If supply chain or product management teams overseeing business activities in China had any doubts regarding what impacts that the compounding effects of business complacency, a significant product recall, compounded by social media amplification, can have on a business, then take a moment to read an article published today by the Wall Street Journal.
The article, Yum Brands Details China Missteps (paid subscription or free metered view) details how one of the most successful foreign businesses conducting business in China has stumbled because of certain missteps. Having been one of the first foreign based restaurant chains to invest in China, Yum’s KFC and Pizza Hut outlets were on a roll in China for many years. In 2012, operations in China contributed to half of the chain’s revues and 44 percent of profits.
Yum Brands just reported that its third-quarter profit declined by 68 percent. Sales within its China outlets declined by 11 percent, contributing to a slump that has lasted nearly a year.
Late last year, a Chinese state media report disclosed a government probe on the improper use of antibiotics among chicken suppliers to KFC outlets in the country. Whether this foreign based chain was purposely targeted for the probe is certainly cause for speculation. That incident was followed by an avian flu outbreak in the spring that caused China’s consumers to shy away from chicken. The series of unfortunate events was amplified by social media which kept negative impressions alive. During this same slump period, new and fresh restaurant brands have entered China’s offering broader and newer choices for diners. Again, the amplification of “dull” or “non-healthy” by social media did not apparently help.
By our view, the key takeaway is that of complacency, applied to the firm’s market, its supply chain quality standards, operating facilities, and under estimating the impact that negative social media impressions can have on a firm’s business, especially in China.