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KFC inks 5b yuan deal with 3 local suppliers

By Tong Hao (China Daily)
Updated: 2009-07-16 09:57

Customers at a KFC restaurant in Weifang, Shandong province. The fast food chain plans to open more outlets this year and will rely on local suppliers for materials like chicken, bread and vegetables. [CFP]

KFC yesterday placed a purchase order worth 5 billion yuan ($732 million) with three Chinese chicken suppliers to bolster the fast food chain's ambitious expansion plans in the country.

According to the agreement, DaChan Food (Asia) Ltd headquartered in Taiwan, Fujian Sunner Development Co Ltd and Shandong Xinchang Group Co Ltd will provide 280,000 tons of chicken for KFC over the next three years, with the contract value exceeding 5 billion yuan.

The order will be shared equally among the three suppliers, said John Ou, senior vice-president, DaChan Food.

KFC opened its 2,600th store in Henan province last month. It had earlier said it would open 370 outlets this year, at the speed of at least one store everyday. Such a rapid expansion requires steady supplies of raw materials such as chicken.

"KFC's expansion spree in China and its new range of products call for long-term and steady supplies of safe and quality chicken," said Su Jingshi, president of Yum Brands Inc, China Division, the parent company of KFC.

China now has become the fastest growing market for Yum worldwide since its entry in 1987. Its revenue from the Chinese market in 2008 reached 26.2 billion yuan. During the past five years, KFC witnessed the fastest expansion in China, opening 250, 306, 230, 314 and 308 outlets respectively from 2004 to 2008.

By the end of June 2009, Yum China had 2,600 KFC restaurants and 430 Pizza Hut outlets on the Chinese mainland along with 210,000 employees.

"From the time we entered China, we have been determined to purchase raw materials from local suppliers. In the future, more qualified Chinese suppliers will be enrolled to meet our demands during rapid growth in the country," Su said.

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At present, Yum has more than 500 domestic raw material suppliers in China, which provide more than 90 percent of the total purchases of Yum China Division. The purchased products are in several thousand categories, including chicken, bread, vegetables, packing materials and construction materials.

In particular, the chicken purchased by Yum China Division is mainly from local suppliers.

The three-year purchase order this time gives sufficient confidence to KFC's domestic contracted suppliers to increase investment and upgrade technologies.

"The purchase order from Yum is very important to us. We plan to establish 300 chicken farms and 15 hi-tech processing factories in the mainland in the future to meet the demands from our cooperation with Yum," said Han Jiahuan, board chairman of DaChan Food.

Meanwhile, Fujian Sunner also plans to enlarge its farm scale from the current 60 million chickens annually to 96 million in 2010, according to Chairman Fu Guangming.

In addition, the purchase order also benefits China's rural areas in terms of employment and income. Producing the 280,000 tons of chicken is estimated to provide 180,000 job opportunities during the process of raising and slaughtering.

Reuters reported on Tuesday that Yum Brands Inc cut its full-year forecast for sales. The company said it now expects its 2009 same-store sales in the mainland to be "about flat" versus up 5 percent.

During the second quarter, same-store sales in the mainland fell 4 percent, but other international markets gained 1 percent.