For the third quarter of this year, Yum Brands reported profits and earnings that were short of what analysts had expected. Their explanation? It all has to do with the South China Sea ruling.
In July, believing that the United States was behind the extremely unfavorable ruling by an international tribunal in The Hague against Beijing’s South China Sea claims, thousands of Chinese nationalists naturally began boycotting American fast food brands. KFC received the worst of it, with protests occurring in at least 12 cities across the country.
Yum Brands CEO Greg Creed claims that all that bad publicity hurt the company’s bottom line:
Sales were off to a good start in the first six weeks of the quarter in the China Division. However, anticipated tougher laps in the second half of the third quarter were compounded by an international court ruling on claims regarding the South China Sea, which triggered a series of regional protests and negative sentiment against a few international companies with well-known Western brands.
If not for this event, we believe the China Division would have delivered its fifth consecutive quarter of positive same-store sales growth. The good news is the incident was short-lived and the sales impact continued to dissipate through August and September. Despite the protests, Pizza Hut Casual Dining continued its trend of quarterly sequential improvement.
By late July, Chinese authorities began cracking down on the KFC protests by arresting the organizers and Chinese state media had authored editorials calling for more “rational patriotism.” While bans against Apple have continued into the fall, KFC seems to have gone back to business as usual.
Yum Brands is still working to finalize a major management realignment, reforming mainland operations into a separate domestic company, Yum China Holdings, a company that China would like to buy outright.