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The Week Ahead: As China cools, keep eye on KFC


This news story was published on February 5, 2012.
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By Tom Hudson, McClatchy Newspapers –

If you want to know how the Chinese economy is doing, look no further than KFC. Chinese diners are crazy for Kentucky Fried Chicken. That appetite has been a big driver of profits at KFC’s parent company, Yum! Brands Inc. Forty-nine cents of every dollar of its earnings comes from China.

On Monday, Yum! Brands reports fourth-quarter earnings. It’s expected to show a double-digit increase thanks to its growth overseas, especially in China. Through its more than 3,000 restaurants in China, Yum! has become a model of how Western companies can succeed in a notoriously difficult but incredibly lucrative market.

Worries are building about China’s economic engine running out of gas. For 30 years, its economy has grown by at least 10 percent each year, fueled by exports. All those socks, toys and iPhones made in China and destined for the U.S. and Europe have pulled millions of Chinese out of poverty — and allowed them to go to dinner at KFC. But export-focused industries are slowing as global demand drops, threatening a hard stop to the Chinese economy.

This is why KFC’s business may be a good barometer. China has outsourced its economic growth for almost a generation by making itself the world’s supplier. Now it begins turning its attention inward, feeding the appetites of its own developing consumer class. And KFC wants to be on the menu.

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