Nick McIlroy, Bord Bia-Irish Food Board, Shanghai Office

The year of the Snake has not been an auspicious one so far for Yum! Brands’ China operations. The company’s first-quarter operating profit fell 41% in China, a market in which KFC has been a leading brand for Yum for years and one which generated over half of Yum’s revenue in 2012.

Two principle factors are responsible for Yum’s reversal of fortunes.  Firstly, negative publicity over the safety of the poultry supply chain implicated two former KFC suppliers over their use of antibiotics and diseased birds, the chain’s footfall and sales nosedived from December 2012 to March 2013. Secondly, just as KFC’s crisis management strategy was offsetting the decline in sales, an outbreak of Avian Flu in early April has led to further public distrust of poultry, closure of live poultry markets – where many Chinese still buy their poultry- and widespread culling of birds to prevent the spread of H7N9.

Yum Brands’ Chief Executive David Novak has vowed that the company will make a comeback by 2014 stating, “every great brand comes back, and KFC is in a powerful position in China. … The big message we have for Yum! Brands this year is, ‘Stay the course.’”

In the face of RMB 1billion (€125 million) being lost daily by the poultry industry, the Chinese Government has weighed in behind producers with a comprehensive package of subsidies and tax relief initiatives.  Shanghai and the surrounding provinces have been worst hit until now, with a ban on trading live birds.  Many state-run institutions such as Universities have already removed poultry from canteens as a precaution.  The official tally for H7N9 infections stood at 112 people with 23 deaths.  Authorities have set aside RMB 300million (€37 million) in an effort to contain the virus.