This is an English adaptation of a FoodBud historical article originally published on July 29, 2022.
Yum China reported second-quarter 2022 results on July 29, after a difficult quarter for China’s restaurant sector. The company said the industry was heavily affected by COVID restrictions, with total restaurant revenue in China down about 16% year on year.
In April and May, Yum China had more than 2,500 stores on average either temporarily closed or limited to delivery and takeaway only. About 45% of those affected stores were fully closed. Same-store sales fell by more than 20% year on year.
Shanghai was under citywide lockdown throughout April and May. Yum China said only about 30% of its Shanghai stores were open, and those could provide only limited services. Temporarily closed stores gradually reopened in June, with limited dine-in service resuming in an orderly way in late June.
By the end of June, the number of Yum China stores temporarily closed or limited to delivery and takeaway had fallen to about 800. By the third week of July, about 2% of stores were still temporarily closed or operating only delivery and takeaway.
For the second quarter:
As of June 30, KFC and Pizza Hut had more than 385 million members. Member sales accounted for 62% of system sales in the second quarter.
Delivery revenue accounted for about 38% of KFC and Pizza Hut company-store revenue.
Digital orders, including delivery, mobile ordering, and kiosk orders, accounted for about 89% of KFC and Pizza Hut company-store revenue. The figure was 88% for KFC and 92% for Pizza Hut.
Yum China added 53 net new stores in the second quarter. KFC added 69 net new stores and Pizza Hut added 32, while other brands, including Taco Bell, Little Sheep, Huang Ji Huang, East Dawning, COFFii & JOY, and Lavazza, had a combined net closure of 48 stores.
As of June 30, Yum China operated 12,170 stores. KFC had 8,510 stores and Pizza Hut had 2,711. The other brands together had 949 stores.
In April, during Shanghai’s citywide lockdown, Yum China generated 40%-50% of pre-pandemic sales in the city with only 10%-15% of stores operating. In May, it generated pre-pandemic-level sales with less than half of stores open.
Around Children’s Day on June 1, KFC’s Pokémon collaboration became a major campaign. After the Psyduck toy meal launched, it quickly went viral. During the first two days of the promotion, the campaign generated nearly 20% of sales. FoodBud noted that KFC did not expect Psyduck to become so popular; the collaboration had initially been selected partly to reduce the marketing budget.
In July, Yum China’s first self-owned supply chain centers in Chengdu and Huai’an were delivered and put into operation. Construction also recently began on Yum China’s supply chain management center in Shanghai’s Jiading district. The project is the company’s largest self-built supply chain center to date and will serve as Yum China’s supply chain operations headquarters, with total investment of RMB600 million. Yum China now has 33 supply chain centers nationwide. At its investor day the previous year, the company said it expected to expand to 45-50 logistics centers within five years.
In the first quarter of 2022, Yum China removed East Dawning from its brand matrix and added the new retail brand Shao Fan Er. In the second quarter, Shao Fan Er’s sales revenue continued to grow strongly, more than doubling year on year.
At peak levels in May, new retail contributed 50% of Pizza Hut’s sales.
Yum China’s new retail revenue exceeded RMB200 million in the second quarter. It was about RMB260 million in the first quarter, based on conversion from US-dollar figures, with exchange-rate fluctuation possible. For the first half of 2022, Yum China’s new retail revenue exceeded RMB450 million.
The company expected 2022 new retail revenue to reach RMB1 billion. FoodBud noted that while this scale was still small relative to Yum China overall, it was comparable to the full-year 2021 revenue of Baijia Akuan, a new retail food company preparing for a public listing, which reported RMB1.1 billion in total revenue that year.
Yum China CFO Andy Yeung said the company was not afraid of short-term challenges and remained confident in its long-term outlook. Although store openings slowed in the second quarter, the company said healthy store returns and a solid unit model supported continued expansion.
The company maintained its 2022 target disclosed at the beginning of the year: net new store openings of about 1,000-1,200.
Yum China expected more than half of its new stores in 2022 to use smaller store formats. The company aimed to use those formats to increase store density and expand into lower-tier markets.
On the earnings call, one analyst asked how KFC viewed competition with Wallace in lower-tier markets. FoodBud observed that neither Yum China’s CEO nor CFO gave a direct answer, instead emphasizing KFC’s strong brand, store models tailored for lower-tier markets, different menu structures and pricing, and greater focus on children in those markets.
According to the latest data cited in the article, KFC’s payback period was two years and Pizza Hut’s was three years. Most stores opened in the first quarter of 2022 reached break-even within three months.
Note: forward targets, investment amounts, public-listing references, and IPO-related comparisons above are historical figures from the July 29, 2022 source article.