Yum Brands spins off its China business

Yum Brands Inc, the parent company of KFC, Pizza Hut, and Taco Bell, is planning to spin off its China division into a separate publicly-traded company. Yum Brands has taken this decision in an effort to reposition the brands in the world's second-largest economy. The new company will aim at regaining popularity for its brands as Yum Brands Inc is suffering from sales drop for the past three years and it aims to make the new company's balance sheet free from heavy debt.

Yum Brands Inc is planning to win back the Chinese market by repositioning its brands KFC, Pizza Hut, and Taco Bell. However, it didn't reveal more details about the future plans.

China consumer market is gradually catching up with the western market, not until the 1980s. After the economic reforms, China's economy opened up and so was the consumer market. Within a short period, global brands like Yum managed to get some market share in China but slipped into a sluggish mode.

After the decision, investors cheered the company's decision. Activist investor Keith Meister has joined the board of directors, Meister had been suggesting for the spinoff. Of late, Yum Brands Inc is finding it difficult to push sales in the Chinese market after enjoying the significant growth rate since 1987.

During 2006-2012, Yum Brands Inc registered double-digit growth rate including an exceptional 46 percent in 2008. At the same time, it suffered negative growth rate back in the US. China accounted for 52 percent of total revenues from 14 percent in 2005. Contrary, the revenue share of the US dropped to 22 percent from 63 percent ten years ago. The change in consumer tastes to healthier food is also impacting the sales of fast food chain.

However, the sales in the US market are picking up now, whereas Chinese market is still sluggish for Yum Brands Inc. After the latest spinoff, Yum Brands Inc and Chinese business entity will be separate publicly-traded companies. Adding further to woes, KFC has been in the center of a controversy related to food safety. Recently one KFC outlet has been closed down following a news report that it was using expired meat.

Other global brands such as Starbucks and McDonald's are expanding in the Chinese market and this is also giving stiff competition to Yum Brands Inc. With over 4,500 outlets, KFC is the largest fast food chain in China. Yum's China business is expected to do well by localizing most of its food dishes.

Junheng Li, head of research at JL Warren Capital LLC, a China-focused investment research company, said: "China market itself is a big startup. The country's current semi-market economy is 30 years young and still developing."