Franchising is key for Yum! in China - Jeffrey Towson

Jeffrey Towson

Yum! China has been spun-off and needs a solid strategy to grow in China. Franchising is such a key strategy, writes Beida business professor Jeffrey Towson on his weblog. " This is exactly what 3G Capital has done since acquiring Burger King."

Jeffrey Towson:

Most of the China outlets are owned. Franchising new outlets would accelerate growth. While Yum’s +7,000 China outlets is a lot, it is not overwhelming for China. You could have a lot more. Franchising would get you there faster. 

But franchising decreases operational control. That has big implications in general. And this is a particular concern in a country rife with food safety issues. 

Another idea is to just franchise the existing outlets. That would really move the needle financially. It would free up a lot of capital, get the employees off the payroll and spike the return on equity. 

Note: This is exactly what 3G Capital has done since acquiring Burger King. They shifted the existing units to franchises and have more than doubled their earnings in a few years. However, I believe the China Burger King franchise is still under a master franchise agreement with Cartesian Capital in New York. So this is mostly a non-China story. Anyways, I wouldn’t be surprised if the activists bring up ... franchising repeatedly.

More at Jeffrey Towson's weblog.

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