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Tag: Yum! China

  • Yum China to face challenges this year

    Yum China to face challenges this year

    An aggressive store rollout program is helping Yum China achieve sales growth, but its Pizza Hut business continues to struggle. In year-end results released overnight, Yum China said fourth-quarter system sales rose 6 per cent in constant currency, but same-store sales rose by a more modest 2 per cent. The company, which owns the Chinese operations of KFC and Pizza Hut, opened 819 new stores last year, taking its combined network to 8484 stores across more than 1200 cities. The company plans between 600 and 650 additional stores this calendar year.

    For the full year, total system sales grew 5 per cent over 2017, with a solid 7 per cent growth at KFC partially offset by a 1 per cent decline at Pizza Hut, (excluding foreign exchange impacts). Same-store sales increased 1 per cent overall, up 2 per cent at KFC and down 5 per cent at Pizza Hut.

    Full-year revenue reached US$8.42 billion with net Income up 78 per cent to $708 million, from $398 million.

    Joey Wat, CEO of Yum China, said the results marked the ninth consecutive quarter of system sales growth since the company was spun off from former US parent Yum! Brands.

    “This strong growth was led by accelerated new store openings and a robust performance at KFC, which delivered 3 per cent same-store sales growth and 9 per cent system-sales growth during the quarter. Although Pizza Hut’s sales remained soft, we are pleased to see same-store traffic growth of 1 per cent and positive trends in customer feedback.”

    Wat said the aggressive store rollout program last year further strengthened the company’s market position, laying a solid foundation for growth.

    “While the macro backdrop is relatively soft, with our resilient business model and leadership in digital and delivery, we are confident that we have the right strategy and capabilities to maintain our growth trajectory and capitalise on the long-term potential of the China market,” she said.

    Among the highlights of last year was exceeding 160 million members of the company’s KFC loyalty program and 50 million members of the Pizza Hut program, increases of 50 million and 15 million, respectively.

    Mobile payments accounted for 65 per cent of the company’s sales in the fourth quarter, an increase of 11 percentage points year on year. Digital payments accounted for more than 86 per cent of company sales in the quarter, an increase of 14 percentage points.

    And delivery services – now offered in 1118 cities – accounted for 19 per cent of sales in the fourth quarter of 2018, an increase of three percentage points year on year.

  • Yum China sales performs growth from expansion

    Yum China sales performs growth from expansion

    Yum China sales rose 12 per cent in the quarter to June 30, boosted by more stores and currency gains.

    But same-store sales declined across both of its brands and margins contracted.

    The company reported total sales of US$2.1 billion which on a currency-neutral basis was 5 per cent better than for the same quarter last year. KFC sales rose 5 per cent, partially offset by a 1 per cent decline by Pizza Hut.

    However, same-store sales declined 1 per cent year-on-year, with flat same-store sales at KFC and a 4 per cent decrease at Pizza Hut.

    During the period, Yum China opened 164 stores, taking its network to 8198 across more than 1200 cities.

    Operating profit rose 13 per cent to $193 million (or by 5 per cent excluding foreign exchange effects).

    Joey Wat, CEO at Yum China, said the growth was driven by “solid business fundamentals and accelerated new store development”.

    “We are on track to add 600-650 new stores, led by KFC, by the end of the year. This strategy will set us up for long-term growth in both profitability and market share,” she said.

    While Pizza Hut continued to face challenges in China’s competitive casual dining space, Yum China added new talent to its team and is working on repositioning the brand with its target customers.

    “We remain dedicated to revitalising the brand and strongly believe that our initiatives including delivering more innovative products and introducing new store formats will restore the brand to the level of consistent growth that our shareholders expect,” said Wat.

    Jacky Lo, CFO at Yum China, said the company stepped up food investment and promotional activities during the quarter, which inevitably had some impact on its margins.

    “This reflects our strategic decision to invest in our brands for long-term market share gain.”

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  • Strong first quarter for Yum China

    Strong first quarter for Yum China

    Sales, profits and margins all grew, along with store expansion, for Yum China Holdings in its unaudited results for its first quarter to the end of February.

    Same-store sales grew 1 per cent, including growth of 1 per cent at KFC and 2 per cent at Pizza Hut Casual Dining. Total system sales grew 4 per cent (3 per cent at KFC and 9 per cent at Pizza Hut).

    The group opened 133 restaurants during the quarter.

    Total restaurant margin increased 3.7 points to 23 per cent, mainly helped by retail tax structure reform implemented on May 1.

    Operating profit grew 22 per cent and 27 per cent excluding foreign exchange, which negatively impacted operating profit by $12 million.

    Net income increased 21 per cent to $175 million, while adjusted pre-tax earnings rose 14 per cent to $320 million.
    Yum China has more than 7600 restaurants, with a two-to-one lead over the nearest Western quick-service restaurant competitor and an approximate six-to-one lead over the nearest Western casual-dining restaurant competitor in China, says CEO Micky Pant.

    “We are especially gratified with the progress made on two key drivers of growth – digital and delivery,” he says. “More than 4400 restaurants in our system offer deliveries, and we believe we have established an infrastructure for continued growth.

    “In the first quarter, delivery represented about 12 per cent of our company sales. With about 93 million loyalty program members between KFC and Pizza Hut Casual Dining, we believe we have unprecedented insights into consumer behaviour and have been engaging with them across the digital eco-system: from pre-order to payment.

    “We remain confident in our ability to deliver 550 to 600 new builds while delivering double-digit growth in operating profit, excluding foreign exchange, this year.”

    Members in the loyalty programs increased to about 70 million for KFC and 23 million for Pizza Hut.
    Mobile payments reached about 30 per cent of company sales, with more than $500 million in sales paid via cashless payment methods.

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  • Profits rises for Yum China Holdings

    Profits rises for Yum China Holdings

    Yum China’s full-year operating profit of US$640 million was up 31 per cent led by margin expansion and restaurant openings.

    Its CEO describes it as a “momentous” year for the group, licensee of Yum! Brands in Mainland China. It has exclusive rights on the mainland to KFC, Pizza Hut and Taco Bell, which opened its first restaurant in China at the end of the year. Yum China also owns the East Dawning and Little Sheep concepts outright.

    Total system sales for the year grew 5 per cent, including growth of 6 per cent at KFC and 3 per cent at Pizza Hut Casual Dining, excluding foreign currency translation (F/X).

    Same-store sales were flat, with an increase of 3 per cent at KFC offset by a decline of 7 per cent at Pizza Hut.

    Yum China opened 575 restaurants during the year, representing 5 per cent growth, taking its total to more than 7500 outlets.

    Currency impact

    While retail tax structure reform helped profit growth, this was negatively impacted to the tune of $36 million by foreign currency translation. Excluding F/X and special items, operating profit grew 37 per cent.

    For its fourth quarter, Yum China’s total system sales grew 4 per cent, including growth of 4 per cent at KFC and 6 per cent at Pizza Hut, excluding F/X.

    Same-store sales were flat, rising 1 per cent at KFC and offset by a 3 per cent decline at Pizza Hut.
    The group opened 302 restaurants during the quarter.

    Foreign currency translation negatively impacted operating profit by $5 million.

    CEO Micky Pant says Yum China became an independent, publicly traded company while simultaneously improving its business performance and investing for future growth.

    “We continue to focus on our long-term growth formula: new unit development, same-store sales growth, and continued restaurant margin improvement. Right now, our top priority is consistently delivering positive same-store sales growth.”

    Digital engagement

    There was a focus on product innovation during the year, as well as restaurant refurbishing and digital engagement with customers.
    Pant says it was a groundbreaking year in digital and delivery.

    “Our loyalty programs have more than 80 million members –  ranked number one in the restaurant industry worldwide in terms of number of members.

    “Total delivery sales reached about $700 million, and we were number one among restaurant operators in terms of online sales in China. Cashless payment accounted for about 30 per cent of our company sales.”
    Pant says this year marks the 30th anniversary of the launch of KFC in China, and he believes most the company’s restaurants in China are yet to be built.

    Members in the loyalty programs grew to more than 60 million for KFC and more than 20 million for Pizza Hut.

    Mobile payments reached about 17 per cent of company sales for the year, while cashless payment methods were used for more than $2 billion in company sales.

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  • Yum China tramples expectations; profit up 31%

    Yum China tramples expectations; profit up 31%

    Yum China’s first earnings report as an independent company proves that sometimes breaking up can be a very beautiful thing. In fact, its first report since the October spin-off from Louisville-based Yum Brands not only surpassed estimated sales projections for the company but showed its full-year operating profit was up 31 percent year over year to $640 million, according to a news release.

    For the year and fourth quarter that ended Dec. 31, Yum China reported a profit of 17 cents a share, up from the average estimate of 10 cents. The company also attributed much of the financial success of the last year to expansion and new openings, as well as same-store sales growth at KFC. 

    The only clouds inside this silver-lined report came from the direction of the performance of Pizza Hut, which was worse than expected, according to the news release.

    Yum China’s board of directors also authorized the repurchase of up to $300 million of common stock.

    “This was a momentous year for Yum China,” CEO Micky Pant said in the news release. “We successfully became an independent, publicly traded company while simultaneously improving our business performance and investing for future growth. At year end 2016 with over 7,500 restaurants nationwide, we extended our market-leading position in China.” 

    Full-Year Highlights
    •    Total system sales grew 5 percent, including growth of 6 percent at KFC and 3 percent at Pizza Hut Casual Dining, excluding foreign currency translation.
    •    Opened 575 new restaurants for the full year, or 5 percent net growth, surpassing 7,500 restaurants in China.
    •    Same-store sales were flat, with an increase of 3 percent at KFC, offset by a decline of 7 percent at Pizza Hut Casual Dining.
    •    Total restaurant margin increased 2.7 percentage points to 15.3 percent, primarily aided by the impact of retail tax structure reform implemented on May 1, 2016.
    •    Reported operating profit grew 31 percent, primarily aided by the impact of retail tax structure reform. Foreign currency translation negatively impacted operating profit by $36 million. Excluding foreign currency translation and special items, and Special Items, operating profit grew 37 percent.

    Fourth-Quarter Highlights
    •    Total system sales grew 4 percent, including growth of 4 percent at KFC and 6 percent at Pizza Hut Casual Dining, excluding foreign currency translation.
    •    Opened 302 new restaurants during the quarter.
    •    Same-store sales were flat, with an increase of 1 percent at KFC, offset by a decline of 3 percent at Pizza Hut Casual Dining.
    •    Foreign currency translation negatively impacted operating profit by $5 million.

    “For our shareholders, we exceeded our 2016 financial targets in operating profit, restaurant margin and adjusted EBITDA,” Pant said. “We continue to focus on our long-term growth formula: new unit development, same-store sales growth, and continued restaurant margin improvement. Right now, our top priority is consistently delivering positive same-store sales growth. During 2016, we continued to build a foundation for long-term growth with emphasis on product innovation, investments in refurbishing our restaurants, and focus on digital engagement with our customers.”

    New leaders named

    Yum China also announced Tuesday afternoon that it has appointed Joey Wat as president and COO of Yum China and Johnson Huang as KFC business general manager. Wat was previously CEO of the company’s KFC business and Huang was previously chief information and marketing support officer

  • Taco Bell China launches in Shanghai

    Taco Bell China launches in Shanghai

    Mexican-inspired restaurant chain Taco Bell has opened its first outlet in China, near Shanghai’s landmark Oriental Pearl Tower in the Lujiazui business district.

    The restaurant has opened in conjunction with Yum China Holdings, which is the licensee of Yum! Brands in Mainland China.

    “Leveraging our deep insights into Chinese consumer preferences, developed from close to 30 years working in this market, we researched and fine-tuned the Taco Bell menu for China, and the initial response from customers is very encouraging,” says Yum China CEO Micky Pant.

    Favourite items on the brand’s menu have been adapted to local tastes, plus sauces have been developed. Items such as the Shrimp and Avocado Burrito will be offered only in China Taco Bells, and the Crunchy Taco Supreme now has Taco Bell’s signature nacho cheese sauce while the Volcano Chicken Burrito features spicy Sriracha sauce.

    Customers can order shared plates featuring seasoned nacho chips, spicy fried chicken and Mexican fries. Drinks available include cold draft beer and specialty cocktails such as the Margarita and the Mojito.

    There is an open kitchen so customers can see their food being made to order. There are also self-order kiosks.

    The restaurant has been officially launched following a soft opening during which customers have been sharing their experience of the brand through social-media posts, blogs and videos. More than 1000 people took part in a selfie soft-opening promotion.

    taco-bell-shanghai-inside

    California inspiration

    “Built around the concept of ‘Live Mas’, which literally means ‘Live More’, Taco Bell encourages its customers to try new things,” says Pant. “I look forward to creating experiences that surprise and delight people as we expand the Taco Bell brand in China.”

    The Shanghai restaurant showcases Taco Bell’s classic California-inspired look and design. It features surfboards hanging from the ceiling as well as guitars and graffiti art. It also integrates advanced technology throughout, including free Wi-Fi, digital ordering kiosks, digital menu boards and a range of payment options.

    “Building restaurants in new international markets is a key component to the overall growth and evolution of Taco Bell, and we’ve just scratched the surface of our global unit expansion potential,” says CEO Brian Niccol. “The opening of this restaurant in China is an exciting milestone for the brand, as this market holds tremendous growth potential.”

    Taco Bell has more than 7000 restaurants, more than 300 of them in 26 countries outside of the US. It aims to reach 1000 restaurants internationally by 2022.

    Yum China Holdings, with executive offices in Shanghai, has exclusive rights in mainland China to KFC and Pizza Hut as well as Taco Bell. Yum China also owns the East Dawning and Little Sheep concepts. With more than 7300 restaurants and 400,000-plus employees in more than 1100 cities, Yum China generated more than $8 billion in system sales in 2015.

    Taco Bell, a subsidiary of Yum! Brands, was the first quick-service restaurant to offer American Vegetarian Association (AVA) certified menu items. Taco Bell’s 350-plus franchise organisations serve more than 42 million customers each week through 7000 restaurants across the US, as well as through its mobile, desktop and delivery ordering services.

    Based in Louisville, Kentucky, Yum! Brands has nearly 43,000 restaurants in 135 countries and territories. Worldwide, it opens more than six new restaurants a day on average.

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  • Yum China aims to triple outlets

    Yum China aims to triple outlets

    Yum China, being spun off at the end of this month by Yum Brands Inc, says it can triple its number of restaurants.

    Yum Brands opened its foray into China with a KFC restaurant in Beijing in 1987. There are now more than 7300 KFC and Pizza Hut outlets.

    “I really don’t see any reason why we cannot have 20,000 restaurants in China,” says Yum China division CEO Micky Pant.

    However, Yum China has had challenges in recent years including marketing blunders, rising competition, bird flu outbreaks, food-safety problems and slowing economic growth. Just this month, executives blamed anti-US protests sparked by political tensions in the South China Sea for a surprise 1 per cent drop in China sales during the latest quarter.

    Pant says those sales are recovering and “the fundamentals of the brands in China are very strong”.

    He says Yum China will have 15 per cent earnings expansion in the world’s fastest-growing economy with plans to  open restaurants in burgeoning mega-cities, major transportation hubs and new shopping malls.

    There are also plans to open Little Sheep and Taco Bell restaurants.

    Partners Primavera Capital and Alibaba Group Holding affiliate Ant Financial, which will buy a US$460 million stake in Yum China, bring competitive advantages such as real-estate market knowledge and digital leadership, Pant says.

    Yum China already is the biggest user of Ant’s Alipay service, and the restaurant group is investing in making its mobile ordering system and loyalty programs even more robust.

    After the separation, Yum China Holdings will become a licensee of Yum! Brands in mainland China with exclusive rights to quick-service restaurant KFC, casual dining brand Pizza Hut and Taco Bell, which is expanding globally but is not yet in China. It will also own the Little Sheep Mongolian hot pot and East Dawning Chinese cuisine concepts. Yum China has more than 400,000 employees in more than 1100 cities, generating more than $8 billion in system sales last year.

    The standalone Yum China is expected to start trading on the New York Stock Exchange on November 1.

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  • Yum China has ‘huge potential’

    Yum China has ‘huge potential’

    Yum China is set to exploit “huge potential” after its spin-off from its US parent, says Neil Saunders, CEO of Conlumino.

    Commenting on the parent company’s latest results, the US-based retail commentator said  while the China division once again delivered “an anemic performance” with total system sales declining by 3 per cent over the prior year, the best is yet to come.

    Revenue at both Pizza Hut and KFC fell on a same-restaurant basis.

    “This means that in the year to date, in real terms the China operation has posted no real sales growth. Fortunately, changes to value-added tax in the country allowed Yum! to ease up operating profits across the quarter,” said Saunders.

    “The position of China as a business which has huge potential once it gets through the current patch of slow growth, largely justifies its imminent spin-off into a completely separate operation. The divorce from the rest of the Yum! operation will allow both sides to focus more on their respective priorities and opportunities.”

    He said the overall global result for Yum! Brands suggest the company is making good headway in an increasingly challenging market.

    “However, the reality is far more mixed – mostly because Yum!’s growth figures are flattered by the fact the company strips out exchange rate fluctuations. When these are put back in, total revenue experienced a shrink of 3 per cent over the prior year – a far less impressive outcome.

    “In terms of the core business, the main focus needs to be Pizza Hut which has become something of a problem child for Yum! Over the quarter system sales shrank by 2 per cent in real terms, underpinned by a 1 per cent decline in same-restaurant sales. While there are some markets in which the brand is performing well, these continues to be overshadowed by the US which accounts for the majority of Pizza Hut’s revenue.”

    Saunders said that while admittedly the overall casual dining market, in which Pizza Hut loosely falls, saw customer traffic and spend decline over the third quarter.

    “However, our data also show that Pizza Hut is losing customer share to delivery services like Papa John’s and Domino’s. A defection to cheaper fast-food alternatives, especially among younger families, has also been unhelpful. This is an uncomfortable position and underlines the fact that Pizza Hut still has much work to do in terms of reinvigorating its brand.”

    Taco Bell, meanwhile, had a better quarter with a 5 per cent system-sales growth and 3 per cent same-restaurant growth.

    “While Taco Bell has benefitted from challenges at Chipotle, in our view most of the success is down to a change in marketing which is now more relevant to the younger millennial audience. Menu simplification and focus on popular lines has also helped to drive growth. We think these steps should be seen as part of a longer term upswing in the brand’s fortune.”

    Saunders said that while KFC had a much better quarter than the previous one, especially in the US, Conlumino still harbors concerns about the brand’s longer term growth prospects as younger upstarts like Chick-Fil-A or Popeyes Louisiana Kitchen continue to gain traction.

    “As such, we see KFC’s latest upswing as part of a more turbulent longer term picture.”

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  • Alibaba-KFC partnership more than a shareholding

    Alibaba-KFC partnership more than a shareholding

    Why did Alibaba decide to take a stake in Yum China, buying into the Chinese fast food market?

    The Alibaba-KFC partnership was growing strongly long before the tech paid $50 million for a stake in Yum China.

    Last week, the fast food company opened a KFC flagship store on Tmall, the eCommerce giant’s B2C marketplace, to cultivate deeper ties with more customers, chief among them China’s internet-savvy youth.

    The KFC Tmall store isn’t selling chicken outright, but it is selling the sizzle of the KFC brand by encouraging consumers to join its membership program through the sale of e-coupons and gift cards that can be redeemed at its restaurants by using the Tmall or Mobile Taobao apps. KFC has more than 5000 restaurants in over 1100 cities in China, and the company is hoping to “build a new O2O [online-to-offline] model” that uses digital marketing to boost traffic at its brick-and-mortar stores, said Guan Bin, digital manager at Yum Brands.

    Connecting with China’s mobile-happy youth market can be an important strategy for any fast-food chain, but it’s particularly key for Yum China, which has seen its once-dominant position in the mainland fast-food market eroded by growing competition and food-safety scares. KFC’s market share in China has dropped from close to 40 per cent in 2012 to 23.9 per cent last year, according to Euromonitor International. Same-store sales in China outlets declined 4 per cent in 2015, Yum Brands disclosed in its 2015 financial annual report.

    Against this backdrop, KFC is making what Guan says is the company’s first foray into eCommerce (Yum’s Pizza Hut restaurant chain already has a Tmall presence). The goal is to boost KFC brand awareness and customer base by leveraging Tmall’s “massive traffic” as well as Alibaba Group’s marketing ecosystem and wealth of online consumer data, he said.

    “By opening a shop on Tmall, we want to convert more customers to members, and understand their consumer behavior both online and offline so we can come up with tailored discounts and awards for them,” Guan said. KFCs in China last year adopted Ant Financial’s Alipay cashless payment solution, which includes app-based food ordering and home delivery.

    For its September 6 debut, KFC’s Tmall shop offered bulk purchases of top-selling meals at discounted prices, such as 30 breakfast meals for RMB 199 ($30) and five family meals at RMB 320 ($48). The debut included KFC’s participation in one of Tmall’s Super Brand Day marketing campaigns as well as an augmented reality game: Sept. 2-6, users armed with smartphones and the Tmall app were able to “capture” images of Tmall’s cat mascot in physical KFC shops, which entitled them to buy products from KFC’s Tmall shop for just one yuan.

    On September 6 alone, some 3 million users visited KFC’s Tmall page, according to Tmall. Coupons for the purchase of more than 80,000 30-piece chicken nugget packs–totaling some 2.4 million nuggets–were sold on the day. The results were “beyond our expectations,” Guan said.

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  • Yum China board lineup revealed

    Yum China board lineup revealed

    Yum China has revealed the likely composition of its board post-spin-off from its US parent, Yum! Brands.

    The new company to be formed after the sell-off to Primavera Capital Group and a subsidiary of Alibaba Group, will be called Yum China Holdings and is expected to be formally formed on October 31.

    The nine new directors announced, seven of whom are independent, will join the board chaired by Dr Fred Hu, chairman and founder of Primavera Capital Group.

    The other members are:

    • Micky Pant, CEO of Yum China.
    • Peter A Bassi, former chairman and president of Yum! Restaurants International and current lead director for BJ’s Restaurant and Potbelly Sandwich Works.
    • Christian L Campbell, owner of Christian L Campbell Consulting LLC and former senior VP, general counsel, secretary and chief franchise policy officer of Yum! Brands.
    • Ed Chan Yiu-Cheong, vice chairman of Charoen Pokphand Group.
    • Edouard Ettedgui, non-executive chairman of Alliance Francaise, Hong Kong and non-executive director of Mandarin Oriental International.
    • Louis T Hsieh, director and senior advisor to the CEO, and former CFO and president of New Oriental Education & Technology Group.
    • Jonathan S Linen, director for Yum! Brands and Modern Bank, former adviser to the chairman of American Express, and former vice chairman of American Express.
    • Zili Shao, co-chairman of King & Wood Mallesons, China.

    Yum China also expects to name one additional independent board member in connection with the spin-off.

    Yum! Brands CEO Greg Creed said the company was pleased to have announced the composition of the Yum China board, as it nears the completion of the separation.

    “We are confident that these business leaders will offer the market insights and strategic vision required to enable Yum China to reach its full potential.”

    Yum China will become the licensee of Yum! Brands in Mainland China. It will have exclusive rights to KFC, Pizza Hut and Taco Bell, the latter of which is expanding globally but is not yet in China. It will also own the Little Sheep and East Dawning concepts outright.

    Yum China has more than 7200 restaurants in over 1100 cities in China and generated over US$8 billion in system sales in 2015.

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  • Alibaba to take stake in Yum China

    Alibaba to take stake in Yum China

    Yum! Brands has agreed with two partners to invest $460 million into Yum China, following its spinoff from the American fast-food giant.

    Also involved are China-based global private equity firm Primavera Capital Group and online and Alibaba subsidiary, mobile financial services provider Ant Financial Services Group, which runs the Alipay mobile payments platform.

    The spinoff and concurrent finalisation of the investment are expected to occur on October 31, with Yum China to start trading on the New York Stock Exchange the next day as an independent company.

    Under the terms of the agreements, Primavera and Ant Financial will invest $410 million and $50 million respectively in Yum China.

    Primavera founder Dr Fred Hu, former greater China chairman at Goldman Sachs, will be non-executive chairman of the board of Yum China.

    “Yum China is an established leader in the retail and restaurant industry, which we believe is poised for continued strong growth and unit expansion as cities across China invest in new transportation hubs, shopping malls and other physical and electronic infrastructure,” says Dr Hu, describing the Yum China moves as a “new and exciting chapter”.

    Membership services

    “Through this collaboration, we aim to help Yum China provide world-class mobile payment services for tens of millions of customers across its brands,” says Ant Financial Service Group president Eric Jing. “These services include hassle-free Alipay for customers to help shorten queues at the cashier, as well as membership services for Yum China designed to help manage its customer relations and promotions.”

    He says Yum brands KFC and Pizza Hut have seen promising marketing results through promotions on multiple Ant Financial platforms.

    “Primavera and Ant Financial both have deep insights into the rapid urbanisation and digital transformation that is driving the evolution of China’s economy,” says Yum China CEO Micky Pant.

    “The investments from Primavera and Ant Financial in Yum China mark another important milestone in our plans to separate the China business and create a solid foundation for Yum China as it prepares to become an independent restaurant powerhouse,” says Yum! Brands CEO Greg Creed.

    As a licensee of Yum! Brands in China, Yum China Holdings will have exclusive rights to KFC, Pizza Hut and Taco Bell, which has yet to expand to China. KFC and Pizza Hut have more than 7200 restaurants in more than 1000 cities in China.

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  • Yum China divestment on track

    Yum China divestment on track

    The Yum China divestment is expected to be completed by October 31.

    The US fast food giant released the target date along with second quarter figures showing solid sales growth across most Asian markets, especially within the KFC division.

    CEO Greg Creed said he was particularly pleased with “the continued sales momentum at KFC China,” which delivered better-than-expected same-store sales growth of 3 per cent.

    “Yum! Brands delivered second-quarter (global) core operating profit growth of 7 per cent and earnings-per-share growth, excluding special items, of 9 per cent. Given our strong first-half results and current trends in China, I’m pleased to raise our full-year core operating profit growth forecast to at least 14 per cent.”

    Creed said the China result represented its fourth-consecutive quarter of positive same-store sales growth at KFC China.

    “Importantly, our China Division is off to a good start in the third quarter for both KFC and Pizza Hut Casual Dining, including a return to positive same-store sales at Pizza Hut in recent weeks.”

    Outside of China, challenging industry conditions in the US contributed to soft sales results.

    The separation of the China business would create “two powerful, independent, focused growth companies,” said Creed.

    “Our capital structure is fully in place and we plan to return a significant amount of capital to shareholders both prior to and after the spin.”

    Creed promised further information at an investor briefing on October 11.

    Yum China same-store sales were even, with an increase of 3 per cent at KFC, offset by a decline of 11 per cent at Pizza Hut. The China division opened 72 new stores during the quarter, taking its network there to 7246

    Meanwhile, in developing Asian markets – including Malaysia, Indonesia and the Philippines – which account for 7 per cent of KFC’s global turnover, sales rose 11 per cent in the quarter and are running 10 per cent ahead of last year for the first half.

    In Thailand, which accounts for 3 per cent of KFC’s global turnover, sales rose 17 per cent in both the second quarter and the first half.

    And in developed Asian markets – such as Japan, Korea and Taiwan – which accounts for 9 per cent of turnover, sales rose 6 per cent by quarter and half.

    Pizza Hut sales in developing Asian markets rose 5 per cent in the second quarter and 3 per cent in the first half. In developed Asian markets, sales fell 7 per cent this year.

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  • Private Equity eyes Yum! China

    Private Equity eyes Yum! China

    US private equity company KKR & Co tops a growing list of potential investors in Yum! China, the fast food giant’s planned spin-off.

    Bloomberg has named KKR, Baring Private Equity China and sovereign fund China Investment Corp as potential bidders for cornerstone stakes in the Chinese fast food company which will operate some 9000 franchised restaurants under the KFC, Pizza Hut and Taco Bell brands.

    Yum! Currently has 7100 restaurants in Mainland China and plans to open 600 more this year. It has also just announced plans to launch Taco Bell in China.

    Yum! Is reportedly planning to retain a controlling stake in the spun-off entity, perhaps limiting the stake sold to 20 per cent. That sized stake could attract an investment of US$2 billion.

    Bloomberg also identified Chinese private-equity firm Hopu Investment Management as another potential buyer.

    Such investments – still speculative at this stage – may offer Yum! Another means of raising capital without a formal float

    Yum! Prevously said it believes that where one united company would have targeted 10 per cent earnings per share growth, each of the two separated companies would achieve a 15 per cent growth rate independently (based on EPS growth and dividend yield).

    “We believe this transaction is a classic example of ‘one plus one equaling more than two’ as it will enable each company to realise its full potential and achieve greater value on a standalone basis,” said Greg Creed, Yum! Brands CEO, announcing the spin-off plan last December..

    “We continue to make solid progress on our planned separation into two independent, publicly-traded companies… each with compelling growth strategies, distinct investment characteristics, and optimised capital structures,” he said.

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  • Yum! China fortunes rebound

    Yum! China fortunes rebound

    Yum! China has showed progress with a system wide sales increase of 3 per cent in the latest quarter – or 7 per cent on a constant currency basis.

    Same restaurant sales are now in positive growth, although by a fairly meagre 2 per cent given the 16 per cent decline in the same quarter last year. Nevertheless, the strong pace of 743 new restaurant openings, combined with some good productivity gains, helped to swell operating profit by 200 per cent.

    Given the big differential in growth prospects and the fact that China faces a very different set of problems and opportunities, it is hardly surprising that Yum! is looking to split its business into two separate companies. This is a sensible step that will allow Yum! and Yum! China to focus on their respective priorities. However, without the boost to growth provided by China, the legacy business will need to work much harder to reestablish its relevance if it is to grow in a much more competitive market.

    Globally, Yum! produced a set of results that exactly mirrors those of last quarter.

    KFC has ended its fiscal year with a fairly solid set of numbers. That said, the growth figures are expressed on a constant currency basis and so exclude the negative impact of the strong US dollar. When this is factored in the outcome is a little less rosy with total revenue for the quarter falling by 1.2 per cent over the prior year.

    Behind the numbers, both KFC and Pizza Hut continue to struggle with system wide sales, including the impact of exchange rates, falling by 5 per cent and 2 per cent respectively. Fortunately this has been somewhat offset by the rebuilding of restaurant margins, but not by sufficient enough a degree to prevent profits at KFC dipping and profits at Pizza Hut virtually flatlining. Across the quarter, these two traditional engines of growth simply failed to propel the company forward.

    One of the key issues for both brands is the relatively slim growth within the US, which in the case of KFC is the division’s single largest market, and in the case of Pizza Hut accounts for the majority of the division’s sales. In our view both suffer from the challenge of maturity and, while they remain popular, the rather tired nature of the brands and a lack of meaningful menu innovation means they struggle to compete against rivals like Chick-Fil-A which are seen as more interesting by consumers. In many ways, both brands need to take a leaf out of the McDonald’s playbook in terms of reinventing themselves to become more relevant to diners.

    In contrast the Taco Bell division saw a strong rise in sales on at both total and same restaurant level. Restaurant margins also increased thanks to some favorable cost changes for commodities. While the combination of these things should have resulted in a good uplift in operating profit, a number of one-off costs – which included investment spending, legal fees, and the creation of a scholarship program – put pay to that. For the quarter Taco Bell operating profit declined by 7 per cent.

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