Yum Brands taps China

09 February 2012

BEIJING: Yum Brands, the owner of KFC and Pizza Hut, is hoping to leverage favourable trends in China, which already delivers the strongest performance globally on several of its core business metrics.

David Novak, Yum's chief executive, argued there was a "long runway" for growth in the Asian market, where it has opened 656 branches last year alone, and seen a same-store sales expansion of 19%.

KFC now has 3,700 outlets and Pizza Hut runs 626 sites in the country, with both chains pushing into lower tier cities. The aim is to add at least 600 new units in China this year.

More specifically, the organisation's operating profits in the country have leapt from $600m in 2009 to $900m in 2011.

"We view China as the best restaurant growth opportunity of the 21st century," Novak said on a conference call. "China new unit returns are the best in our business with cash paybacks within three years."

Among the positive shifts occurring locally are rising incomes and urbanisation, meaning the "consuming class" is set to grow from 300m people to 600m in the coming ten years.

"Our strategy in China is to have leading brands in every significant category," Novak said.

Currently, KFC heads the Western quick service segment, as does Pizza Hut in the Western casual market. The Pizza Hut Home Service delivery has also reached 135 sites.

Elsewhere, the firm's East Dawning chain is seeking to become the pre-eminent "mainstream Chinese food" quick service network, Novak said.

Little Sheep, comprising 450 hot-pot restaurants and recently acquired by Yum, is already number one in a category worth $5bn, but incorporating the company will not be without challenges. "We really are just starting to understand the business," said Novak.

Among the advantages possessed by Yum is that its operating capabilities in China are "the best we have in the world", with 90% of restaurant managers holding a college degree, Noval said.

To train its staff, the firm runs a training academy providing education in the core tenets of the retail business. Yum's research and development team also has 700 dedicated employees

"We really see ourselves as the training ground for retail development and retail managers in China," said Novak. "We're like Procter and Gamble, the king of marketing talent in the United States. We see ourselves as the leader in operating talent in China."

Data sourced from Seeking Alpha; additional content by Warc staff