Economy

Who’d eat chicken?

Bird flu sees sales drop for KFC

Sales fell 13% last month

“Almost all flu infections begin in China and then spread to Europe,” Christoph Scholtissek told the Wall Street Journal this month. Scholtissek, a retired virologist and one of the first to link China’s farming practices with the evolution of new strains of influenza in the 1980s, said that “only in China do you have cohabitation of pigs, humans and water birds” – the perfect conditions for breeding such viruses.

After all, two of the more recent flu pandemics, in 1957 and 1968, both began in China, as did the 21st century’s most frightening epidemic so far: the 2003 outbreak of severe acute respiratory syndrome (SARS). This time round it’s no different, though the new avian flu H7N9 has stayed within Chinese borders. But it is still deadly: the latest count is 17 fatalities.

The spread of the flu is also hurting China’s chicken industry, the world’s second largest after the United States. In Shanghai, the city government has halted live poultry trading in wet markets and slaughtered thousands of birds to prevent the virus from spreading. Suppliers are suffering too: one farmer in rural Zhejiang province, near Shanghai, said his sales had fallen from 100 birds a month before the outbreak to “almost zero now”.

Sale of poultry is also banned online, with Taobao, China’s largest consumer site, among those to suspend operations. (It may seem odd that consumers would buy poultry online, but producers claim the birds are live at point of order and are then slaughtered and shipped in vacuum-sealed packaging.)

Airline stocks have also felt the pang of flu fever. Flag carrier Air China fell 9.8% last Friday, its biggest one-day decline since 2009. China Southern dropped 8.5%, while Cathay Pacific in Hong Kong saw its stock drop the most in almost eight months. Unsurprisingly, attendance at the Canton Fair, China’s leading trade show, is expected to be well below peak, as buyers shy away from attending.

Restaurant operator Yum Brands, which owns the KFC chain, is also struggling, reporting much lower March sales for its China division. Total sales at outlets open for at least a year fell 13% last month, mainly driven by the 16% decrease in turnover at KFC (Pizza Hut, also owned by Yum, saw its revenues increase by 4%).

For Yum, the flu outbreak follows an awkward period. In December KFC was accused of serving up chicken laced with excessive chemicals. It was later cleared of any wrongdoing but publicly apologised over its handling of the affair. Then again, that didn’t prevent accusations in the state media that it had behaved in an arrogant manner.

To combat the downtrend in chicken sales, Yum says it will continue to educate consumers that thoroughly cooked meat is safe to eat. Still, the crisis could end Yum’s 11-year winning streak of double-digit profit growth in what has become its most lucrative market. China contributed 42% of Yum’s overall operating profit in 2012.

Industry observers agree that consumer sentiment could take some time to recover, even once the worst of the avian flu crisis has passed. “Based on past experience, with bird flu already hitting the country twice, the negative impact on the catering industry will last about six months,” Bian Jiang at the China Cuisine Association, told the China Daily. In response, Jiang suggests that Yum focuses on promoting other foods like fried shrimps and mushroom dishes.

But judging from the comments on Sina Weibo, chicken-heavy Yum has plenty more educating to do. “Go vegetarian! A vegetarian diet avoids all the risks,” one weibo user claimed.

“I used to go to KFC at least once a month for the chicken burger,” wrote another. “But now every time I have a KFC my heart panics a little. The spread of H7N9 has made everyone develop a fear of poultry.”

At least there is one sector which might look on H7N9 in a more benign fashion. Last week a number of China’s carmakers saw a jump in their share prices as investors speculated that more people will buy their own vehicles to avoid exposure to the virus on public transport…


© ChinTell Ltd. All rights reserved.

Exclusively sponsored by HSBC.

The Week in China website and the weekly magazine publications are owned and maintained by ChinTell Limited, Hong Kong. Neither HSBC nor any member of the HSBC group of companies ("HSBC") endorses the contents and/or is involved in selecting, creating or editing the contents of the Week in China website or the Week in China magazine. The views expressed in these publications are solely the views of ChinTell Limited and do not necessarily reflect the views or investment ideas of HSBC. No responsibility will therefore be assumed by HSBC for the contents of these publications or for the errors or omissions therein.