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Diners say not biting on KFC's China revival campaign

By Lisa Baertlein and Adam Jourdan

NEW YORK/SHANGHAI (Reuters) - Yum Brands Inc's KFC website in China trumpets the slogan "Trust in every bite."

That message is part of the company's new "I Commit" campaign intended to reassure customers in its largest market, who have cut back on visits since Chinese media reports a year ago about excessive antibiotic use by a few KFC suppliers.

Interviews with Chinese consumers suggest that rather than soothing concerns, the ads are reminding diners about the food safety scare at the fried-chicken chain, which could undermine Yum's mission to revive sales there.

A survey conducted in November found nearly 40 percent of respondents were still very concerned about antibiotic use in KFC chickens. Yum, which cut off some of its suppliers after the television report on antibiotics, initially predicted safety fears would quickly fade. But sales at its established restaurants have yet to turn around, and it has pushed back the recovery timeline.

Yum spokesman Jonathan Blum said the company had tested the "I Commit" campaign, launched about two weeks ago, and found that it was resonating with consumers.

"It's reassuring customers of our quality commitment," Blum said.

A lot is at stake for Yum. It is China's largest Western restaurant operator with roughly 4,500 KFC outlets and the company reaps more than half of its overall operating profit there.

Yum is hosting its annual investor meeting in New York later on Wednesday and analysts expect executives will be pressed for details on their plan to reignite KFC sales in China in the face of quality concerns, tougher competition and choppy consumer spending.

"This team is more energized than ever," KFC China Chief Executive Sam Su told investors at the kickoff of the meeting. "We are down, but we are not out."

Despite a decades-long reputation for serving safe food in China, Yum has struggled to restore diners' trust in a country where dangerous contamination scandals are commonplace.

Some diners told Reuters that Yum's ads bring back memories of China national television's December 2012 report showing that a few poultry farmers supplying Yum fed excessive levels of antibiotics to their chickens. That report helped spawn several months of double-digit percentage declines in sales at established KFC China restaurants.

"This strategy just risks fanning the flames rather than letting people forget about it," said Yu Kaixin, 24, a recent university graduate from Shanghai, while eating a beef burger at McDonald's, which has also taken a hit from the food safety worries.

STUBBORN FOOD SAFETY WORRIES

The Shanghai Food and Drug Administration investigated the chicken contamination incident. It did not bring a case against Yum China and did not assess a fine.

The restaurant operator quickly responded by cutting less-modern farms from its poultry supplier network. Its "I Commit" public relations push features KFC workers, including KFC China CEO Su, who said the chicken in China is the same as what is served at its restaurants around the world.

The chain also is investing in social media programs, retraining employees and arranging consumer visits to chicken farms - one of which is featured in an ad.

The message is not having the desired effect on Ao Kun, 25, an investment manager from Jiangxi Province.

The more KFC promotes its food quality, "the more I go off them," he said while eating a hamburger combo meal at Burger King. "They keep harking on about it again and again. It's not their competitors that are beating them, it's themselves."

An online poll of 1,000 Chinese conducted by ConsumerEdge Research during the first three weeks of November found that safety concerns remained prominent.

About 39 percent of survey respondents "strongly agreed" that they were concerned about antibiotics in KFC chicken, while 33 percent said the same about bird flu and KFC chicken.

Yum's sales, which fell sharply in late December 2012 after the antibiotic residue media report, took another hit from a bird flu outbreak in China in April.

Worries about antibiotics in KFC chicken were strongest among women, low-income diners, people in the 18-to-34 age group, residents of China's largest cities and people who ate at KFC in the month before the survey.

"This antibiotic thing is really being stubborn," said Peter Reidhead, the ConsumerEdge analyst who runs the China survey.

Yum on Monday said sales at established KFC restaurants in China were flat for the month of November.

But a closer look at the results suggested that KFC continues to struggle. A limited-time half-price offer on buckets of KFC chicken fueled a 16 percent increase in same-restaurant sales for the first 10 days of November. But once the promotion expired, sales were down about 8 percent for the remainder of the month.

KFC China is not repeating the special in December.

Wall Street expects KFC China's same-restaurant sales to improve this month, largely because those results will be compared with the sharp decline in December 2012.

Seven analysts, on average, expect KFC China sales to rise 7.2 percent in December, according to Consensus Metrix.

(Additional reporting by Shanghai newsroom; editing by Emily Kaiser and Matthew Lewis)

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