“The second quarter was the most difficult quarter in the past two and a half years.” Qu Cuirong, CEO of Yum China, said today. At the 2022 interim performance meeting held in the morning, qucuirong said that during this difficult period, yum China continued to implement the RGM (representing the company’s business resilience, business growth, and strategic moat) strategic framework, and achieved better than expected results in the second quarter.
So, how did Yum China, with more than 12000 restaurants, overcome the “most difficult threshold” since the epidemic? How to run faster after the situation improves? What are the predictions of catering consumption in the second half of the year? Let’s listen to the latest statement.
”Qucuirong revealed at the meeting.
Taking the period of static management in Shanghai as an example, she said that the restaurants that can open the door and the staff and riders on duty are very limited. According to the financial report, from April to may, only about 30% of Yum China’s stores in Shanghai were open and could only provide limited services. Qu Cuirong said that at that time, the company’s goal in Shanghai was to maintain the lowest level of restaurant operations and provide consumers with the food they needed, so it reduced the complexity of operation and inventory management by simplifying the menu.
“In extreme cases, only one bucket of fried chicken can be selected on the menu, and this is the only option on the whole menu. Fried chicken may be one of the most popular foods during the closure period in Shanghai, which has brought a lot of happiness to our customers.” Qucuirong said that Yum China launched community group buying as early as mid March, covering KFC, pizza hut, Lavazza coffee, Taco Bell and little sheep. “We completed the whole community group purchase process team (building) plan in mid March, which took only a week, and spanned different brands. Two or three days after we launched the project, the order came. This is speed, agility and determination, as well as the ability to implement innovative solutions, which enhanced our resilience and achieved good results.” Qucuirong said. In addition to store products, prefabricated dishes have also become a highlight of Yum China in the epidemic. “When the community group purchase went online, we sold the product that could be sold at that time, that is fried chicken. But this is not enough.” She revealed that due to the surge in demand caused by people’s closure at home, yum China added prepackaged food (Note: the company also classified this as a new retail business). For example, in April this year, Pizza Hut’s Prefabricated food brand “Pizza Hut preferred” launched the enterprise wechat community group purchase system in Shanghai, providing prepared dishes such as sirloin steak, sea bass and pasta. In addition, tacober, Lavazza and little sheep also quickly launched pre packaged food during the Shanghai closure.
Pre packaged food under KFC and Pizza Hut
“At its peak in May, half of the sales of pizza hut in Shanghai came from new retail, and the proportion fell back to 20% in June.” Qucuirong said today that in the second quarter of this year, yum’s new retail sales in China reached 200million yuan, double that of the same period last year. In order to better carry out community group buying, yum China has also used new digital tools. “In just one day, our first-class IT team launched a distribution route planning tool for community group buying and supporting artificial intelligence in Shanghai.” Qucuirong said. Thanks to various measures, Qu Cuirong said that in Shanghai, yum China achieved 40-50% of pre closure sales with 10-15% of its stores in April, and less than half of its stores created pre closure sales in May. According to the financial report, since June, yum China’s temporarily closed stores in Shanghai have gradually resumed business, and the limited food service was orderly resumed in late June.
So, what does this catering giant think about the future? Xiaoshidai noticed that an analyst at the meeting asked, “in the past few years, yum China has shown great defensive agility (when the crisis comes), but agility also means that it can switch back to the offensive mode when the opportunity arises. As the restart continues, how can it attack again in operation?” Qu Cuirong responded that the answer of Yum China is no different from the sharing since 2019 on how to grow faster when the situation improves. “The resilience, growth and strategic moat represented by RGM may be promoted faster, but the strategy is the same.”. She said that in terms of resilience, yum China will continue to make use of its digital capabilities, innovative products, high cost performance and cost control capabilities. “In previous years, it may be a little difficult to say this (understanding), but now we can see that sometimes toughness is more important than the other two.”.
In Qu Cuirong’s view, the introduction of prefabricated vegetables is an example of enhancing business resilience. “This is an excellent complement to our business. We have a supply chain scale effect and a distribution network composed of more than 10000 stores and online channels. Our (packaged food) brand ‘shaofaner’ was launched in 2018. Riders directly distribute these new retail products (Note: semi-finished ingredients such as steak) without charging additional distribution fees.” Qucuirong said. She also revealed that Yum’s new retail sales in China in the first half of the year were 450million, and the annual sales are expected to reach 1billion this year. Although new retail currently accounts for a relatively low proportion in Yum China, its business scale is not small compared with other catering enterprises. For growth, on the one hand, the company will open more stores, including two major KFC and pizza hut, as well as emerging brands Taco Bell, Lavazza and little sheep. On the other hand, we will focus on promoting non food business.
“At present, the sales (proportion) of non hall food is about 65% in KFC and 52% in pizza hut.” Qucuirong said, “in the past few years, these figures have changed a lot, bringing growth and agility. Without such a high proportion of non food sales, we could not have achieved these results in the last quarter and the past two and a half years.”.
Turning to the strategic moat, Qu Cuirong pointed out that Yum China will continue to invest in supply chain and logistics center, automation, sustainable development and other aspects. Xiaoshidai said that in July this year, the company invested 600million yuan to build a supply chain management center in Jiading District, Shanghai. This is Yum’s largest self built supply chain center project in China. It will serve as its supply chain operation headquarters and is expected to be completed and put into use in 2024.
Let’s take a look at the latest performance of Yum China. The financial report showed that in the second quarter of this year, the company’s total revenue was US $2.13 billion, a year-on-year decrease of 13%; The sales volume of the system decreased by 16% year-on-year, of which KFC and Pizza Hut decreased by 15% and 14% respectively. The main reasons for the decline are the decline in the same store sales and the impact of the temporary closure of stores; Same store sales fell 16% year-on-year, with KFC and Pizza Hut down 16% and 15% respectively. During the reporting period, yum China’s operating profit was US $81million, a year-on-year decrease of 65%; The net profit was US $83million, a year-on-year decrease of 54%, mainly due to the decline in operating profit, which was partially offset by the company’s net income from equity investment valued at market value on meituan Dianping.
In terms of the number of stores, the company opened 246 new stores in the second quarter of this year, with a net increase of 53 stores, mainly driven by KFC and pizza hut. As of June 30, 2022, yum China has 12170 stores, including 8510 KFC and 2711 pizza hut. According to Yang Jiawei, chief financial officer of Yum China, Lavazza has more than 70 stores.
In the second half of the year, Yang Jiawei pointed out that although the restaurant’s passenger flow gradually rebounded in June, the external environment was full of challenges, and he remained cautious about same store sales. “Our focus is to promote sales recovery. Therefore, we will carry out greater marketing and promotion, and more activities to promote cost-effective products.” He said that under the influence of factors such as the epidemic and Consumption Willingness, high cost performance is very important. At the same time, Yang Jiawei mentioned that it is expected to continue to face the impact of inflation in the second half of the year, and the prices of bulk commodities such as edible oil and beef, as well as utilities, will rise sharply this year. Yum China first digested by improving operational efficiency and optimizing costs, and has also raised prices slightly, but the increase is usually lower than the inflation rate. “We have always been cautious about using price increases to ease inflationary pressures”.
While promoting the recovery of sales, yum China does not intend to slow down its expansion this year. Its financial report said that it would maintain the guidelines at the beginning of the year, and it was expected that about 1000 to 1200 stores would be added in the whole year, with capital expenditure of about US $800 to US $1 billion. Yang Jiawei said that most of the new stores opened in the second half of the year are still KFC, pizza hut is accelerating the opening of stores this year, and Taco Bell and Lavazza will also continue to expand. In the future, yum China will continue to increase the density of stores in the first and second tier cities and expand low tier cities.