Yum! Spins Off China Business

Yum! Brands has decided its future in China should be a stand-alone business.

Although the China division expects 700 new restaurant openings this year, sales there are slowing, and the Louisville, Ky., company made the strategic decision to spin off its China business into a separate, publicly traded company.

The new company, to be known as Yum! China after the separation, will become a franchisee of Yum! Brands in mainland China and have exclusive rights to KFC, Pizza Hut and Taco Bell. Yum! Brands said it believes the China business could grow from its current 6,900 restaurants to more than 20,000 restaurants in the future. The China business, which will be headquartered in Shanghai, had $6.9 billion in revenue last year. Yum! Brands currently has more than 41,000 restaurants globally.

In contrast to its early success in the giant consumer market, the company’s China unit has been hit by economic volatility, continuing fallout from food-safety scandals and shifts in local tastes for homegrown competitors.

Yum! Brands controlled about 40% of China’s QSR market by 2011, and Yum! China generated around 44% of the company’s global revenue. At one point, the company was opening 500 new restaurants there every year; it had 6,715 at the end of 2014, up from one store in 1987.

In the latest quarter, sales in China rose just 2% at 6,900 established locations—primarily KFC and Pizza Hut; Taco Bell has yet to establish a footprint there.

The split should be complete by the end of 2016. Micky Pant, who was named CEO of the China division in August, will remain in that role after the separation is complete. Greg Creed will continue as CEO of Yum! Brands.