Pizza Hut, KFC sales shrink in China as Covid-19 locks restaurants out
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Running restaurants in China is tough when a big part of the population stays home to avoid catching the coronavirus.
Yum China , operator of KFC and Pizza Hut in the country, gave a glimpse of the current predicament in results posted after the U.S. close Wednesday. It has temporarily closed more than 30% of its restaurants in China, and business has been bad even for the ones that remain open. Sales during the Lunar New Year holiday were down 40%-50% compared with last year, excluding newly opened outlets.
The company, which was spun off from Yum Brands in 2016, said it may report operating losses for this quarter—and even for the full year if the trend continues. Yum China’s New York-listed shares fell 3% in after-hours trading.
KFC and Pizza Hut aren’t the only chains that have had to shut restaurants because of the outbreak, which has infected nearly 30,000 and killed more than 500 so far. Starbucks and McDonald’s have also temporarily closed some of their outlets in China. The former, in particular, could get hurt as customers opt to stay at home instead of chilling out in its coffee shops.
Yum China could soften the blow with its delivery business, which accounted for nearly a quarter of its revenue last quarter. It said it would also try to reduce its costs. Some of these—food, labor, advertising and rent—are variable, but the company will still incur substantial fixed costs through the closure period.
Questions & Answers
Q.Which of Yum China's restaurant brands are most affected by the current situation?
Which of Yum China's restaurant brands are most affected by the current situation?
KFC and Pizza Hut sales have shrunk in China due to the coronavirus outbreak. Many of their locations are temporarily closed, and business is poor even for those that remain open across the country.
Q.How significantly have sales decreased for Yum China during the recent holiday period?
How significantly have sales decreased for Yum China during the recent holiday period?
Sales during the Lunar New Year holiday were down by 40% to 50% compared with the previous year. This figure excludes any newly opened outlets that might have skewed the comparison.
Q.Could Yum China's delivery service help mitigate some of the financial losses?
Could Yum China's delivery service help mitigate some of the financial losses?
The company's delivery business accounted for almost a quarter of its revenue last quarter. This service could potentially help to soften the financial impact from restaurant closures and reduced customer visits.
Q.What financial outlook does Yum China anticipate for the upcoming period?
What financial outlook does Yum China anticipate for the upcoming period?
Yum China stated it might report operating losses for the current quarter. There is also a possibility of reporting losses for the full year if the current negative sales trend continues without improvement.