Chinese KFC restaurants struggles as chicken prices Increases
In this article (5)
Chinese KFC restaurants have begun serving parts of chickens not used before in response to rising costs.
According to Yum China CEO Joey Wat, the KFC brand introduced new chicken cuts in the first quarter from “a part of the chicken that we somehow have not used in the last 30-some years”. The cut is a portion between the wing and the breast.
The elevated poultry costs are largely attributed to a spin-off effect from the impact of African Swine Fever on the pork market as well as the current trade war with the US.
The costs have seen KFC’s operating margin reduced to 18.7 per cent from the previous 20.6 per cent, despite a rise in same-store sales of 5 per cent. KFC has faced commodity inflation of 5 per cent in the first quarter, according to the company’s earnings call.
“We expect poultry inflation to weigh on margins for the rest of the year,” said Yum China CFO Jacky Lo.
Wat stated that the chain may be turning to new technology to save its declining margins in the hope that such technology can provide “another way to cut out chicken.”
The brand may also introduce “some sort of ingredient” other than chicken “that probably has not been used before.”
Questions & Answers
Q.What part of the chicken are Chinese KFC restaurants now using that they hadn't before?
What part of the chicken are Chinese KFC restaurants now using that they hadn't before?
KFC in China has introduced a new chicken cut described as a portion found between the wing and the breast. This part had not been used by the brand for over 30 years.
Q.What has caused the increase in poultry costs for KFC in China?
What has caused the increase in poultry costs for KFC in China?
The elevated poultry costs are largely a spin-off effect from African Swine Fever impacting the pork market. The ongoing trade war with the US is also a significant contributing factor.
Q.How have rising costs affected KFC's operating margin in China?
How have rising costs affected KFC's operating margin in China?
KFC's operating margin has been reduced from 20.6 per cent to 18.7 per cent due to increased costs. This happened despite a 5 per cent rise in same-store sales.
Q.What other strategies might KFC use to address declining margins, besides new chicken cuts?
What other strategies might KFC use to address declining margins, besides new chicken cuts?
KFC may explore new technology to find different ways to cut chicken, according to CEO Joey Wat. The brand might also introduce a new ingredient other than chicken.