Yum To Buy 20% Stake in Hot Pot Chain Little Sheep

KFC Is Leading Western Fast Food Brand in China, Yum's No. 1 Growth Market

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SHANGHAI (AdAgeChina.com) -- U.S. fast food giant Yum Brands will pay $63 million for a 20% stake in the Chinese hot pot restaurant chain Little Sheep Group.

Last year Little Sheep had 94 company-owned and 240 franchise restaurants in mainland China, plus nine company-owned and seven franchise restaurants in Hong Kong, Macau, Japan, the U.S., Canada and Indonesia.

Established in 1999 and listed on Hong Kong's stock exchange, Little Sheep specializes in Mongolian-style hot pot cuisine characterized by its proprietary soup base and Mongolian lamb specialties for lunch and dinner.
The company also sells a range of fresh and dry foods, including lamb, soup base and seasoning products, to wholesale distributors for retail sales in hypermarkets, supermarkets and convenience stores.

Little Sheep is a well-known brand in China, where local food is still largely preferred to western cuisine, giving Yum Brands, the parent of KFC, Pizza Hut and Taco Bell, greater access to China's local food industry.

China is already Yum's number one growth market globally. In 2008, the operating profits for its China division reached $469 million. KFC is the leading western fast food restaurant brand in mainland China, with approximately 2,500 restaurants in 500 cities. Overall, Yum has 3,000 restaurants in China and opened more than 500 new outlets last year.
KFC is the No. 1 western fast food chain in China
KFC is the No. 1 western fast food chain in China
Part of KFC's success is due to creating new products that appeal to local palates, such as congee, a type of Chinese-style rice porridge served for breakfast, a Beijing Chicken Roll served with a scallion and seafood sauce, Sichuan-style spicy diced chicken and you tiao, Chinese dough fritters.

KFC's focus on chicken also gives the brand a natural advantage over burger chains, since most Chinese prefer chicken and pork to beef. In 2004, Yum Brands also launched Dong Fang Ji Bai, called East Dawning in English, a small local chain that focuses on the elements of Chinese cuisine that are more quickly and easily prepared. The restaurants are designed to resemble Chinese homes.

Even so, the global recession has caused China sales to slip for all western fast food chains, including McDonald's, because they are more expensive for consumers than local restaurants.

"Our strong position in China allows us to identify opportunities for strategic partners such as Little Sheep, a leading concept with strong branding and a nationwide network," said Sam Su, Yum's Shanghai-based vice chairman and president of its restaurant business in China, in a company statement.

"We look forward to working with Little Sheep as we continue to focus our own management on growing our existing portfolio of brands. China remains the biggest growth opportunity in the restaurant industry in the 21st century."

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