Food & Beverage

Taco Bell has biggest potential to grow in China, says analyst

Yum China has a bright outlook: Restaurant analyst

Taco Bell, famous in the U.S. for such creations as the deep-fried Crunchwrap Supreme burrito- quesadilla hybrid, has emerged as restaurant operator Yum China's biggest potential for growth in Asia's largest economy, an analyst told CNBC Thursday.

Yum China opened the first Taco Bell restaurant in Shanghai last December and has plans to add more outlets across the country this year. Yum previously operated a few restaurants under the name Taco Bell Grande, but all closed by 2008.

"One of the biggest risks (to Yum China) was that the KFC and Pizza Hut brands have become tainted due to the scandal in recent years… I would say (Taco Bell) is probably the biggest potential for growth, if successful," Charles Sizemore, chief investment officer of Sizemore Capital Management, said on CNBC's "The Rundown".

"So if they can pull this off, it really speaks volume of management," he added.

KFC and Pizza Hut, along with McDonald's, faced criticism in 2014 after a report that said expired meat products were repackaged after processing and used beyond shelf life. The companies responded by changing handling practices and suppliers.

Morningstar restaurant analyst R.J. Hottovy agreed that Taco Bell has a better chance at success this time compared to Yum China's previous attempt to grow the brand in the country.

"They've tried Taco Bell in China before, it was something that didn't quite (take off). They were probably a little early to the market, I think given that Taco Bell is more internationally known at this point, that gives better probability of success but they obviously have to localize the menu and give consumers what they want," he said on CNBC's "Squawk Box".

He added that if positioned right, Taco Bell could pioneer a new "fast casual" dining concept in China. The concept, which combines the use of better quality ingredients with the convenience of a fast food restaurant, has been popular in the west with the rise of brands such as Shake Shack.

That dining category has not emerged in China but with rising household incomes and consumer spending, the Chinese population could take to such a concept, Hottovy said.

Yum China on Wednesday reported a 1 percent rise in same-store sales in the first quarter. This beat analysts' estimate of a 0.7 percent fall. Sizemore said Yum's better-than-expected performance is an encouraging sign that consumption growth in China is back on track.

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