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Yum's upmarket China diner seeks recipe for revival

Dimmed lights and colonial-style balconies give little indication that trendy Shanghai eatery Atto Primo is part of global fast-food giant Yum Brands Inc, owner of the KFC and Pizza Hut brands.

Overlooking Shanghai's iconic riverside Bund and rubbing shoulders with the city's most expensive venues, the restaurant is what Yum calls a "lab" where it studies Chinese diners as it looks to bounce back from a lengthy slump in its top market.

"A high-end test kitchen will let Yum test the waters with new menus and concepts and get feedback from more sophisticated diners - helpful if you want to go a bit upmarket," said Ben Cavender, principal at China Market Research Group.

Yum's same-store sales at its nearly 7,000 restaurants in China, the firm's biggest market for revenue and profit, fell 16 percent in the last quarter of 2014, dragged down by back-to-back food scares, rising local competition and a sense its main KFC brand may have fallen out of touch with China's consumers.

The restaurant is "an innovation lab to help us learn more about the evolving tastes of Chinese consumers", Yum spokesman Jonathan Blum said in emailed comments to Reuters. He added it would help test recipes to be used at Yum's China outlets.

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