Consumer

Nisha Gopalan is a Bloomberg Gadfly columnist covering deals and banking. She previously worked for the Wall Street Journal and Dow Jones as an editor and a reporter.

Three things sit well with Chinese consumers: cellphones, convenience and fried chicken.

It's part of the reason why KFC owner Yum China Holdings Inc., whose inaugural earnings as a standalone company topped estimates, will continue to do well even as new offerings like durian pizza fail to win over taste buds.

The Chinese fast-food company that was spun off from its U.S. parent in October reported flat same-store sales growth for the full year, with an increase of 3 percent at KFC helping to offset a 7 percent decline at Pizza Hut. Cashless payments, however, accounted for about 30 percent of sales and Yum ranked No. 1 among restaurant operators in terms of online transactions in China.

On the Go
Delivery as a percentage of KFC's sales in China have surged
Source: Yum China company filings

With Alibaba Group Holding Ltd.'s payments affiliate Ant Financial as a backer, Yum China is nicely placed to accelerate mobile and online further.

That's just as well. Like rival McDonald's Corp., Yum China has had to contend with everything from the fading novelty of Western fast-food brands to blows to its reputation from safety scandals and the rise of local competitors. Such headwinds have dogged Yum China's stock since it went solo late last year.

Fowl Play
Yum China hasn't exactly set the world alight since its November New York listing
Source: Bloomberg

It's too early for Yum China to relax -- fried chicken will only get you so far and it's hard to know how many customers Pizza Hut can attract no matter how snazzy its stores. Peking duck pizzas or burritos at Yum China's first Taco Bell restaurant in Shanghai may not be enough to sway mainland tastes.

Yum China, which now has more than 7,500 stores in Asia's biggest economy, also has to keep opening new outlets at a rapid click in smaller cities, where Western fast food has less of the unhealthy stigma it does in urban centers. Rising labor costs and protests against foreign brands are a perennial problem in China, too.

For now, however, it's China's love of chicken that's driving growth --  575 new restaurants were opened during the year and 302 in the fourth quarter, driven by development of the KFC brand. If Yum China can make sure the convenience and cellphone part of the equation keep pace, the next 12 months should be pretty satisfying.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

  1. Yum China Holdings is a licensee of Yum! Brands in mainland China. It has exclusive rights in mainland China to KFC, Pizza Hut and Taco Bell, plus owns the Little Sheep and East Dawning concepts outright.  

To contact the author of this story:
Nisha Gopalan in Hong Kong at ngopalan3@bloomberg.net

To contact the editor responsible for this story:
Katrina Nicholas at knicholas2@bloomberg.net