KFC has one huge problem that's killing business

By Ashley Lutz

KFC's Chinese business is weighing down the entire brand - and activist investors think it's time for Yum! Brands to unload the operation.
The fried chicken chain's sales in the US are rising.

Meanwhile, sales have been tanking for three years in China and fell 10% in the most recent quarter.

KFC has been plagued by food safety scandals. Last year, a supplier was shut down after a news report showed factory workers using expired meat.

As more Western brands like Starbucks and McDonald's expand in China, the brand experiences stiffer competition, according to a report by Citi Group.

The brand has also falsely been accused of using mutant chickens.

Activist investors have suggested that parent company Yum! Brands spin off its Chinese business so it can focus on more lucrative markets, reports Jonathan Maze at Nation's Restaurant News.

KFC is the largest restaurant chain in China, with more than 4,500 locations.

But KFC executives insist the brand will continue to focus on turning around China.

"We don't want to talk about it," Yum CEO Greg Creed said on a conference call with investors. "The China team is focused on one thing: Their No. 1 priority and my No. 1 priority is getting China back to stronger sales growth."

Investors weren't happy with the company's unwillingness to consider spinning off the business in China, and shares fell, according to a recent report by Morgan Stanley.

For now, KFC is looking to cut costs in China by scheduling workers for fewer hours. The team is also working to improve the menu.