After expanding in China’s largest cities in recent years, Yum Brands has announced it will be focusing on expanding to the lesser-known regions of China with plans to open units in smaller, less urbanized cities. In 2013, the company plans to build 700 restaurants in China. This year, the company had predicted it would build 650 but ended up building more than 800.
Yum Brands is already the biggest Western fast-food chain in China, with about 5,400 locations, compared with 1,600 for McDonald’s. In recent times, China’s economy has been a boon for Yum Brands, helping is profits increase at least 10 percent over the last several years. But with competition increasing and economic growth in China slowing, Yum said it expects a key sales figure to fall 4 percent in China in the fourth quarter, marking its first decline since 2009. A year earlier, sales at established restaurants had surged 21 percent.
At issue is the company’s rising labor and rental costs in big cities, such as Shanghai and Beijing. But executives have said that there is still plenty of room for growth in smaller cities. While Yum has nine restaurants for every one million people in larger cities, it has just two per million people in smaller cities. Within the first three years of opening, the company said that new restaurants in smaller cities bring in annual sales of about $1.4 million to $1.5 million, demonstrating there is a market for its restaurants even in less urbanized areas of China. “We’re only on the ground floor of China’s development opportunity,” said Weiwei Chen, Yum’s chief financial officer of China.
Beyond China, Yum Brands sees India as its next big region for growth. It also noted that is also has a bigger presence than McDonald’s in other developing nations, such as South Africa. The company said about half its operating profits now come from emerging markets, compared with 40 percent in 2009.
