Yum! Brands Concerned about Cannibalization in China? (YUM 3Q05 Conf Call Quotes)

While Yum! Brands (ticker: YUM) is still suffering the effects of a recent dye scandal in China the company continues to be enthusiastic about the prospects for its KFC, Pizza Hut and Taco Bell restaurants on the Mainland. Chairman and CEO David Novak made this abundantly clear during management's Q3 2005 earnings results conference call:

If you think about KFC the U.S. has 900,000 average unit volumes, check average is over $7, you're talking about annual transactions per unit of over 100,000. In China KFC is averaging 1.2 million average unit volumes with a check average of about $3. That's transactions of 400,000. You're talking about transactions in China that are triple the U.S.

So why are we cannibalizing units? That's why we're cannibalizing units, because even as big as they are, with 2 to 300 seats and multiple stories they do get maxed out with transactions. And four years ago, I remember we were going through looking at development, we actually thought we were starting -- remember Rick, we thought we were starting to see some potential cannibalization in China and we said, no, that can't be. We put the pedal to the metal and look at the business that we've built. That's exactly the same way that we feel right now. If we can keep opening up restaurants with the kind of returns that we have and have the kind of base business that Tim was talking about we're going to do that for our shareholders until the cows come home.

(Quotes are from the CCBN StreetEvents transcript.)

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