A Yummy Brand for “Chuppies”

06/05/2008 12:00 am EST

Focus: STOCKS

Robert Hsu

Editor, China Strategy and Asia Edge

Robert Hsu, editor of China Strategy, says a US food company really knows how to appeal to the emerging Chinese professional class.

Chuppies (young Chinese urban professionals) are finally becoming a mass consumer class, and the past three years have been instrumental in this development.

Where the Chuppies are satisfying their appetites for good food may surprise you, though. Or maybe it won't, if you've been paying close attention to my discussions on Yum! Brands (NYSE: YUM) over the past two years.

YUM is one of the companies that took advantage of this transformation. It is the holding company for KFC, Pizza Hut and Taco Bell, and has 35,000 restaurants in more than 110 countries and regions. YUM's China division has been a key growth driver in recent years and currently has 3,100 restaurants in the country. And China accounts for over 20% of YUM's total global sales and profits.

YUM's success in China is simple: Step away from traditional Western menu items and adapt to local taste by developing new menu items for the Chinese market. One example: KFC, which is the largest and most profitable restaurant chain in China with over 2,000 outlets and growing. One of KFC's most successful offerings in China is a chicken wrap with duck sauce and scallion. This item was, as you might have guessed, "inspired" by Peking duck.

Pizza Hut outlets in Shanghai have also been successful in adapting to Chinese tastes and offer many menu items not seen outside of China. Some pizza toppings include sea eel and ostrich meat, and while these aren't likely to be found in the US, Chuppies are adventurous eaters and like unusual pizzas.

In China, Pizza Hut is considered a mid-priced, sit-down restaurant that targets Chuppies. I visited Pizza Hut at 3 pm and despite the 17 other restaurants in the shopping center, Pizza Hut was the only restaurant that was packed.

Since Chinese Pizza Huts offer a selection of soups, I ordered a cup of lamb soup that cost about $4 US—which is more than the price of two Big Macs in China. I also ordered some fresh-squeezed juice mix and the ostrich pizza. While the juice was quite tasty, the pizza was interesting but not that good. Despite the weird pizza toppings, though, I like the Pizza Hut in China more than those I've visited in America because of their fresh-squeezed fruit juice and hot soup offerings.

Despite the incredible success of KFC and Pizza Hut in China, Yum! Brands wasn't as successful with their Taco Bell restaurants. The company closed these restaurants in Shanghai due to lousy business. It seems that Chuppies prefer chicken and pizza to tacos and burritos. I think that YUM has figured out the right recipe for success in China—you have to adapt to main consumers' taste buds, even if that means steering away from traditional menu items.

(The stock closed below $39 Wednesday—Editor.)

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