Recently, Yum China released its 2020 annual report. Last year’s revenue was 8.263 billion US dollars, and the number of stores exceeded 10,000, reaching 10,506. And it plans to open another 10,000 stores in China at a rate of no less than 1,000 per year.
At a time when Chinese fast food is still hovering around 1,000 stores, Yum China is already moving toward its goal of 20,000 stores.
Western fast-food giant Yum’s ambition to open another 10,000 new stores in China
“We intend to maintain this store growth momentum in 2021 and beyond and reach our goal of opening the next 10,000 stores at a faster pace than we opened the first 10,000.” Yum China CEO Cuirong Qu said.
The Chinese restaurant industry was hit hard by the COVID-19 pandemic in 2020, but Yum China opened 1,165 new stores in 2020. By the end of 2020, Yum China’s total number of stores reached 10,506, covering more than 1,500 cities and towns. Of these, KFC opened 840 new restaurants for the year and Pizza Hut opened 152 new restaurants to make up the major portion.
This is the largest number of new stores added in the 33 years of Yum’s operation in China. This is equivalent to opening a store every 8 hours, which is the “fastest store opening speed ever”.
Despite the size of the market, Yum China’s ambitions go far beyond that. According to the report, in 2021 Yum China plans to open about 1,000 new stores in the coming year.
Over the next five years, Yum China will likely spend up to $8 billion. Most of the capital spending will be used to accelerate store expansion and upgrades for core brands KFC and Pizza Hut.
Focusing on developing sink markets, to cover 700 cities where they are not yet present
“Restaurant chains have a low penetration rate in China, especially in lower-tier cities. With economic growth and increasing urbanization, the middle class and people who dine out are rapidly expanding, and there is still huge room for growth within China”, in Yum China’s view.
Compared to the crushing brand advantage in lower-tier cities and the vast market to be developed, KFC’s growth in the first and second-tier cities has obviously slowed down in recent years, and the development space is becoming full. It can be seen that in the future, lower-tier cities will be the key area for Yum China to expand its business.
As of now, there are 700 cities that Yum China has not yet covered, and Yum China is tracking these 700 cities that are not yet covered by KFC or Pizza Hut restaurants.
Innovating models and exploring new business models
Rather than just replicating stores, Yum China’s expansion is constantly exploring new restaurant models for different scenarios and geographies.
For example, for the county-level market in the sinking market, the “Small Town Model” was launched, and the first KFC “Small-Town Model” store – Xinxiang Fengqiu, which opened on August 7, 2020, is very different from the ordinary KFC stores. In order to be closer to the county’s consumer demand, KFC has made considerable adjustments to the menu, store format, and prices.
In addition to KFC’s “small-town model”, there is also Pizza Hut’s “satellite store model” (that is, a large store with several small stores). This combination of methods has enabled Yum China to rapidly increase its market coverage.
And while developing new restaurant models, Yum China is also upgrading its existing restaurants. For example, it is reinventing several restaurants and opening more smaller restaurants by reducing seating capacity and focusing on take-out orders.
As of December 31, 2020, more than 75% of KFC restaurants have been remodeled in the past five years and more than 15% of Pizza Hut stores have been remodeled, according to the announcement.
Product innovation to expand incremental markets
In addition to exploring new business models to adapt to new markets, Yum China has been boldly experimenting with product innovation.
The launch of “Wuhan hot dry noodles” in Wuhan to enter the local specialty breakfast market, the launch of snail noodles and fried rice to join the new retail track, behind each action reveals Yum China’s determination to actively seek incremental markets.
According to the announcement, all Yum China’s restaurant brands will launch about 500 new and improved products throughout 2020.
Currently, Yum China has a dedicated food innovation team that focuses on the development and innovation of new recipes and the improvement of existing products.
Self-built private domain traffic, 60% of sales from members
KFC Pizza Hut membership now totals over 300 million members. Member sales account for 60% of system sales in 2020.
KFC Super Apps was rolled out nationwide in early 2016 and has since played a very important role in KFC’s digital ecosystem.
KFC Super Apps and WeChat applets are the main platforms for consumers to sign up for the company’s membership program, and Yum China is also cashing in on its membership base by introducing paid membership exclusivity programs as a way to increase the frequency of spending on the brand and increase stickiness with customers.
Takeaway volume is growing year on year, accounting for 30% of total revenue
The self-built channel has not only allowed KFC Pizza Hut to have a large membership base, but also to grow its takeaway volume.
In 2020, about 40% of KFC’s takeaway sales and about 20% of Pizza Hut’s takeaway sales come from Yum! China’s own channels, and the share of the company’s restaurant revenue achieved through takeaway has increased from 21% of total restaurant revenue in 2019 to 30% in 2020.
Back in 2010, KFC started to build its own takeaway platform and began receiving takeaway orders on its mobile app. Today, in addition to ordering through the takeaway platform, customers can also place orders through KFC and Pizza Hut’s Super Apps.
And while the ability to place orders through its own channels continues to grow, the company’s delivery capabilities are also improving.
According to the report, Yum China has been using its own dedicated riders to deliver orders to customers in KFC and Pizza Hut stores since 2019. Compared to paying extra commissions to have delivery services provided by takeaway platforms, having its own dedicated riders not only gives Yum China better control over delivery quality, but also improves its ability to deliver instantly during peak hours.
Qu Cuirong has said to the public that in 2020, the company upgraded its delivery rider platform with smart shopping zones, rider route optimization and real-time monitoring. In addition, rider sharing for KFC and Pizza Hut stores was tested in East China.
Intelligence boosts efficiency, personnel costs down 4%
The promotion of digital ordering and payment has significantly improved KFC’s staff efficiency, not only saving consumers’ time in the order queue but also reducing the number of order takers. According to Yum China’s previously announced annual results report, for the full year 2020, Yum China’s salaries and employee benefits decreased by 4% compared to 2019.
In terms of operations, Yum China is also ahead of the industry in terms of smart footprint. To improve staff scheduling and inventory management, Yum China has adopted artificial intelligence-driven technology to analyze and forecast transaction volumes. In addition, managers and staff are equipped with self-designed “smart watches” and several pilot stores are equipped with “smart glasses” to closely monitor real-time ordering and service procedures in restaurants and make timely staffing adjustments, significantly improving management efficiency and customer satisfaction.
Conclusion
“The situation is still in flux, and resilience, adaptability and innovation are key strengths as we experience an unprecedented environment.”
In 2020 under the influence of the black swan of the pandemic, Yum China never stops moving forward, exploring new business models, expanding stores, and innovating menus…every step is laying the foundation for its ambition.
In the future, Yum China will set off a new wave in the fast-food market, and it is worth looking forward to.
Source: Professional Restaurant Site