Yum! Brands, the fast food chain that includes Kentucky Fried Chicken, Taco Bell and Pizza Hut, has a clearly stated corporate goal: It wants to be the McDonald’s of China. With its fast, aggressive pace in opening new restaurants, Yum! has taken the lead as the top food chain in the world’s most populous country.
If it wants to reach that goal, a meat thermometer might be the best advertising prop as KFC grapples with the fallout of a new strain of avian flu. The Type A H7N9 influenza appeared early this year and, as of May 1, had killed 23 people and sickened another 120.
KFC, food safety regulators in China and the international poultry industry are spreading the word that heat kills the Type A H7N9 influenza, along with any other virus present. “Cooking to an internal temperature of 74 degrees Celsius destroys any residual viruses that may be in the meat. In other words, there is no risk of contracting influenza from eating properly cooked poultry meat,” the International Poultry Council said in a statement that has been backed up by Chinese officials, the U.S. Centers for Disease Control and the World Health Organization.
There have been no claims that KFC has served any tainted chicken, but Chinese consumers are scared, and poultry seems to be off the menu across much of the country.
The epidemic, however, appears to be spreading and the impact on poultry consumption growing, despite Chinese officials shutting live bird markets and eliminating huge flocks in many parts of the country. Based on its results through the first three weeks of April, Yum! Brands said it expects same-store sales at its China division to decline about 30 percent for the month.
The company’s China division has led the chain to impressive profit and revenue numbers over the past few years. This year, China is dragging down the chain’s results, and its stock price. By the tail end of 2012, Chinese food safety regulators had found impermissibly high levels of antibiotics at some of KFC’s 4,200 restaurants. All of the chain’s poultry is sourced in China.
That led to public concern that the food was unsafe, and same-store sales turned sharply negative during the last half of December. Those two weeks were enough to upend the growth chart, with same-store sales in China down 6 percent in 2012. By contrast, same-store sales were up 3 percent in the U.S. last year.
The chain continued to struggle with the public fallout in the opening weeks of the year. KFC dropped more than 1,000 Chinese small-chicken farmers as suppliers and set strict standards for others.
Just as it was recovering from the antibiotic scandal came the A H7N9 and another round of slower sales.
The avian flu isn’t just hurting Yum! Stock analysts also have put earning warnings on the stocks of McDonald’s and JBS, the global protein giant that markets beef, pork and poultry worldwide.
Container carriers also are feeling the impact of falling demand for poultry. “We are definitely seeing a drop-off in poultry shipments,” said Bill Duggan, Maersk Line’s vice president of refrigerated services in North America. “Consumers are shunning poultry, and from what I hear they aren’t going to restaurants nearly as much.”
“We thought that people would try to avoid domestic chicken, and have more preference for imported chicken, but this is not the case. Across the board, people are being more cautious,” Sarah Li, director of the USA Poultry & Egg Export Council’s Hong Kong office, told reporters in China in mid-April. “According to our importers, (wholesale) sales for both imported and domestic chicken products have declined by 80 percent.”
With poultry from all parts of the globe feeling the pressure, the International Poultry Council is trying to take the lead in getting the word out that proper cooking makes the difference. One approach the group is using is social media.
In a conference call with investors earlier this year, Yum! CEO David Novak singled out the reach social media has in China and the growing importance of food safety as a public issue there. “We’ve got to do everything we can to have the best processes in place in-store and with our suppliers,” he said. “And the other is social media where you might have an issue that gets blown out of proportion (and) takes on a dimension that you couldn’t otherwise deal with.”
Consumer response to the antibiotics story via social media was so overwhelming that Yum! Brands’ staff in China was unable to counter it, Novak said. “It stayed in the news for about six weeks,” he said.
Contact Stephanie Nall at email@example.com.