In March 2014, we surveyed hundreds of consumers outside of KFC stores in 14 cities, ranging from tier one to tier four cities in China. Survey results show that KFC store traffic is recovering steadily back to 2012 level.
This recovery follows an unfortunate year of endemic food hygiene and safety concerns, starting from the 45-day chicken scare in Oct 2012 and a CCTV expose on the issue in Dec 2012. That was quickly followed by the bird flu outbreak and scandals over bacteria-ridden ice cubes, tissue paper with fluorescent agents, and barrels contaminated with whitening chemicals in the whole 2013. We have provided detailed updates and analysis as events unfolded. Consumers surveyed report to be well aware of the bird flu outbreak in 2013, and the majority of them reduced visits to KFC during the period. Our offline survey indicated that the bird flu concern was almost completely over.
At the same time, we have also conducted online surveys on hundreds of consumers residing in tier 2, 3, 4 and 5 cities who have visited KFC at least once over the past two months. Survey results show that lower tier consumers and higher tier residents are very similar in terms of dining preferences and behaviors. KFC China is gaining traction in lower-tier cities. As small cities ramp up, YUM! China's overall margin could trend up due to low cost structure in low tier cities.
Based on our proprietary online and off line surveys, we believe that the YUM! recovery story is unfolding better in 2014 than we had expected, and the company's penetration into lower-tier cities will garnish compelling returns on investment. In 2014, we are seeing KFC China bounce back to the 90-95% same-store sales level of 2012.
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