract more customers," said Han.

McDonald's had 1,000 restaurants by 2008 in China, half of what KFC had. AC Nielesen has also ranked KFC among the Top 10 favorite global brands of Chinese consumers.