Yum Brands Splitting Off Its China Business

Yum China will operate as a franchise, paying Yum Brands a percentage of its sales for brand rights.
Katie Kuehner-HebertOctober 20, 2015

Yum Brands on Tuesday said that it was splitting off its China business, days after the fast-food chain company added to its board an activist investor who had called for such a change.

After the split is completed by the end of next year, Yum China would be Yum’s largest franchisee and would operate under a franchise agreement, the company said. Yum China would pay its former parent company a percentage of its sales for the exclusive brand rights to KFC, Pizza Hut, and Taco Bell, which isn’t yet in China.

At least 95% of Yum’s 41,000 restaurants in more than 125 countries and territories are expected to be franchised locations following the completion of the separation and previously announced refranchising plans.

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Yum would have “a more stable earnings stream typical of a franchise company powered by industry-leading brands, while also benefiting from the development of the China business as a unique growth engine,” the company’s chief executive Greg Creed said in a press release. “In turn, our China business is self-sufficient and scalable with strong leadership in place, and is well-positioned to realize its full potential as a standalone business to capture the compelling opportunities in China.”

An activist investor who had called for such a change was just added to Yum’s board, though Creed told the Wall Street Journal that the company has been reviewing its strategic options in China since last year.

“Yum’s decision illustrates how difficult it can be to operate in the complex China market, even for a pioneer with a long track record,” the WSJ wrote. The company — along with other foreign companies from Chevron to Caterpillar — has also been hurt by China’s recent economic slowdown, according to the WSJ.