Yum China fries up bucket of consumption woes

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(The author is a Reuters Breakingviews columnist. The opinions expressed are their own.)

HONG KONG (Reuters Breakingviews) - Yum China has bad news for China’s economy. The $26 billion operator of Pizza Hut, KFC and Taco Bell in the People’s Republic warned that the rapid spread of the Delta variant would cause its adjusted operating profit to drop by about 50-60% year-on-year in the third quarter. The recent outbreak, which has impacted 16 provinces, per Yum, has officials in China locking back down, even though Reuters Covid Tracker shows the country is reporting an average of 39 new cases per day, 1% of the peak, with no deaths reported since April. Nevertheless Yum either closed or halted dine-in service at more than 500 stores in August.

Chinese retail sales rose by a meagre 2.5% in August from a year ago, much slower than expected, and surveys showed the services sector – of which restaurants are a part – went into monthly contraction. This puts Yum’s expansion schedule into question. It is sticking with plans to open 1,300 new stores this year. But if lockdowns are to become a regular occurrence, Yum – and its restaurant peers – could regret not conserving cash. (By Sharon Lam)

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(Editing by Antony Currie and Katrina Hamlin)

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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