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KFC raises prices again

(Global Times)

13:35, October 31, 2011

US fast-food chain Kentucky Fried Chicken (KFC) raised the prices of some of its food and drinks Saturday due to the rising cost of ingredients, but its main rival McDonald's said Sunday it would not follow suit in the near term.

KFC's price increase, ranging from 0.5 yuan to 2 yuan ($0.08-$0.3) for various items such as chicken products and drinks, was its third price adjustment in China this year. The first price rise came in January, when some items rose by between 0.5 yuan and 1 yuan.

The latest price rise, together with a hike of 0.5 yuan to 1 yuan on burgers in late September, was caused by mounting costs of ingredients, especially chicken, which has risen in price by 15 percent since February this year, KFC China said in a statement.

KFC China also said it had given up the unified pricing model across the nation that it has used for the past two decades and has been adjusting prices differently, based on cities, rent and the business performance of individual stores since the beginning of this year.

"Multinationals always adopt standardized management when they enter the Chinese market, but as they step further in, they will find the domestic market is highly fragmented," Yan Qiang, a partner at Adfaith Management Consulting, told the Global Times Sunday.

"The flexible pricing model could help KFC, which has around 3,475 stores across the nation, fit local markets well and gain profits. A price rise of several yuan would have more effect on price-sensitive customers in lower-tier cities and curb their demand," said Yan.

Yum! Brands Inc, KFC's parent company, earlier said its China restaurant profit margin had decreased by 3.9 percentage points to 21.3 percent in the third quarter. The company expects its full-year restaurant margins will shrink further to 20 percent due to rising labor costs.

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