Yum to Invest $10 Billion With Partners in Emerging Markets Push

Yum! Brands Inc., the owner of the KFC and Taco Bell fast-food chains, and its partners will spend $10 billion over the next seven years adding restaurants in emerging markets to tap increasing demand for eating out.

The investments will help Yum increase its outlets in these countries to more than 20,000, Chief Executive Officer David Novak said in an interview yesterday. The Louisville, Kentucky-based company, which opened its 40,000th store in Goa, India, said sales from its own and franchise outlets in the South Asian nation will reach $1 billion by 2015.

Yum has said that faster economic expansion in emerging markets will help accelerate growth of its business. Novak is counting on the Western appeal of his restaurants combined with some local cuisine to woo increasing numbers of people who are dining out as incomes increase in these countries.

“We’re on the ground floor of global growth in a lot of countries, particularly the emerging markets,” Novak said, speaking in Goa. “In the United States, for instance, we have 58 restaurants for every million people. In emerging markets, it is two.”

The restaurant chain operator sees opportunities in India, China, Africa, Russia, Indonesia, Vietnam and Brazil, Novak said. About 25 percent of the investment in emerging-markets expansion will be made by Yum, while the rest will come from its local franchise partners, Chief Financial Officer Patrick Grismer said yesterday.

‘Bounce Back’

Novak said the company will “bounce back” in China, after same-store sales in the third quarter dropped there. Yum plans to open at least 700 restaurants next year in the Asian nation, its biggest market, he said.

A large proportion of those new outlets will be in small cities and towns, where the economics are “more favorable,” Grismer said.

Yum, which has more than 6,000 local KFC, Pizza Hut and other stores and gets about half its revenue from China, on Oct. 9 cut its forecast for 2013 earnings, citing “lower-than-expected China sales and a higher-than-expected full-year tax rate.”

Full-year earnings excluding certain items will decline at a “high-single to low-double-digit” percentage rate from the prior year, the company said. Yum also cut its forecast for China saying it’s “unlikely” fourth-quarter same-store sales there will be positive.

Avian Flu

The restaurant operator is facing a backlash from consumers in China after an outbreak of avian flu scared diners away from poultry and a former chicken supplier was investigated for selling food with too much antibiotics. Sales at Chinese stores open at least 12 months fell 11 percent last quarter at Yum eateries.

The company in November will introduce a new KFC advertising campaign in China about quality assurance, Novak said on Oct. 9. The ads will feature store employees and suppliers such as poultry farmers, he said.

“We view what’s going on in China as a short-term issue,” Novak said. The company plans to introduce new products next year that are “a combination of KFC-type foods and local Chinese options,” he said.

Yum will have more than 1,000 KFC, Pizza Hut and Taco Bell outlets in more than 100 cities by 2015 in India, up from about 613 now, it said in a statement yesterday. The company, which gets more than three quarters of its sales outside the U.S., plans to open 1,450 new restaurants in emerging markets this year.

The fast-food company gets less than 1 percent of its revenue from India, where CLSA said the market for restaurant chains will grow to $6.5 billion by 2018.

Yum is developing menus in India to cater to local tastes, said Novak. It sells rice balls with curry flavor and chicken that’s spicy, he said.

International chains from Domino’s Pizza Inc. to Yum and McDonald’s Corp. have been adding new restaurants for the last decade as Indians have gotten wealthier and developed a taste for western style fast food. Among emerging markets, India has the third-largest number of U.S. fast-food establishments, according to Bloomberg Rankings.