Yum’s 5,000 restaurants in China are growing revenue faster than the company’s larger base of locations in the US. But shopping centers are no longer discounting rents for KFCs, says Li, meaning that the company is facing 100-250% hikes, wringing margins. Then there’s the reality that young shoppers are increasingly spending their renminbi online, where e-retailers like Taobao and 360buy.com offer selection, price transparency, and convenience that traditional shopping centers struggle to compete with. KFC-China’s plan to combat these trends is to expand in lower-tier cities, where markets are not yet saturated.
But Li sees problems with this strategy, a point that gets back to “the macros” that CEO Novak believes will support KFC-China’s continued growth.
“KFC shares the common attitude toward China, saying ‘urbanization will drive growth,’ and leaving it at that,” she says. “Urbanization isn’t the driver of economic growth; it’s the result of it. You have to create jobs first. And with the economy so dependent on exports and investment, creating overcapacity, the current rate of urbanization is unsustainable.”
