Yum China targets 20,000 stores, accelerated franchising

Yum China, operator of KFC, Pizza Hut, Taco Bell and Lavazza, reported robust third quarter results, aiming to operate 20,000 stores by 2026 and vowing to strengthen franchising efforts.

Yum China Holdings Inc announced results for the third quarter ended on Sept 30, showing a 5 percent year-on-year increase in revenue, hitting an all-time quarterly high of 3.07 billion yuan ($424 million).

The company said its strategic focus on operational efficiency and innovation has yielded impressive results, with a total store count reaching 15,861, including 11,283 KFC and 3,606 Pizza Hut locations.

In the third quarter alone, the company opened 438 new stores, with franchisees contributing 145 new stores, accounting for around a third of the total.

Delivery sales, a key growth driver, grew by 18 percent year-on-year, contributing about 40 percent to KFC and Pizza Hut's combined company sales.

Same-store sales dropped 3 percent compared with last year. Samestore transactions experienced a 1 percent year-on-year growth, marking the seventh consecutive quarter of growth in this metric.

Operating profit saw a 15 percent year-on-year increase to 371 million yuan, with a 14 percent increase when excluding foreign exchange effects.

Customer loyalty has been a cornerstone for Yum China, with the total membership of KFC and Pizza Hut surpassing 510 million. Member sales now account for about 64 percent of system-wide sales for both brands combined.

Joey Wat, CEO of Yum China, said, "The savings generated from improved efficiency have allowed us to reinvest in food innovation and our value-for-money offerings, driving incremental traffic to our stores."

She said the sequential improvement in same-store sales index for both KFC and Pizza Hut demonstrates the effectiveness of their strategy and ability to outperform in a challenging and fluid environment.

Wat said their innovations for two major brands include opening side-by-side Kcoffee cafes and Pizza Hut WOW stores to cater to those who seek value-for-money products. These two new models have expanded to 500 and 150 stores, respectively.

These models have enabled Yum China to capture new customer demand and broaden its addressable market, she said.

The company plans to accelerate its franchising efforts to penetrate more quickly.

Wat said, "We see ample opportunities across China to enter underserved markets and enhance customer access. With tailored store models, we are accelerating franchise store openings to unlock additional opportunities."

She said their franchise strategy focuses on accessing strategic and remote locations as well as lower-tier cities previously beyond their reach.

"We anticipate the franchise mix of net new stores will gradually increase to 40-50 percent for KFC and 20-30 percent for Pizza Hut over the next few years," she said.

Franchised stores have already been on the rise for the company.

By the end of September, franchised stores accounted for about 12 percent for KFC and 5 percent for Pizza Hut. In the third quarter, franchised stores accounted for 38 percent of its total net new stores opened at KFC, with a ratio of 23 percent and 19 percent in the previous quarters, respectively. Franchised Pizza Hut stores were 15 percent of total newly added stores in the third quarter. The ratio was 8 percent in the second quarter.