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After rough patch in China, Yum looks to repair image

A woman wearing a mask walks out of a KFC restaurant in Beijing, May 9, 2013. REUTERS/Kim Kyung-Hoon
A woman wearing a mask walks out of a KFC restaurant in Beijing, May 9, 2013. REUTERS/Kim Kyung-Hoon

By Adam Jourdan

SHANGHAI (Reuters) - Yum Brands Inc , the largest foreign fast-food chain in China, is strengthening its media strategy in the country in a bid to win back customer loyalty after a series of food scares that decimated sales this year.

State media and social web sites criticized Yum's response to charges in December that there were too many chemicals in chicken dishes at its KFC restaurants. An avian flu scare earlier this year and reports of false mutton being sold in China have affected both its KFC and Little Sheep chains.

Same store sales in China have dropped sharply since the start of the year and Yum now expects April sales, set to be announced later on Friday, to decline an annual 30 percent.

U.S.-listed Yum, which has over 39,000 KFC, Pizza Hut and Taco Bell restaurants in more than 130 countries, has launched a campaign called "Operation Thunder" to reverse the loss of confidence in China, its biggest market.

It also appears to have a tie-up with Shanghai-based consultancy CIC, one of the largest social media management firms in China that harvests over 100 million consumer comments online every month from a range of Chinese social media sites.

Sam Flemming, the chief executive CIC, told Reuters he could not comment on Yum's media strategy because of a "client relationship" between his firm and the U.S.-listed chain.

In March, Flemming told trade journal "Ad Age" that after a slow response late last year, KFC has taken on a more active approach to social media.

A U.S.-based spokesman for Yum said he had no knowledge of the relationship with CIC, but said the firm was "in the process of implementing" a cutting-edge social media monitoring and analysis system that should be up and running by early June.

That would support Yum's drive to boost its social media prowess in the region, particularly in china, where industry insiders say word-of-mouth marketing plays an unusually large role in consumer choice.

Yum's chief executive David Novak has also changed tack. In February, he said spending on marketing could mean "wasting a lot of money". More recently, on an earnings call in late April, he revealed Yum had significantly "beefed-up" its social media monitoring systems.

CORPORATE ARROGANCE

Yum's troubles in China began in December when it was accused of selling chicken laced with excessive chemicals. It was cleared of any wrongdoing and publicly apologized over its handling of the affair, but that did not spare it being accused of "arrogance" by the state-run Xinhua news agency.

Since then it has suffered from the impact of an avian flu outbreak that hit chicken sales in China, and more recently an official report on fake mutton threatened to embroil Yum's Little Sheep hotpot chain in a fresh scandal.

Yum said there was no truth in the mutton allegations and the Shanghai Municipal Food Safety Committee said on Thursday that while investigations were ongoing, there was currently no evidence that Little Sheep had used fake mutton.

Food safety is high on the agenda in China and consumers make steep demands of foreign brands, meaning they can easily come under attack if there is any suggestion of malpractice.

"When there was an issue with the chickens, it was linked to KFC, now that there's a lamb problem, there are ties with Little Sheep. Yum, what's going on?" wrote one user on China's popular Twitter-like Weibo.

However, chatter on the miroblog has dimmed since a peak in December, with mentions of "KFC" falling to a year-low in April.

Market watchers, critical of Yum's initial response to setbacks in China, said the chain needs to revamp strategy for it to return to the rapid growth it once enjoyed in the region.

"If the response was more orchestrated, sustained and structured, they would absolutely have been able to deal with this crisis a lot better," said U.S.-based Ragy Thomas, CEO of social media management firm Sprinklr.

"Companies can actually mitigate and be prepared for these events and deal with it before it becomes a fire."

(Additional reporting by Lisa Baertlein in LOS ANGELES and Shanghai Newsroom; Editing by Raju Gopalakrishnan)

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