YUM is not so Yummy

Yum (NYSE: YUM) is a global fast food giant. It owns brands such as Kentucky Fried Chicken (KFC), Pizza Hut and Taco Bell. It’s headquartered in Louisville, Kentucky and it is the world’s largest restaurant-service provider with 39, 000 restaurants around the world. But, half of Yum’s revenue comes from China. It notched up $13 billion in revenue in 2012. But, is that going to hold?

Looks like Yum will need to get a truck load of indigestion tablets as yet another scandal starts dicing the company profits. They look like they are ready to be fried, alive. We all know that Europe is reeling from the horse-meat lasagna scandals (yes, only the French would eat horsemeat…well, the Italians too). Brings tears to your eyes and is worse than chopping onions.

This time Yum is suffering a further setback as it has been revealed that fake mutton has entered the supply chain in China. It turns out that foxes and minks were doctored up to look like mutton and have been sold on to Chinese consumers. Yum has denied any foxy antics at the restaurants and says that they have not been affected by the scandal.

All of this comes just after 2012 saw the criticism of Yum’s suppliers for using too many antibiotics on chickens. Too many antiviral drugs were found to be in KFC chicken that was on sale in China between 2010 and 2011. The supplier was from East China. Yum took a nosedive with that revelation and it seems that they don’t want the same thing happening. But, what’s the first thing we learn in crisis management? Admit your mistakes, before someone else does it for you.

Yum has seen a reduction of 41% in operating profits with its China division. Plans for 2013 were that they would open another 700 outlets in China this year. Up until a few weeks ago they were sticking with this. But, now with this new scandal, things may look as if they are slightly compromised to stay with that target. It already has a total number of 5, 726 stores. Yum looks like the taste buds have gone sour on the market. Avian flu scandals, antibiotics and heated competition from McDonald’s (with who they have to compete for space in shopping malls these days) as well as cheaper Chinese domestic brands have all lead to anorexic consequences from investors.

Should the US have something to worry about? China has just acquired Smithfield Foods and some believe this may be cause for major concern. Food safety has never been higher on the agenda. How could we expect China to release reliable data on the safety aspect of the food that they will be putting on the US market via Smithfield Foods if they can’t even present reliable data regarding export figures? The advice for the moment is lay off the fatty fast foods until they all get there clucking act together!

Read our article on China: “China Fakes Trade Surplus:  http://www.tothetick.com/china-fakes-trade-surplus

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tothetick

Professional team of writers/analysts analyzing the financial markets.

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