Yum China's Sales Growth Strategies Drive Success
2023-07-30
Yum China Holdings, the parent company of KFC and Pizza Hut in China, held its first quarter 2023 earnings conference call to discuss the financial results and performance of the company. The meeting focused on the company's sales growth strategy, which centered around offering good food at great value and providing a good customer experience. Yum China also highlighted its efforts to enhance operating efficiency and digitization initiatives to optimize operations.
During the meeting, the company discussed the successful implementation of various strategies to capture demand and drive sales. At KFC, one of the strategies was the introduction of the option to trade up for a juicy whole chicken during Chinese New Year. This resulted in a significant increase in sales, with 11 million whole chickens sold in the first quarter, more than double compared to the previous year. KFC also introduced a localized spicy twist to their classic Beef Wrap, which led to a sellout in many markets in just six days.
Pizza Hut also implemented strategies to drive sales, including the introduction of the Wagyu Beef and Seafood Supreme pizza during Chinese New Year. This premium pizza, featuring ingredients like abalone, sea cucumber, and wagyu beef, became a popular choice, accounting for nearly 30% of all pizzas sold in the first quarter. Pizza Hut also created the Double Durian Supreme, which likely contributed to sales growth.
The company's focus on innovative menu offerings and promotions has proven successful, with significant increases in sales for both KFC and Pizza Hut. This demonstrates the effectiveness of their core pillars of good food at great value and good customer experience in capturing demand and driving sales.
In terms of the market outlook, Yum China expects stable cost of sales with commodity prices, although there is some increasing pressure on building costs. Wage inflation is also expected to increase throughout the year. The company is focused on margin improvement through cost structure rebasing initiatives, which have shown positive results. They have also made improvements in rent, depreciation, and labor costs, making the cost base more resilient. Yum China is optimistic about the future, with potential for further growth in offline traffic and dine-in services compared to 2019 levels.
The key drivers of the business for Pizza Hut are the resilience of the off-premise sales model and the improvement in the ratio of takeaway and delivery. The company is focused on increasing off-premise sales and improving the convenience and cost-effectiveness of its delivery network. Additionally, disciplined and systematic new store openings play a role in driving the business forward.
Yum China's plans for product and service include focusing on menu innovation and testing, implementing value campaigns, and offering good value and fun experiences to customers. They aim to provide a variety of price range options and carefully design trade-up options to protect the ticket average and margin. The company also plans to keep costs competitive by securing supply and driving operational efficiency. Additionally, they plan to continue opening new stores and expanding margins for their Pizza Hut brand.
The competitive landscape in the industry is evolving, with increasing pressure on building costs and expectations of wage inflation. Companies are actively working to improve their cost structures and optimize store profitability by lowering capital expenditure.
During the meeting, the company highlighted key performance indicators (KPIs) such as sales growth, same-store sales growth, and margin expansion. Yum China experienced a significant rebound in sales during the first quarter, with total revenues increasing by 9% year-over-year in reported currency and 18% in constant currency. System sales also grew by 17% in constant currency, driven by strong same-store sales growth of 8% for both KFC and Pizza Hut. The company achieved a restaurant margin of 20.3%, the highest since 2017, driven by sales leveraging, cost structure improvements, and temporary relief from government and networks due to COVID-19.
Looking ahead, Yum China's outlook for the quarter and year is positive. The company reported strong performance, with new records for revenue and operating profit. They have seen early signs of recovery with growth in dine-in, takeaway, and delivery, and same-store sales have grown year over year across different regions and trade zones.
Yum China also reported progress on its strategic initiatives, including an increase in operating profit and net income, positive operating cash flow and free cash flow, and expansion of its store network. The company is focused on driving sales and attracting more traffic through investments in promotions. They are utilizing scenario planning, a flexible cost structure, and operational agility to navigate the uncertain environment and seek long-term growth opportunities in China.
Overall, Yum China's first quarter 2023 earnings conference call highlighted the company's strong financial performance and its ability to adapt and thrive in the face of challenges. The company's focus on providing good food at great value and a good customer experience, along with innovative menu offerings and promotions, has driven significant sales growth. With a positive market outlook and strategic initiatives in place, Yum China is well-positioned for continued success in the future.