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Bird Flu Threatens KFC's New Year Recovery

A KFC restaurant in Beijing

Photograph by Imaginechina via AP Photo

A KFC restaurant in Beijing

Just as KFC’s (YUM) China sales began to improve, the spread of bird flu is once again threatening the chicken restaurant’s recovery, this time ahead of the Chinese New Year holiday, typically a busy period for the chain. The New Year begins on Friday, Jan. 31.

The H7N9 avian influenza virus has infected 96 people in China this year, killing 19, reported Xinhua News. Shanghai will halt live poultry sales for three months starting Friday, and Hong Kong just initiated a three-week ban on live chicken sales after poultry imported from China tested positive for bird flu. Cities in Zhejiang province will also halt live poultry trading.

Yum! Brands, which is in a quiet period ahead of its earnings release next week, declined to comment on how the flu fear and poultry bans will affect business. But it’s easy to see how a restaurant chain specializing in chicken might be affected.

While Colonel Sanders’s bucket of chicken may not be a traditional Lunar New Year’s dish, KFC—which has more than 4,400 outlets in China–attracts many diners and travelers during the week-long holiday. “The Chinese New Year is a seasonally strong period for our business,” said Pat Grismer, Yum Brands chief financial officer, during a conference call last year. He said in a separate earnings call that the company even pushed new restaurant openings to the first quarter to “benefit from peak seasonal sales during Chinese New Year.”

The effects of the latest round of bird flu will likely be felt beyond the Chinese New Year holiday too. Last year, KFC’s China sales plummeted after a supplier was discovered in December 2012 to be overusing antibiotics, and they fell again after avian flu surfaced in April. The bird flu “actually took a lot of people just completely out of poultry and didn’t want to even think about it,” said Sam Su, chief executive officer of Yum! Restaurants China during an investor meeting last month.

Wong is an associate editor for Bloomberg Businessweek. Follow her on Twitter @venessawwong.

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