Yum: Thank You, China!

As the president of Ken- tucky-headquartered US catering company Yum Brands Inc (Yum), David Novak seemed to be tireless in his visit in China in late August.

He never dropped his smile when confronted with a large number of journalists and answered a variety of questions from them. Then, he made a presentation in Fudan University.

Before the start of his speech, he enthusiastically led the present audience to make the typical victory posture of Yum – two figures raised to form the letter “Y” and then cry out “excellent Yum”. Then, he started his speech with a question, “who can realize his grand personal goal just by themselves?” That immediately pushed the air to the boiling point.

The theme of this presentation was to match Novak’s new book Taking People with You – the Only Way to Make Big Things Happen, which was just published in China. The name of the book sounded powerful and big, but for Novak, he has the reason to be that “big”.

Yum now runs over 37 thousand chain restaurants in 120 countries and regions in the world. In 2011 its income exceeded 12 billion US dollars. Meanwhile, Yum shows great power in expanding in markets other than the US. In 2011, Yum could open four new restaurants in the foreign markets every day. In the past ten years, the company’s revenue per share increased by at least 13%. Under the leadership of David Novak, this catering company which was previously cursed with dim outlook after being peeled off from PepsiCo in 1997, now are growing towards an industrial giant.

Reflection from the Failure

Novak is very humble in spite of the “glorious” achievements.

“Leaders would never succeed if they could not make their men work under and strive for one goal,” Novak says many times in front of the public. In his opinion, Yum’s knack of growing is to put everyone into work and dig up their poten- tials. “I do not think I am more capable and intelligent than others,” he said. He never covered his failures; instead, he considered them as the way to encourage and inspire his employees.

Before Yum was peeled off from PepsiCo, Novak once joined in the program of “crystal Pepsi”. In 1992, PepsiCo tried to turn the cola into crystal-like transparent liquid in order to get a bigger market share. However, such a measure was not recognized by consumers and became one of the “100 unsuccessful operating cases in the 20th century”. This told Novak to think the way the consumers do. “Consumers never treat transparent Pepsi Cola as cola.” Therefore, he required his men to place the consumers’ feelings above everything.

Another thing Novak learned from the failure is to allow employees to make mistakes.

An entrepreneur needs to decentralize his rights to his underlings for the “people first” circumstance. A capable and skilled employee must be the one who gained experiences from failures. As for the decentralization of authority, Novak seemed to be very confident. He said: “We gave our subsidiary companies in every country enough right of localization, only if their localization measures conform to our brand value and frame.”

Novak’s confidence is not arrogance. Yan Minghang, a researcher in hotel and catering at China Investment Consulting, thought highly of Novak’s actions. In his opinion, Yum’s great achievements in China is partially a result of its advanced experiences in chain restaurants, efficient use of concepts, standardized corporate management level, maintenance of corporate operating level and brand value. On the other hand, Yum did well in the localization. In China, its restaurants can launch products tailor made for Chinese consumers, which earned it a good fame and encouraging sales.

According to the statistical data, in 1997, the overseas markets of Yum contributed to 20% of the company’s total profits. In 2011, the proportion increased to 70%. With a flexible management systems, Yum was given enough time for efficient expansion.

Expansion with Disputes

Different from many multinationals that cannot get used to the Chinese market, Yum found that it earned 5.6 billion US dollars from the Chinese market in 2011, taking 44% of its global sales revenue that amounted to 12.626 billion US dollars. In Novak’s future plan, China will continue to be a great source of profits for Yum. “In the next ten years, the number of people with certain consumption power in China will double, which can give Yum more opportunities. In 2012, Yum will open 600 new restaurants in China to meet the demand.”

When talking about the success in China, Novak appreciated Yum China’s CEO Sam Su.“He is a leader with strong personality and great capability. The team of Yum China put a lot of efforts into our localization in this country, which led to great success of the business of Yum.

Sam Su is quite a low-key person. In recent years, he was rarely interviewed by the media. However, the less exposure did not affect his fame in the circle of catering.

Xie Zuxi, president of Booz & Co Greater China, shared the same opinion with Novak.“Multinationals need good leaders for their success in China. The business could boom only when efficient communications are built between local leaders and company’s headquarters.”

Apparently, opening restaurants is the main method of Sam Su to achieve success in Yum China. According to the public data, Sam Su first came to mainland China as the Market Planning Director of KFC Northern Pacific Region in 1989. At that time there were only four KFC restaurants in China. Now, KFC, a famous brand under Yum, runs over 3,000 restaurants in over 800 cities and towns in China. Pizza Hut, another brand under Yum, has 660 restaurants in over 130 cities of China. In 2011, Yum acquired Chinese hotpot chain restaurant brand Little Sheep, putting the latter’s 450 restaurants under its control. With so many restaurants, China became the fastest growing market of Yum in the world.

In Yan Minghang’s opinion, Yum subtly sensed the potential consumption power in China and took a big market in a short while through fast expansion.

Meanwhile, Yum attached great importance to the upgrade and innovation of products. Take KFC for example: its long-term menu now includes 61 kinds of products though it only had 8 kinds of products in 1987. In addition, KFC could launch about 20 new kinds of products every year. Obviously, Sam Su knows how to seek balance between the Chinese and western cuisines. Though every new product with “Chinese flavor”launched by Yum is accompanied with disputes and criticism, the continuous growth in sales is an irrefragable truth. Sam Su said: “Consumers are willing to accept the diversification of products. But we should be able to do this to satisfy their demand.”

When other fast consumer goods multinationals are busy adjusting themselves to the Chinese market, Yum innovatively created the brand East Dawning in 2005. This fast food brand featuring Chinese style fast food was the first case that multinationals launched exclusive brands in China. At the end of 2011, Yum acquired Little Sheep, which pushed it onto the seat of No. 1 catering company in China. When talking about the development of Little Sheep in the future, Novak said: “Yum would make necessary investments to ensure the constant success of Little Sheep and I am very willing to bring Little Sheep to the global market of Yum.”

In Xie Zuxi’s opinion, the Chinese-style fast food has mass-based popularity in Korea and Japan. But if East Dawning and Little Sheep want to get into the western market, they could change their menu a bit. This would bring more business opportunities to Yum.

As some analysts said, the development of Chinese economy and the globalization are making Chinese cuisine culture more and more acceptable and favorable for consumers in other countries. The Chinese restaurants have a high development potential. With abundant experiences in management and operation, Yum is very likely to bring Little Sheep to the world. If it is successful, it might find a way for the globalization of Chinese-style fast food.