“We don’t have a crystal ball that can predict the epidemic, but we know very well where the focus is.” Today, Qu Cuirong, CEO of Yum China, said.
Today, according to the fourth quarter and full year results of 2021 released by Yum China, the company’s total revenue was US $9.85 billion (about 62.665 billion yuan), a year-on-year increase of 19%; The adjusted operating profit was US $766 million (about RMB 4.873 billion), an increase of 5% year-on-year; System sales increased by 10% year-on-year; Same store sales fell 1% year-on-year.
It is noteworthy that when many restaurants contracted due to the epidemic, yum China hit a new high. The above financial report shows that in 2021, the company opened a record 1806 new restaurants, with a net increase of 1282 restaurants.
Xiaoshidai noticed that at the performance meeting held for analysts this morning, Qu Cuirong, CEO of Yum China and other senior executives spent a lot of space to explain the contrarian expansion. Next, please take a look at the live news sent back by Xiaoshi Dai.
Let’s take a look at the performance of Yum Brands in China.
First, there are two “trumps”: KFC and pizza hut. At the meeting, Qu Cuirong said that KFC continued to achieve significant growth and showed strong resilience. In 2021, the system sales increased by 8% and more than 1200 new restaurants were opened. “More than half of the new stores are opened in low-level cities. At the same time, we also increase the density of restaurants in high-line cities. This business contributes most of the profits to Yum China.”.
As for pizza hut, she described the brand as a “strong return”. Last year, the same store sales increased by 7%, driven by the growth of transaction volume of more than 10%. The annual segment operating profit increased by 77%, and the profitability was enhanced.
Thanks to the effective recovery, pizza hut has also accelerated the pace of opening stores. Qu Cuirong said that the brand opened more than 300 new restaurants last year, setting a record since 2016. “These results reflect the significant improvement of Pizza Hut’s operation in the past few years.”.
Let’s take a look at the coffee sector regarded by Yum China as a “potential stock”. At present, the company operates three brands with different positioning: Italian coffee brand Lavazza, its own boutique coffee chain coffii & joy, and K coffee, which relies on KFC and is biased towards the mass route.
Among them, Lavazza expanded rapidly last year, increasing the number of stores from 4 to 58, covering all first tier cities and major second tier cities, such as Hangzhou, Wuhan and Changsha. According to Yum China’s previous plan, Lavazza will grow to 1000 stores in China in 2025.
“We see Lavazza as the third growth engine.” Yang Jiawei, chief financial officer of Yum China, said at the meeting that the company will continue to research and develop different store types and then expand to more markets. Lavazza is expected to open more stores this year.
In 2021, the other two members of Yum China coffee will also have good growth. Qu Cuirong said that coffii & Joy’s same store sales increased by more than 30% last year. K coffee sold 170 million cups of coffee in the whole year, an increase of 22% compared with 2020.
Compared with Western fast food and coffee, yum’s Chinese food business in China seems to be “bumpy”.
According to Qu Cuirong, because a large number of stores are distributed in markets in North China and West China, where cases have been concentrated, Xiaofeiyang and Huang Jihuang are facing an “extremely unfavorable” situation during the epidemic. In addition, some Chinese restaurants located in the transportation hub have also been impacted. This year, yum China will concentrate resources on developing hot-pot/" 22375 rel="nofollow" target="_self">hot pot brands.
In fact, due to the sporadic outbreak of the winter epidemic, yum China also faced challenges in the fourth quarter of 2021. The same store sales in the quarter decreased by 11% compared with the same period in 2020, of which KFC and Pizza Hut decreased by 12% and 8% respectively.
“KFC was more impacted in the fourth quarter than pizza hut due to its higher proportion of stores located in transportation hubs and attractions. Compared with 2019, sales at these points fell sharply by about 40%.” Yang Jiawei said at the meeting that by January this year, yum’s overall business in China had improved month on month compared with the fourth quarter.
Open a shop
Entering 2022, yum China, which has withstood the pressure of the epidemic, is ready to open another round of high-speed store expansion. Xiaoshidai noted that the company plans to add about 1000 to 1200 new stores this year, which is similar to the pace of “stepping on the accelerator” in 2021.
Talking about why he had the courage to expand on a large scale, Qu Cuirong gave three answers at the meeting: clear strategy, guarantee of store return period and sinking market opportunities.
First of all, at the strategic level, she said that whether it is short-term and long-term business operation or the opening of new stores, yum China adheres to the RGM strategy (Note: resilience, growth and moat).
Among them, tenacity represents the tenacity that the operation team can respond quickly and in time. Growth opportunities come from product innovation and demand for non food scenes. Moat includes digital, large-scale and other long-term core competitiveness. “We don’t have a crystal ball that can predict the epidemic, but we know very well where the focus is.” She said.
Secondly, even under the epidemic, yum China can ensure the return period of store investment. Qu Cuirong said that at present, the investment return period of KFC is still stable within two years. Pizza hut has improved compared with previous years, and the return period has been shortened from 3-4 years to 2-3 years. “When we can get a return, we should open a store within the ability of the operation team.”.
Yang Jiawei also added that under the influence of the epidemic, the new stores opened by the company in the first half of 2021 still performed well, and most restaurants broke even in the first few months of opening.
In order to ensure the return on investment, yum China also continues to optimize the opening cost. Today, Qu Cuirong calculated an account on the spot at the meeting. “In 2016, when we went public independently, our annual capital expenditure was $436 million. That year, we opened 575 stores. By 2020, we doubled the number of stores (compared with 2016), but our capital expenditure was only $419 million, lower than that in 2016. This means that our opening efficiency has improved significantly.”.
In addition, Qu Cuirong believes that Yum China can also vigorously develop low-level cities through new stores. “KFC alone entered 160 new cities last year. Among these new cities, KFC’s brand strength is very strong, and because it is brand-new, the impact of sales diversion is very limited.” Qu Cuirong said.
Qu Cuirong, CEO of Yum China (information picture)
She also pointed out that even in cities where businesses have been established, yum China can enable takeout by increasing store density. With the increase of density, the average distance of rider distribution is shortened. On the one hand, it can optimize the average performance cost and then reduce the operation cost. On the other hand, it also provides consumers with higher convenience and services.
So, is Yum China worried that encrypted stores will lead to internal competition for food? “New stores do sometimes divert some sales (from existing stores) and take out orders are more obvious. But over the past 30 years, we have been expanding our stores and maintained growth before the epidemic. We will continue to treat this problem in a reliable and prudent manner.” Yang Jiawei responded at the meeting.
Xiaoshidai also noticed at the meeting that when Qu Cuirong talked about store expansion, he revealed that the proportion of franchise stores in Yum China has also increased in recent years, and this proportion has reached more than 10% after the acquisition of Huang Jihuang. According to the data found by xiaoshidai from the financial report, as of December 31, 2021, the proportion of franchise stores of KFC, Pizza Hut and other brands (including Taco Bell, Xiaofeiyang, Huang Jihuang, Dongfang Jibai, coffii & joy and Lavazza) was 9%, 5% and 84% respectively.
Qu Cuirong said that whether in the past or in the future, yum China has a “quite open” attitude towards joining, and has also delineated three key tasks for joining. First, open franchises in remote areas such as Tibet or Qinghai to achieve more efficient management. Second, open up and join in the expressway service area and other channels. Third, use technology to improve the ability to manage the franchise system and ensure the quality of products and services.
Looking forward to 2022, Yang Jiawei pointed out in the financial report that due to the uncertainty caused by the epidemic, the weak macro environment, the weakening of consumer confidence and the intensification of inflationary pressure, the company’s business and operating environment is expected to be full of challenges and fluctuations in 2022.
Among them, the general cost pressure has also become the focus of attention. He said at the meeting that the prices of commodities such as beef, cheese and energy had all risen by double digits. Yum China has also taken a number of measures, including timely locking in advantageous prices, innovating dishes to make full use of chicken and beef, and actively cooperating with local suppliers.
“We expect the rise in costs to be partially alleviated, but we will still face greater price pressure this year.” “Despite the challenges, we have a strong ability and take active actions to improve sales and manage costs. We will also increase investment in supply chain, infrastructure and digitization in 2022 to promote the long-term sustainable growth of our business,” Yang said This year, yum China’s capital expenditure is expected to be between us $800 million and US $1 billion.
Qu Cuirong said at the meeting that although facing great uncertainty and external adverse environment, yum China has the ability to embrace change and innovate and adapt accordingly. At the same time, it will also build core competence and strengthen market leadership for the long-term sustainable development of the group