Yum! Brands Inc., owner of the KFC and Pizza Hut dining chains, said sales at stores open at least a year fell 13 percent in China in March as its ads failed to regain customers concerned about the quality of its chicken.
Analysts projected a drop of 10 percent, the average of four estimates compiled by Consensus Metrix. Sales dropped 16 percent at KFC while gaining 4 percent at Pizza Hut, the Louisville, Kentucky-based company said in a filing with the U.S. Securities and Exchange Commission yesterday.
Yum is trying to revive sales and win back consumers with new ads in China after former chicken supplier Liuhe Group was found to have supplied meat with too much antibiotics. In February, Yum said it would start a marketing campaign after the Chinese New Year ended. It also pledged to improve food safety and tighten standards for its suppliers in the Asian nation, where the fast-food company has more than 5,200 stores.
Yum rose 0.7 percent to $67.23 at the close in New York. The shares have gained 1.3 percent this year, while the Standard & Poor’s 500 Index has added 12 percent.
An outbreak of bird flu may also curb demand for KFC this month in China, where Yum last year got about half of its revenue.
“Within the past week, publicity associated with Avian flu in China has had a significant, negative impact on KFC sales,” Yum said in yesterday’s filing.
During the chicken antibiotic scare, Yum “didn’t see any real impact” from offering free ice cream and drinks to attract consumers to its stores in China, Chief Executive Officer David Novak said during an investor conference in March.
“We need to give time to recover from this setback,” he said at the time. The company in March said it was planning to introduce 30-second commercials about its commitment to quality.
It’s planning other promotions, too, Novak said. In the Asian nation, Yum is working on a marketing campaign for later this year with National Basketball Association player Jeremy Lin. The owner of KFC will also introduce new foods to help increase dinner sales in China, Novak said.
In February, same-store sales were unchanged at KFC and rose 13 percent at Pizza Hut, compared with January declines of 41 percent and 15 percent in China, respectively.
Yum plans to announce quarterly earnings on April 23 and April comparable-store sales results for China on May 10.