Lessons from YUM's China scandal (2Q05 conf call)

Yum! Brands' (ticker: YUM) China operations are showing signs of recovery after suffering recently from allegations of contaminated ingredients in their chicken. Yum! Chairman and CEO David Novak and CFO Rick Carucci addressed the scandal during management's Q2 2005 earnings results conference call:

On the scandal

....sales had dropped originally throughout the country a little stronger in what we call the second tier markets. Not the Beijing and Shanghai markets, which were a little more sophisticated, but in those other markets. The recovery has been pretty consistent across the board

....we have not seen any impact on our ability to attract employees. Our brands are big, our company is very well respected in China. I think, frankly, the way we handled this incident has built a lot of credibility with everybody involved there.

....we think we're going forward with more strength across the board, because of the way and the manner and the honesty we've handled the entire issue....as for as labor goes, in terms of cost, I think over the long term there will be some pressure on that side. But we haven't seen anything over the last quarter that would say it's been exacerbated in any way. And our jobs are still highly desirable, and our teams very, very motivated.

On a new menu addition

....we just were on chicken promotion, but our next several months we
also plan to feature chicken as the major part of the menu, and we
think that hopefully will have a positive effect.

(Quotes are from the CCBN StreetEvents transcript.)

YUM chart.

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