One the biggest stories to arise in the past year is franchise conglomerates spinning off their Asian operations in an attempt to become “leaner” and better equip themselves to stay on top of rapid changing consumer tastes and habits.
The first company to make a move was Yum! Brands. In December 2016, the parent company to KFC, Pizza Hut and Taco Bell finalized a deal that made Yum China its own entity, while Yum! Brands refocuses on its efforts in the rest of the world.
“We really have no restrictions on us at all,” said Yum China CEO Micky Pant in a late 2016 Bloomberg interview. “We have the flexibility to invest in anything we like. It’s a blank canvas for us.” This assertion isn’t 100% true, however, as Yum China does have a “gentleman’s agreement” of sorts with Yum! Brands agreeing not to compete in the same areas as its former overseer.
Yum! Brands decided to let Yum China become its own company after a rough stretch of time that saw the company lose 10% of its market share in the country since 2012. Factors for the decrease include increased local competition, changing consumer tastes, and a food safety scare. The hope is spinning off Chinese operations will foster goodwill with local customers.
“This is a Chinese brand; this is not a U.S. brand anymore,” Yum! Brands CEO Greg Creed said at the time of the move. He explained that the spinoff “reduces volatility and reduces risk [for the global Yum! Brands operation].” The head of Yum! Brands also asserted that he believes Yum! Brands is in the midst of a “once in a lifetime opportunity” to rethink the company business model to stay relevant for the next generation of fast food consumers.
“We’re going to deliver long-term sustainable results in every market we operate, by being more focused, by being more franchised…and obviously more growth oriented,’’ Creed said during an end of quarter conference in October.
As for Yum China, it has goals of adding at least 600 restaurants each year in the Asian country. It started by opening a Taco Bell in Shanghai in January, the first Taco Bell location in China in a decade. Pant has also publicized plans of exporting the company’s popular Mongolian hotpot chain Little Sheep to the rest of the world via franchising saying, “The place to sell Chinese food is outside China.”
It’s possible Yum! Brands could be seen as a trendsetter. Coincidentally (or not), the Yum China news was followed by McDonald’s reorganizing its Asian operations as well.
In January 2017, McDonald’s completed a majority sale of its China and Hong Kong stores to private-equity firm Carlyle Group and Chinese conglomerate Citic Group Corporation. The sale encompasses over 2,600 restaurants and was reported to be around $2.1 billion. The franchise has also reportedly began accepting bids for its Japan unit.