Yum’s KFC to Tighten Supplier Reviews as China Sales Drop

Yum! Brands Inc. (YUM), owner of the KFC food chain, pledged to ramp up safety and tighten requirements for suppliers in China to win back consumers after a probe into chicken providers dragged down local sales.

The company will work with suppliers to phase out smaller chicken operators that aren’t sufficiently modernized, the company said in a statement today. The supplier review process will put a “more stringent emphasis on food safety,” it said.

KFC is trying to revive revive results in the Asian nation after a former chicken supplier was found to have supplied meat with too much antibiotics. Sales at locations open at least 12 months in the Asian nation fell 6 percent in the fourth quarter, the first quarterly drop in three years.

Comparable-store sales in China may decline 25 percent in the first quarter, Chief Financial Officer Patrick Grismer said on a call earlier this month.

Yum fell 1.1 percent to $64.73 at the close in New York. The Louisville, Kentucky-based company has dropped 2.5 percent this year, while the Standard & Poor’s 500 Restaurants Index gained 4.2 percent.

Yum got about 44 percent of 2011 revenue from stores in China. The Chinese government said on Dec. 20 that tests conducted by a third-party agency from 2010 to 2011 found eight batches of chicken supplied to Yum by Liuhe Group had antibiotics levels that didn’t meet prescribed standards. Yum stopped buying from Liuhe in August, the restaurant chain said in its microblog.

KFC has said it will eliminate more than one thousand chicken coops that are smaller and not as well equipped.

The restaurant chain today also promised to improve its communication to the government and the general public. Regular reports of its findings on poultry safety and test results will now be filed with relevant authorities, it said.

To contact the reporter on this story: Penny Peng in Beijing at ppeng18@bloomberg.net

To contact the editor responsible for this story: Robin Ajello at rajello@bloomberg.net

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