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KFC bird flu: Creeping spread of virus threatens chicken restaurant's recovery

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A KFC bird flu threat has struck China just as KFC’s overall sales in the Asian country were starting to rise again. The creeping spread of H7N9 — an avian influenza virus — has reportedly infected a total of 96 people in China already this year, killing almost 20. Business Week reveals this Tuesday, Jan. 28, 2014 that the chicken restaurant’s recovery is struggling just before the Chinese New Year holiday (starting Jan. 31), which is usually a very active time for the chain.

The KFC bird flu warning has been released by Xinhua News this week, with Shanghai alone limiting live poultry sales for a full three months this weekend. Hong Kong has also been forced to temporarily ban the sale of chicken meat for three weeks after poultry that was imported from China tested positive for the potentially fatal virus. A number of other provinces have also put a halt on live poultry trading until the health scare is resolved.

Little information has been provided by Yum! Brands, but it makes clear sense that a restaurant chain like KFC that sells mostly chicken would be heavily adversely affected by the H7N9, or bird flu, outbreak. The retail giant has not yet commented on how the fear of the avian influenza or subsequent poultry bans might hurt business.

The time of the Chinese New Year — and it serving as a major period for chicken sales — is what has left officials wondering how this live poultry sale prohibition might negate what progress KFC has made in terms of its fiscal recovery.

“The Chinese New Year holiday is a seasonally strong period for our business,” said Pat Grismer, Yum Brands chief financial officer, during a conference call last year. He said in a separate earnings call that the company even pushed new restaurant openings "within the first quarter to benefit from peak seasonal sales during Chinese New Year.”

According to the press release on the KFC bird flu virus:

“The effects of the latest round of creeping H7N9 cases will likely be felt beyond the Chinese New Year holiday too. Last year, KFC’s China sales plummeted after a supplier was discovered in December 2012 to be overusing antibiotics, and they fell again after avian flu surfaced in April. The bird flu “actually took a lot of people just completely out of poultry and didn’t want to even think about it,” said Sam Su, chief executive officer of Yum! Restaurants China during an investor meeting last month.”

Only time will tell to what extent KFC will be affected, though results should be made apparent within the week.

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