by Jeff Reeves | August 29, 2011 8:40 am
Yum! Brands (NYSE:YUM) is known for its global fast-food push in recent years — from its 2010 move to take Taco Bell to England and offer potato and paneer burritos in India, to adding 500 restaurants in China last year under its KFC and Pizza Hut nameplates, among others.
But while London and Beijing seem like reasonable places to tap into demand for American-style fast-food and casual dining, YUM is forging ahead in a rather surprising market for KFC: Nairobi, Kenya.
One of Nairobi’s biggest malls now hosts a brand-new KFC, marking the first American fast-food outlet in this nation. Kenya is East Africa’s most developed economy by many measures, with a $30 billion GDP according to the World Bank that is about double its neighbor Uganda and on par with Costa Rica and Lithuania. And while Kenya has had plenty of political woes in recent years during a push for democratic reforms, it is much better off than other nearby African nations, such as Somalia.
There’s no secret as to why YUM is opening up shop in Kenya. This KFC is just the latest item in its global growth plan.
In China, KFC stores have been popping up like crazy and connecting with a growing middle class that has a taste for meat — namely, chicken. China KFCs not only have seen huge splashes when they open, but in the recent YUM earnings report it was revealed that KFC restaurants saw a 17% increase in same-store sales last quarter. That kind of breakneck growth in established locations is simply stunning.
This strong emerging-markets performance is a big reason YUM stock has doubled the returns of the Dow in the past 52 weeks and is up 7% since Jan. 1, 2001, while the broader market is sitting on a slight loss.
Rather than wait for a competitor to open up shop in Kenya first — there are no Big Macs or Whoppers in the region — Yum Brands is jumping in. And some fast-food insiders think the entrance could mean other U.S. chains will quickly follow suit into this untouched region rather than wait for KFC and YUM to become entrenched.
Of course, the move is not without its challenges. The supply chain logistics alone are reason enough to dissuade many Western restaurants from opening up shop, and it remains unclear how reliable the KFC network is in the area. According to a USA TODAY report, KFC’s chicken supplier had to essentially overhaul his policy and procedures to meet with corporate needs — things we take for granted, such as tracing the meat in the event of a recall or food poisoning. What’s more, political and economic unrest are an unfortunate reality of East Africa and could create big liabilities for a Western company located here.
On thing is for certain, however: More KFCs are coming to East Africa soon. The owner of the first Nairobi location has scheduled two more openings elsewhere in the city, and YUM claims it is working on as many as 15 restaurants in Kenya, Tanzania and Uganda over the next few years.
Jeff Reeves is editor of InvestorPlace.com. As of this writing, he did not own a position in any of the stocks named here. Follow him on Twitter via @JeffReevesIP and become a fan of InvestorPlace on Facebook.
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