Reputation Reflex: The Rise and Fall of KFC in China

There are touchstones in every culture. Even those born to that locale and tradition may not always be aware of them at first.

KFC (aka Kentucky Fried Chicken), a subsidiary of food conglomerate Yum Brands, won plaudits for the way it entered the Chinese market: adapting menu choices to reflect local tastes, hiring Chinese managers and otherwise displaying a respect for home-grown sensibilities not always evident in the operations of globe-straddling western enterprises.

But if there is one factor Chinese consumers have learned to care about deeply, it is food safety. In the rush to feed - and profit from - the growing appetite and ability to pay for more nutritious fare, unscrupulous suppliers have too often chosen expediency over safety, with sometimes tragic results. Surveys have suggested that Chinese with the means to do so would pay as much as 30 percent more for food, especially for children, whose healthfulness has been guaranteed.

So despite its dominant market position as the largest fast food franchise in China and its otherwise popular reception as an affordable but high quality global restaurant chain, KFC was devastated by charges that some of its suppliers were using drugs and chemicals that could be harmful to humans in order to reduce the number of chickens culled before sale, thereby increasing their own profits.

Attempts to reorganize its supply chain and broadcast those efforts have been, so far, to no avail. The company's sales and reputation have plummeted. Fears about SARS and H7N9 bird flu, as well as concerns about similar problems with Chinese pigs mysteriously dumped in rivers near Shanghai fed the growing perception that western companies were not sufficiently in command of the product quality provided by their suppliers. There can be, in China, a political subtext to such charges: that a domestic competitor with better connections has engineered the attack or that those in power resent any western enterprise becoming too dominant. Walmart and others have suffered similar assaults.

But whatever the genesis of the charges, the fact remains that reputation remains one of the most significant drivers of business in new markets - and thus one of the most potentially devastating weapons when deployed directly, if not always purposely, against any institution. JL

Abe Sauer reports in Brand Channel:

88 percent of Chinese choose chicken based on quality and safety. That's especially bad news for KFC, as a fresh survey reveals that 39 percent of Chinese consumers are very concerned about antibiotics in KFC chicken.
A quarter century ago, Chinese consumers hungry for a taste of America formed hours-long lines in Beijing's Tiananmen Square outside a KFC, the nation's first. A year later, the opening of KFC's first restaurant in Shanghai was one of that famous city's most remarkable and memorable events of the year. More than a decade later, KFC was maybe America's most successful experiment in the new, open China; a China case study taught to MBA students in programs both prestigious and not. Investors hailed KFC's deft menu localization and aggressive locally-flavored marketing, tactics that had made it more successful in China than in its native land, a jewel in the Yum! Brands crown.

Then came 2012. KFC has never recovered.

Late last year, it was revealed that chicken producers supplying KFC were using excessive antibiotics. KFC's China sales plummeted as the franchise scrambled to reassess its supply chain and put in place new quality assurance systems. It did not help that even as it was reassuring consumers about its supply chain, a national outbreak of H7N9 "bird flu" killed several people, leading to a massive and fearful disposal program for farmed chicken populations.


That has to be a painful blow for KFC, which has spent the last year running extensive campaigns detailing all of the new safety measures in place to assure the quality of its supply chain. For example, for months in 2013, the paper placemats offered at many KFCs were illustrations of the restaurant's new, safer supply chain (at top). Meanwhile, KFC locations windows were filled with huge banners with giant fists declaring "KFC Thunderbolt Strike. Assuring Rigorous Chicken Selection. Scientific breeding with No Antibiotics" (below).

Those measures--including web and TV ads--ran for months. More recent campaign elements have included on-location spots with KFC's chicken farmers talking about how rigorous the chicken selection process is.
Then KFC's CEO even went on and pleaded his case, mentioning that KFC employs 250,000 and finishing with the tagline "every bite is safe." Because who's more trustworthy than a CEO?
Alas, no dice it seemed.
Desperate, KFC tried to get itself away from chicken and began offering a multi-level beef burger with the tagline "Time to Beef Up." Then, KFC offered massive, 50-percent discounts on its bucket meals (even though some complained KFC was hoodwinking consumers by offering less chicken for that 50 percent).

Finally, Yum! declared a victory, beating China sales expectations in November, reporting a surprise 1 percent gain in China. But KFC's position looks even worse when Yum!'s recent China numbers are broken down. A closer look reveals those gains were made largely at Yum!'s Pizza Hut locations, with KFC managing only to--with 50 percent discounts--break even for the month.

And if KFC's battling of a year old antibiotics scandal isn't enough, there has been newly reported cases of the H7N9 "bird flu" virus that decimated KFC sales earlier in 2013.

In the hit 2013 Chinese film "American Dreams in China," about how three friends built an English language tutoring empire in the 1990s, one scene shows the heroes holding packed classes in a KFC restaurant. Until now, KFC's time in China has been not just profitable, but historically significant. But like the tone of the film, all that's left for KFC China might be nostalgia.