【彭博经济周刊0404】中国人酷爱肯德基 百胜餐饮在中国的胜利

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Customers eat at a Yum! Brands Inc. KFC restaurant in Beijing, China. Photographer: Nelson Ching/Bloomberg

Bloomberg Newshttp://www.businessweek.com/news/2012-04-04/yum-beats-baidu-as-china-bet-on-chicken-allure-riskless-return

Yum Beats Baidu as China Bet on Chicken AllureBy  Ye Xie and Leslie Patton on April 04, 2012
Fiona Yao, a 32-year-old accountant,passed up a bowl of steaming noodle soup in favor of spicychicken wings and a burger for lunch from a Kentucky FriedChicken outlet in a Shanghai shopping mall.
“I almost don’t take KFC as a foreign brand,” said Yaowho paid 30 yuan ($4.80) for her meal at the SuperBrand mall.“The Chinese love to eat chicken and everyone can afford it.”
Chinese consumers like Yao are one reason that Yum! BrandsInc. (YUM) (YUM), KFC’s parent, provided the best risk-adjusted return inthe past year among 113 companies that are either based in Chinaor get at least 25 percent of their revenue from there, theBLOOMBERG RISKLESS RETURN RANKING shows. Yum (YUM) (YUM) gained 1.63 percentafter adjusting for volatility, followed by Mead JohnsonNutrition Co. (MJN) (MJN), a Glenview, Illinois-based maker of infantformula, which returned 1.58 percent.
The U.S. consumer companies topped the ranking afterChina’s emerging middle class turned to western food products asa sign of growing wealth and as safety concerns tarnish somelocal competitors. While a Hong Kong-based casino venture hadthe highest total return, multinational companies such as Yum!and Mead Johnson are less volatile because they’re morediversified and viewed as less susceptible to changes in thelocal economy and interest rates.
‘Safe Play’ “They’re able to tap into China as an additional source ofgrowth at the minimum risk,” said Jeff Papp, a senior analystin Lisle, Illinois at Oberweis Asset Management Inc. whichmanages $700 million including Chinese stocks, though not Yum orMead. “They have a very strong foreign brand and at the sametime they don’t get 100 percent of their revenue from China,just the growth part of it. Perception is that it’s a safe wayto play China.”
The Bloomberg ranking included 19 U.S. companies that earnat least a quarter of their annual revenue in China, the 54most-traded Chinese companies with shares listed in the U.S.,and 40 mainland Chinese firms traded in Hong Kong.
Shares of Yum!, based in Louisville Kentucky, returned 40percent in the year through March 30, five times the advance ofthe Standard & Poor’s 500 Index. (SPX) Spun off from PepsiCo Inc. in1997, Yum, which also owns Pizza Hut and Taco Bell, boosted netincome excluding certain items by 62 percent over the past fiveyears as the portion of its revenue (YUM) derived from China more thantripled.
Yum’s volatility, a measure of price swings, came in at 25over the past year, the second-lowest after China Mobile Ltd. (941),the world’s biggest phone company by subscribers. The 10 mostvolatile companies in the ranking were all based in China.
KFC Near Tiananmen PepsiCo acquired the then Kentucky Fried Chicken Corp. in1986, 22 years after it was sold by entrepreneur Harland Sanders, known as the colonel, for $2 million to privateinvestors. Sanders’ image still adorns restaurants andpackaging.
Mead Johnson, the world’s largest standalone baby formulamanufacturer, has a volatility of 27, the third-lowest. Thecompany got more than 29 percent of revenue from China in 2011,and profit has climbed 28 percent since 2006.
Yum and Mead Johnson were the only companies that stayed inthe top 10 for volatility-adjusted returns over three years. Therisk-adjusted return is calculated by dividing total return byvolatility and isn’t annualized.
Since opening its first KFC outlet 25 years ago nearBeijing’s Tiananmen Square, home to Mao Zedong’s mausoleum, Yumhas become the most popular western restaurant company in China.
Outpacing McDonald’s The company added a new KFC or Pizza Hut restaurant every14 hours in the world’s fastest-growing major economy last year,extending its reach to 4,500 locations, more than double thenumber of McDonald’s Corp. (MCD) (MCD), the world’s largest restaurantcompany, according to company filings.
Yum stock has surged 174 percent, including dividends,since March 2009 as 51 percent growth in Chinese revenue offsetdeclines at its U.S. business. While Yum’s same-store sales fell1 percent in the U.S. last year, they grew 19 percent in Chinaand 3 percent at other offshore locations, according to thecompany’s filing.
The company has said it plans to open 600 new restaurantsin China this year. Yum has 18,000 KFC, Pizza Hut and Taco Belloutlets in the U.S., the company said in its annual report.
Bacon and Mushroom “We have a long runway for growth in China and otheremerging markets,” Steve Schmitt, director of investorrelations at Yum, said by e-mail. “With more than half of ouroperating profit coming from China and 72 other emergingcountries, Yum! Brands growth story is about China and a wholelot more.”

The company’s recipe for success has been to adapt menus tolocal tastes, offering Chinese staples like bacon and mushroomrice and egg tarts at KFC and upgrading Pizza Hut from thedelivery outlet known in the west to a sit-down diningrestaurant that sells wine, according to Sara Senatore, a seniorresearch analyst at Sanford C. Bernstein & Co in New York, whoexpects Yum shares -- currently trading at $70.71 -- to climbanother 10 percent to $78 in 12 months.

Oak Brook, Illinois-based McDonald’s Corp. has less thanhalf of the stores that Yum has in China, where it offerspredominantly the same burger-driven menu found in its U.S.outlets. McDonald’s got 40 percent of its 2011 revenue fromEurope, 32 percent from the U.S. and 22 percent from the AsiaPacific region, Middle East and Africa, data compiled byBloomberg show.

Focus on Consumption

Companies like Yum and Mead Johnson will continue to rallyas they push their products into smaller, expanding Chinesecities, according to Sanford’s Senatore and Michael Broudo,managing director of Miller Tabak & Co. in New York.

While China’s government has cut its economic growth targetto the lowest since 2004 this year, and the European debt crisisand lackluster U.S. recovery are curbing demand for goods fromthe world’s largest exporter, Yum and Mead Johnson will benefitas the nation shifts its growth focus to internal consumption,according to Paul Dietrich, director of global research atWashington Wealth Management LLC, a Middleburg, Virginia-basedfinancial adviser.

China’s middle class will double to 600 million over thenext decade, Yum’s Chief Executive Officer David Novak toldanalysts during a conference call in February. The baby foodmarket in China may increase to $20 billion by 2015, from $9.8billion last year, accounting for one third of the world’stotal, according to estimates by research firm EuromonitorInternational Plc.
Food Scandals Mead Johnson, whose Enfa brands of pediatric nutritionaccounted for 79 percent of 2010 revenue, returned 219 percentover the past three years as sales in China more than doubled to$1.1 billion. China became the company’s biggest market lastyear.
The largest milk formula provider in the country, MeadJohnson had a 12 percent share of the market in 2010 comparedwith Paris-based Danone (BN) SA’s 10 percent, according to London-based Euromonitor. This leading position allowed the company toboost market share as domestic players dwindled in the wake offood-safety scandals that pushed Chinese parents to foreignformula brands, said Ildiko Szalai, an analyst at Euromonitor inLondon.
Regulators found toxins in December in milk products ofChina Mengniu Dairy Co. (CIADF) (CIADF), the country’s largest milk producer.The discovery added to safety concerns already elevated after anillegal additive was found in pork products sold by ShuanghuiGroup, China’s biggest hog processor, in March last year. Infantformula tainted with the plastics chemical melamine in 2008killed at least six babies and sickened about 300,000 throughoutChina.
Most Expensive “Strong brand equity is very important in China because ofthe product safety issues,” said Szalai.
Gains in market share drove 75 percent of Mead Johnson’s 40percent revenue increase in China last year, Chief FinancialOfficer Peter Leemputte said on a conference call with analystson Jan. 26. The company expects “mid-teen growth” in 2012,Chris Perille, a company spokesman, said by e-mail.
The advance in Yum’s stock (YUM) has made it the most expensiverelative to earnings in four years. The company trades at 22times estimated net income, compared with an average valuationof 14 times for S&P 500 companies. Mead Johnson’s valuation (MJN) is27 times earnings estimates, near the highest premium sinceSeptember over stocks listed in the MSCI China Consumer StaplesIndex (MXCN0CS), which has an average ratio of 22.
Bolstering Growth “Investors need to be careful taking stocks that havealready performed very well,” said Christopher Palmer, whohelps manage $2.5 billion of assets as director of globalemerging markets for Henderson Global Investors Ltd. in Londonand doesn’t hold Yum or Mead Johnson stock. “They are managingtheir growth very well, but that doesn’t necessarily mean thatwill be the case going forward.”
Melco Crown Entertainment Ltd. (6883), a Hong Kong-based casinoventure between billionaires Lawrence Ho and James Packer, hadthe highest absolute return of the 114 companies tracked byBloomberg over the past year, gaining 78 percent. With avolatility level of 71, it had a risk-adjusted return of 1.1percent, the third-highest and equal with China Mobile.
The People’s Bank of China is moving its focus fromcontaining inflation back to bolstering growth after thenation’s economy, the world’s second largest, expanded the leastfor ten quarters in the last three months of 2011. Banks’reserve ratios have been cut twice since November as policymakers work to free up lending.
‘Tastes of the Chinese’ Multinational companies active in China are less touched byshifts in the nation’s monetary policy than local firms, a bigfactor in their reduced stock volatility, said WashingtonWealth’sDietrich.

While Baidu Inc. (BIDU) (BIDU), owner of the biggest search engine inChina, surged 743 percent in U.S. trading over the past threeyears, the stock’s volatility level of 45 is more than doublethat of Yum and Mead Johnson. Baidu’s risk-adjusted return was0.1 percent for the past year.

Back at the KFC outlet at Shanghai’s SuperBrand mall,accountant Yao sits by young people feasting on mushroom riceand chicken burgers. Twice as many people queued at the KFC asat the “Real Kungfu” soup shop next door, which also sellsChinese-style pork ribs with herbal broth for about 20 yuan.

“KFC is more catering to the tastes of the Chinese thanMcDonald’s,” Yao said. “That’s why KFC is so successful.”

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