China Food

Yum China Equity Award “play real”! This Italian coffee will accelerate the opening of 1000 stores in China

In order to accelerate the expansion of Lavazza, a well-known Italian coffee brand, in the Chinese market, yum China is “real gold and silver” to motivate the team to work hard and roll up their sleeves.

Xiaoshidai noted that yesterday, yum China released the notice of the annual general meeting of shareholders and the statement of proxy voting, which latest disclosed the progress of equity awards granted by the joint venture (hereinafter referred to as the joint venture) established with Lavazza Luigi S.p.A. (hereinafter referred to as Lavazza group). According to the announcement, the equity awards of several executives including Yum China have been set out.

As early as February this year, the company announced that it had established a joint venture with Lavazza group to explore and develop Lavazza coffee business in China. In order to motivate employees, including the goal of opening 1000 Lavazza stores in China by 2025, the joint venture has formulated an equity plan to allow the equity awards of Lavazza joint venture to the main employees of Lavazza joint venture, Lavazza group and Yum China.

Globally, the Italian coffee giant is also showing strong momentum. Snack generation noticed that on Wednesday, Lavazza group released its latest annual results, and its revenue hit a new high in 2021. It also mentioned that in 2021, excellent income statement and balance sheet performance and stronger international influence complement each other, “especially through the joint venture with Yum China to develop coffee shops in Asian countries”.

Let’s pay attention.

“Founder spirit”

In Yum China’s view, deeper “interest binding” is a good way to promote the senior management team to vigorously develop the new brand Lavazza. This also reflects the importance of the chain catering giant to the coffee business strategy to a certain extent.

“The establishment of Lavazza joint venture aims to explore and develop the brand concept of Lavazza coffee shop in China. It is a strategic measure taken by the company to build coffee into an important part of our business. The Compensation Committee believes that it is very important to treat compensation in a way that respects the spirit of founders and is linked to long-term strategic objectives, which will make the company rise strongly after the epidemic.” The company said in an announcement released yesterday.

So how to divide the “carrot”?

According to the equity plan of the joint venture, up to 15% equity of Lavazza joint venture can be granted as equity incentive under the equity plan of the joint venture, and Lavazza joint venture employees and other eligible participants are eligible to receive up to 80% equity plan shares of the joint venture, i.e. 12% equity of Lavazza joint venture. The remaining equity plan shares of the joint venture will be granted to their respective employees according to the equity distribution of Yum China and Lavazza group in Lavazza joint venture, that is, up to 2% and 1% of the equity of Lavazza joint venture.

Yum China pointed out that the remuneration committee could, at its discretion, grant part of the equity of the joint venture allocated to Yum China to “make a significant contribution to the Lavazza joint venture” and “employees of the company deemed essential to the successful implementation of the business plan of the Lavazza joint venture”.

Naturally, this is linked to performance. “The performance-based attribution conditions are related to the performance of Lavazza joint venture in terms of revenue, store level profitability, brand level profitability and the number of stores, and each has the same weight. The performance during the four-year performance period will be measured on a rolling basis for four consecutive quarters.” The company pointed out.

Now, the equity incentives of some executives have been established.

According to the announcement read by xiaoshidai, on February 10, 2022, Lavazza joint venture and Yum China Remuneration Committee approved to grant equity awards to several employees of Yum China (including listed senior managers) in the form of performance stock units in accordance with the applicable equity plan of the joint venture.

According to the fair value of performance stock units granted by Yum China Remuneration Committee on the grant date, the relevant Yum China executives range from US $200000 to US $100.

Xiaoshidai noted that Yum China mentioned in its announcement that for the new growth plan, Yang Jiawei, chief financial officer of Yum China, played a vital role in formulating a long-term joint venture agreement with Lavazza group. “He also designed and implemented solid monthly financial reviews for all new growth plans (including Lavazza joint venture), complementing the leadership team’s comprehensive business review of relevant growth plans to promote orderly and rapid growth.”

In addition, the company also commented that yuan Yaozong, chief human resources officer of Yum China, had “achieved remarkable results” in establishing the Lavazza joint venture team from scratch.

Global report card

Globally, Italy’s largest coffee company has just handed over a solid report card.

Xiaoshidai noted that on April 13, Lavazza group announced its performance in 2021, with a reported turnover of 2.308 billion euros (about 15.944 billion yuan), a year-on-year increase of 11%, reaching a new high. The net financial position was € 283 million and the operating cash flow was € 203 million, an improvement over 2020 (€ 125 million).

In addition, in 2021, Lavazza group’s EBITDA was 312 million euros (about 2.155 billion yuan), a year-on-year increase of 23.3%. The profit before interest and tax (EBIT) was 163 million euros (about 1.126 billion yuan), a year-on-year increase of 50.9%. The net profit was 105 million euros (about 725 million yuan), a year-on-year increase of 44%.

“In 2021, when the economic and social environment was still affected by some complex effects caused by the sudden outbreak of COVID-19, the group reported turnover for the first time exceeded 2 billion 300 million euros, and achieved improvement in all channels and geographical regions.” Lavazza said that this proves the company’s robustness, the great popularity of its products and the global recognition of its brand assets.

Lavazza pointed out that the key financial indicators showed an upward trend, and the channels and product portfolio were positive. “The main drivers of growth are first the recovery of sales in outdoor channels (returning to 80% in value terms in 2019) and the steady rise of income in household channels (6.3% year-on-year in 2020 and 23.8% year-on-year in 2019).”

“In 2021, excellent income statement and balance sheet performance and stronger international influence complement each other, especially through the development of coffee shops in Asian countries through a joint venture with Yum China.” Lavazza pointed out in the financial report.

In addition to coffee shops, Lavazza’s retail business has also performed well.

Lavazza said that thanks to the development of the coffee bean sector, the product portfolio has produced significant benefits. “This is the most dynamic sector in the market, and Lavazza’s performance exceeds the market average”. It also said that in the increasingly competitive single cup service field (i.e. coffee machine and coffee capsule), it will continue to implement its plan of carbon neutral aluminum capsule.

Looking forward to 2022, the company expects to continue to be affected by the epidemic and inflation.

“The macroeconomic situation in 2022 will look very complicated, on the one hand due to COVID-19, and on the other hand, sustained inflation has pushed up the cost of raw materials.” Lavazza said.

The company pointed out that in 2021, all bulk goods began to enter a particularly turbulent period, “In the agricultural sector, coffee prices rose most significantly, with both arabica and robusta varieties rising by about 80% in 2021. These increases were mainly due to global supply chain problems and damage caused by weather events related to climate change (Note: for example, Brazil, the world’s largest supplier of coffee beans, suffered a severe drought and unusual frost last year, which led to a sharp rise in coffee futures prices) 。”

“These factors will have an impact on the production of (coffee beans) in 2022. The forecast shows that the reduction of coffee harvest and the continuation of inflation environment, which means that coffee prices will continue to rise sharply.” Lavazza said that the conflict between Russia and Ukraine has also exacerbated this already difficult environment. The main impact is also reflected in the raw materials of Russia and Ukraine as major producers and exporters, such as natural gas, oil and metals.

1000 store target

But this does not affect the Italian coffee giant’s determination to accelerate its “horse racing enclosure” in the Chinese market, and opening a shop is the top priority.

As mentioned above, according to Yum China’s previous plan, Lavazza set the goal of “growing to 1000 stores by 2025” and gave great incentives to the senior management team. Xiaoshidai said that by the end of 2021, Lavazza’s number of stores in China had increased to 58, covering all first tier cities, north, Shanghai, Guangzhou, Shenzhen and major second tier cities, such as Hangzhou, Wuhan and Changsha.

This means that starting this year, Lavazza coffee shop will open a new store in an average of 37 hours. The scale of 1000 stores is also equivalent to about 1 / 5 of the total number of Starbucks stores in China, which will make this coffee brand more visible on the streets.

Lavazza is positioned to provide an authentic Italian coffee experience

At present, yum China operates three brands with different positioning: Italian coffee brand Lavazza, its own boutique coffee chain coffii & joy, and K coffee, which is biased towards the mass line. “We see Lavazza as the third growth engine.” Yang Jiawei once said in February this year that Lavazza is expected to open more stores in 2022 and will continue to research and develop different store types and then expand to more markets.

According to the materials disclosed by Yum China to investors in September last year, Lavazza is divided into three store types: flagship store, normal store and small store.

Three main store types of Lavazza

Generally speaking, Lavazza flagship store covers an area of 150-250 square meters and is located in a high-end and prosperous business district. For example, its first official store in Asia is opened in Shanghai Jing’an Temple crystal shopping center, which is also Lavazza’s first coffee flagship store outside Italy; The standard store covers an area of about 100-150 square meters and is opened in the shopping center; The mini store covers an area of about 70-100 square meters and is located in communities and offices.

“Our positioning for Lavazza is to provide authentic and complete Italian coffee experience. Globally, Lavazza brand means the essence of Italian coffee experience. Yum! Brands China is committed to developing this brand nationwide.” Thomas Chen, chief marketing officer of Yum China, said last year, “we have multiple [coffee] brands. In fact, each brand has a very clear and unique proposition to pursue multiple market segments in this category. That’s our strategy.”

It is worth noting that the “ambitions” of both sides have also expanded to the consumer retail business.

The Chinese mainland has also introduced the retail sales, retail and marketing of retail products including Lavazza, including coffee beans, fresh ground coffee and coffee capsules. “Our strategic partnership with Lavazza is very exciting. In addition to accelerating store expansion, we are working together to launch more Lavazza products to Chinese consumers using online and offline channels.” Qu Cuirong once said.

According to the materials released by Yum China last year, the joint venture plans to introduce more products from Lavazza’s product portfolio in the next 1-2 years.

Antonio baravalle, CEO of Lavazza group, also pointed out in an interview with Bloomberg last October that the marriage with Yum China will not be limited to opening coffee shops, and the joint venture will also become a distributor of Lavazza products in China, including selling coffee capsules in the retail market.

However, Lavazza’s relevant products have already been sold in the Chinese market, including the establishment of flagship stores on e-commerce platforms, which may mean important business integration. Today, xiaoshidai searched the e-commerce platform and found that Lavazza tmall flagship store, which has been opened for many years, is still in operation. Its operator is jesd trading, not Yum China.

Pay attention to “snack generation” (wechat: foodinc) “and reply to” Yum catering “to see the wonderful news.

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