Local firms vie for Yum's slice of China market

It was the first foreign fast-food restaurant chain to set up business here, opening a fried chicken outlet in Beijing in 1987. Today it is by far the largest with nearly 3,500 KFC locations across China, and more than 4,200 restaurants in all, well ahead of McDonalds' 1,400 locations.

"KFC restaurants are more profitable than any of its competitors and generate about four times as much revenue per restaurant as its US locations," says James Roy, senior analyst at China Market Research, a Shanghai-based consultancy.

"No other competitor can come close to adding the number of restaurants per year it can," Roy said.

Yum itself said at the end of the third quarter, "We consider China to be the greatest restaurant opportunity of the 21st century."

Yum executives were not available to comment further because of the regulatory quiet period before the earnings announcement.

Yum's 2011 China revenue to be announced on Monday is expected to rise 23.3 percent, a slower pace from 32.6 percent a year before, according to Credit Suisse.

But China is Yum's growth engine. The company's chief executive, David Novak, said in December that he expects China to lead global profit gains, projected to be up 13 percent for 2011 "despite our disappointing US results" and up 10 percent for 2012, excepting special items.

Rising affluence of the Chinese consumer is behind China's flourishing casual dining market, according to Yuval Atsmon, a Shanghai-based consultant with McKinsey & Co.

"Look at the population of the upper middle class with an income of more than 100,000 RMB ($15,800) a year. It's now 15-20 million households, but it will be over 75 million households in five years," Atsmon says.