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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 https://www.reuters.com/business/yum-china-warns-quarterly-profit-take-over-50-hit-due-delta-variant-2021-09-14 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 https://graphics.reuters.com/world-coronavirus-tracker-and-maps/countries-and-territories/china 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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