This week was my first week “off” on my semester-long leave. I am enjoying being home with Henry, taking advantage of Whitworth’s surprisingly generous family leave policy.
Not having to teach has given me time to play at my photography hobby and dabble with some other new stuff. I just learned how to embed a Picasa web gallery slideshow into a blog post. Pretty neat, huh?
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The CNBC announcer interviewing Jim Cramer today made a bone-headed comment. Cramer said it’s a good idea to buy YUM as a China play. That’s true. Cramer then said KFC’s business in China probably won’t be, as some imagine, dramatically affected by rising oil prices. The announcer then chimed in in agreement, observing that oil prices are controlled in China, which Cramer echoed.
Yeah, oil prices are government-controlled in China and haven’t risen as much as they have elsewhere, but that has basically nothing to do with customer “traffic” in China. I’ve visited I suppose a score of KFC’s all over China; I’ve never seen one with a parking lot! PRC customers walk in to the restaurants.
Rising oil prices might affect KFC’s shipping costs (and indirectly show up in their cost of ingredients and other materials), but that wasn’t the context of the exchange. Crammer was disagreeing with the idea that “people” go to KFC less when oil prices rise—not true in China, he and the host agreed, because of the price controls.
I’ve been bullish on YUM because of its China business for a while (as have many others), so Cramer’s general notion seems right to me, even though one of the rationales proffered on CNBC to support the thesis seems mistaken.
In fairness, China’s control over oil prices was not the main rationale being offered in support of the “buy KFC” thesis—Cramer correctly observed that the Chinese are eating more protein, that KFC is perceived as a safe, quality provider and that YUM has a CEO that “gets” China.
Cramer is one of those people whose frenetic, megalomaniacal style affects people differently. I’ve read a couple of his books and learned some interesting things from them (and was entertained by some of his stories—I recall one about how he made his first bundle by acting on information he got from an antitrust professors in law school—wish I’d found that method for paying off my student loans!). Cramer’s shenanigans on CNBC are often entertaining, and his financial website The Street has helpful information. But on this point—that KFC’s customers in China will be resilient because oil prices are controlled in China—CNBC is simply suggesting nonsense.
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Comment as reported: Because gasoline prices aren’t rising in China, the consumer is not going to stop eating KFC over there, Cramer said.