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YUM Brands China Investor Presentations Sept 2012
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China Investor Conference September 12 – 13, 2012
Forward Looking Statements
This presentation will include forward-looking statements that reflect management’s expectations based on currently available data. However, actual results are subject to future events and uncertainties. The information in the presentation related to projections or other forward-looking statements may be relied on subject to the safe harbor statement posted on our Web site: www.yum.com.
Strengthening an Industry Leader
Vincent Huang
Celebrating the 4,000th store
1987 1st store 2004 1,000 stores
2007 2,000 stores
2010 3,000 stores 2012 4,000 stores
548 766
979 1243
1557 1822
2140
2497
2872
3244
3701
412 538 575 639 735 783 876
1010 1135 1291
1468
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
store count comparison
KFC: #1 QSR brand in China
Store count gap widening vs. competition
Enjoy first mover advantage in lower-tier cities
1829 1872
969
499
T1/T2 cities T3+ cities
McD
McD
Store count
T1-T2 cities T3-T6 cities
Rooted in China… most evident in lower-tier cities
• An aspirational and iconic brand, yet affordable
• Premier site of best trade zones
• First chance to experience Western food and culture
• Ideal place for rewarding children, friends gathering, a break from shopping
A Winning Formula to Take KFC Brand Deep Within China
Daypart / Service extensions (e.g. Delivery, 24 hours)
“New Fast Food” (vs. conventional model)
Position brand as “Rooted in China”
KFC heritage (fried chicken)
A preferred QSR brand deeply rooted in China
Today
5+ Years ago
10+ Years ago
Day One
A series of strategic brand building blocks over the years
The “New Fast Food” business model
• Great tasting and safe food; high-quality and speedy
(what “conventional” fast food offers)
• Balanced in nutrition; healthy life style
• Rooted in China, continuous innovations
• Main meals – Colonel’s original recipe – Zinger – Dragon twister – Curry pork rice
Build signature products in every category
Build signature products in every category
• Snacks & sides – Hot wing – New Orleans wing – Popcorn chicken – Seafood star
• Beverages & desserts – 9 lives juice – Coffee float – Egg tart
Build signature products in every category
Build signature products in every category
• Breakfast – Puff pastry sandwich – Congee – Dough stick – Soy milk
Offer meaningful menu variety to broaden brand appeal
• Roasted products • Non-poultry choice • Destination beverages & desserts • Irresistible local flavors
• Corn salad • Juice • Chinese veggie appetizer • Veggie soup
Offer balanced choices and encourage healthy eating
16 16 16 16
Continuous consumer education on healthy eating
• Thematic advertising, tray mats, booklets, packaging
• Sponsorship for studies on health and nutrition
Promote regular exercise with grass-root sport events
Teens KFC 3on3 Basketball
Championship
176,800 participants from 500 cities in 2012
Teens Fitness Dance Program
1.8 million students joined from 4,200 schools in 2012
Good Morning Program
18 18 18
Winning over competition on “New Fast Food” image
Data source: Brand Image Tracking in 47 cities, 2012 Q1+Q2
*Significant difference 95% confidence level
(Top 2 box %) KFC McD chicken expert 57* 39 food taste 59* 49 menu variety 56* 47 innovative 55* 40 balanced choice 43* 33 promote regular exercise 41* 33 rooted in China 53* 35
Open 24 hours to serve various customer needs
• Breakfast
• Weekday lunch
• Afternoon break
• Dinner special
• Overnight
• Delivery
• More and more people eat breakfast out of home with spending 3-5 yuan
• KFC 6 yuan breakfast value combo, competitive to Chinese QSR and convenient stores
• Other successful breakfast products
KFC Breakfast: High Quality, Nutritious, Affordable
Becoming a preferred place for workday lunch
• Shorter meal time around 30-40 min. and price-sensitive
• KFC 15 yuan weekday lunch value combos, an everyday affordable option
• Offer both Western and Chinese choices
22 22 22
A convenient and comfortable place for afternoon break
• Afternoon tea time habit is becoming more popular – Coffee shops, bakery & retail, casual
dinning…
• KFC “Build your own tea sets” at 9 yuan received very positive response
• Developing more destination
beverages and desserts
Dinner: Offer abundant food choices for a relaxing time
• Home meal replacement for young couples, or a quick meal before evening activities
• Have more time to enjoy good food vs. lunch
• Less price-sensitive
• Initial positive results from Dinner Special
Overnight: KFC is the best place to go
• Many people out at midnight, especially in regions with warmer climate
• So convenient to find a KFC in large cities, the only place open in small cities
• Offer premium light meals
The largest food delivery brand in China
• Meet fast growing consumer needs in 190 cities – Improving living conditions and increasing family income – Busy life style – no time to cook or not good at cooking – Big party size
• Charge delivery fee
• Online ordering transactions: 55%+
A convenient and popular place for Chinese consumers
Commercial Residential Transportation & other
Sit down On-the-go Drive-through Delivery
Kids & family Family gathering, reward children
Teens Friend gathering
Adults Everyday
affordable meal place
Trade zones
Customers & key need states
Service formats
Continue to drive sales growth from all dayparts
SS WPSA (RMB mm)
59 64 72
38 4144
6469
7316
2535
0
50
100
150
200
250
May YTD 2010 May YTD 2011 May YTD 2012
Del/24/BFDinnerAfternoonLunch
177 199
224
Summary
• The #1 QSR brand in China
• Growing faster than competition and well penetrated into lower tier cities
• Positioning as “New Fast Food” to become a welcome part of consumer’s life
• Recent key initiatives in leveraging assets and
growing sales from all dayparts
Pizza Hut Dine-In Expanding a Casual Dining Powerhouse
Candy Chan
The Western Restaurant “right next door” for Chinese consumers
700+ stores 160+ cities 30 provinces
2011 New Openings: 114
Hai Nan
Hei Long Jiang
Ji Lin
Liao Ning
He Bei
Shan Dong
Fu Jian
Jiang Xi
An Hui Hu Bei
Hu Nan
Guang Dong
Guang Xi
Shanghai
He Nan
Shan Xi
Inner Mongolia
陕西
Ning Xia
Gan Su
Qing Hai
Si Chuan
Gui Zhou
Yun Nan
Tibet
Xin jiang
Jaing Su
浙江
Beijing
East
North
Northeast
Southwest
Northwest
South
System Sales Growth %
Multiple years of record growth
2009 2010
2011 2012
Q2 YTD
13
22
32
35
Pizza & More: Anchor of success for the brand
Building the Best WCDR Menu
20%+ menu changes, twice a year
Page 35
Enhance ‘pizza expert’ position thru
innovations or promotions
Protein Variety: Steak, anyone?
Rice and Pasta, in case you don’t feel like Pizza today
Drinks that deserve a spotlight of their own
Desserts for a perfect finishing touch
Leverage Assets to capture different dayparts
Tea Time
Afternoon Tea
Breakfast
Working Day Lunch
Lunch Break at Pizza Hut Happy Restaurant : 3-course meal at a great price
Served by the best Operations Team in China
WPSA Margin
Chinese consumers love Pizza Hut: great success even in lower tier cities
Tier 4-6 vs. Tier 1-3
1,000th store is not a distant goal
Picture of beautiful asset
Pizza Hut Home Service Developing Leading Delivery Brand
Candy Chan
Food Delivery Market continues to grow as lifestyles change
Base: All contact respondents
Food Delivery Market Penetration
Base: P3M Food Delivery Users In SH
Food Delivery Usage (Times per quarter)
Times
10%
20%
30%
40%
50%
2010 2011
35%
49%
11
15
• 140 stores • 13 cities
The Best Delivery Brand: Professional, Rich Varieties, Affordable
Meaningful variety to cater to local Chinese needs
Chinese menu items gaining in popularity
Weekly Units Sold
0
50
100
150
200
250
300
Chinese Rice Rice Noodle
2011
Q2YTD2012
Transaction momentum stronger than ever
17%22% 24%
40%
0%
10%
20%
30%
40%
50%
2009 2010 2011 Q2YTD2012
TransactionGrowth Rate
Chinese Consumer habits changing rapidly: Rapid growth of e-Commerce and Media Digitalization
• Media Consumption shifting to digital
• We reach customers in an “e-way”
- Search Engines
- Video Streaming Websites
- Social Media
- SMS
- Taobao, Sina Weibo
7.3
2.4
6.9
3.6
0
2
4
6
8
10
12
2009 2011
Data source:CMMS (46 cities)
Traditional
e-Media
Our online ordering has increased dramatically over the last two years
Over 50% are e -orders
App s ta rted in 2012
40%+
• Convenience • Higher check average • Lower order-taking costs
•53
Consumers love what we have to offer, PHHS, a brand with bright future
“With this pricing, it’s very competitive compared to QSR like KFC or McD’s. 。”– YA, WQSR User, Nan Jing
“I can have either Chinese or Western. I can even order Rice!
Great!“ FA, PHHS user , TJ
“I was a bit surprised to find Rice Noodle and Hot Veggie. But am
pleasantly surprised at the good quality of such.“ - FA, PHHS User,
Shang Hai
I always thought it’s the same brand…Oh now I realize that the two brands are related by independent. PH Delivery is focused on Delivery…No wonder it’s very professional. (WQSR User, FA, Nan Jing)
•54
Made significant improvement to business model
Investment mode $ $$ $$$
# of PHHS units
•55
Pizza Hut Home Service brand will further expand nation wide
Little Sheep Enhancing A Great Brand
Angela Loh
Little Sheep: Today’s discussion
• Part of Yum!’s #1 Growth Strategy
• A growing, mainstream Chinese category
• Brand with a strong foundation
• Strong category leader
• A bright future – Extend the brand – Even stronger business model
Drive Aggressive INTERNATIONAL
Expansion and Build Strong Brands Everywhere
Dramatically Improve U.S.
Brand Positions, Consistency and
Returns
Drive Industry-Leading,
Long-Term SHAREHOLDER &
FRANCHISEE Value
Build Leading Brands in
CHINA in Every
Significant Category
Yum! Brands Strategies
What is HOT POT?
• DIY Cooking
• Hot Pot = Metal Pot + Soup Base + Fresh Raw Ingredients
Why Consumers Love the Concept?
• Rich flavor • Lots of varieties, balanced choices • Personal preferred taste • Fun DIY cooking, convenient • Great social gathering with friends & families • Value for money
Hot Pot Category: P3M Penetration %
6762
57 59 61 61615859
63
0
10
20
30
40
50
60
70
80
90
100
Total Tier 1 Tier 2 Tier 3 Teens YA OA FA Male Female
Base 1637 952 341 344 237 655 352 393 824 813
Hot Pot – A Growing, Mainstream Category
Hot Pot U&A Study - Feb,2012. 12 cities in China tier 1, tier 2, tier 3
Hot Pot – A Growing, Mainstream Category
152
318
0
50
100
150
200
250
300
350
2007 Today
US $ Billion
Data source: catering service sales data sourced on National Bureau of Statistics of China and with 2007-2009 data calculated Hotpot category sales data sourced on industry report
China Catering Service $300 Bn+ Industry
Hot Pot Category
• Catering Share: 8% - 10%
2x
Little Sheep: A Strong Foundation
• Founded in 1999 • First store in Baotou, Inner Mongolia • IPO in HK in 2008 • Cover 140+ cities in China, plus HK, Macau • 27 stores in the US, Canada, Japan
350
~450
First unit open 1999
Units
Base: P3M Hotpot users Data source: BIT survey on Jan 2012 in 12 cities
(Base=1000) Top of Mind Brand
Awareness
P3M Visit Brand
Most Often Brand
Most Favorite Brand
% % % %
Little Sheep 32 42 29 33
Hai Di Lao 8 14 8 10
Xiabu Xiabu 4 6 4 2
Dong Lai Shun 2 6 1 3
Category Leading Brand Equity
A Bright Future: Extend the Brand
• Build Big Brand… using Yum! China signature approach – Broaden menu – Satisfy consumer changing needs – Optimize service model
• Proven track record extending big brands
– KFC “Rooted in China, Integrated in life” – Pizza Hut Dine In “Complete Western casual dining
experience” – Pizza Hut Home Service: Not just pizza delivery, but home meal replacement
A Bright Future –Signature Menu
• Hot pot expert: with secret recipe • Lamb expert: Majority sourced from Inner Mongolia • Variety: 120+ dishes - meat, seafood, vegetables, starches
A Bright Future – New Service model
A Bright Future: Even Stronger Business Model
• Leverage Yum! China’s world-class restaurant support know-how – Operations
– Development
– Food innovation
– SCM
– Logistics
Integration Underway: Synergies, Enhanced Capability
A Bright Future
• Turning the most successful Hot Pot restaurant brand in the world… …into a significant part of Yum! China’s
business portfolio
Little Sheep
Building Competitive Advantage Across China
Don Miller
China: Big Opportunity for Restaurant Industry
• GDP/Personal income growth remain among best globally
• Middle class large and growing
• Government efforts to raise living standard for low income
• Government creating new retail opportunities thru designated development zones
• Restaurant chain market share remains low
• High purchase intent for world-class brands with high standards
Profitable Development, New Breakthrough Pace
Mainland China New Restaurant Openings
New step change 700 in 2012
New Breakthrough Founded on Proven Capability
• Development team on the ground in every province (except Tibet)
• 1,000+ Development professionals
• Extensive people development programs
• Advanced technical know-how and strong execution
• Database of 770+ cities
• Rich catalog of learning 4,700+ new build decisions – 3,900+ data points on QSR
– ~700 data points on Casual Dining
Government Plan in Next 5 Years 20+ New City Clusters
Significant Growth Opportunity Remains
300+ million today
Growing Consuming Class
Shopping Malls, Hypermarts
Rapid Retail Sector
Growth
Airports, Railway, Mass Transit
New Transport
Infrastructure
Category-Leading, Powerhouse Brands
Penetration far beyond top tier, coastal cities
KFC - Strong Unit Economics
Today Average Unit Volume ($ million)
$1.4 - $1.5
Average Transactions (‘000) 340+
Cash Margin 20% - 22%
Cash Investment ($000) $560
KFC – New Units
Strong Returns – Sales 2.5X Investment
Note: FX rate US$ = 6.3454 RMB
KFC: Unit %, Tier 3 & Below
KFC – A Balanced Mix of Tiers, Large and Small
Today, Half of Units in Lower Tier Cities
Pizza Hut Dine-In - Strong Unit Economics
Pizza Hut Dine-In – New Units
Strong Returns – Sales Are 2.5X Investment
Today Average Unit Volume ($ million)
$1.4 - $1.5
Average Transactions (‘000) 70+
Cash Margin 23% - 26%
Cash Investment ($000) $570
Note: FX rate US$ = 6.3454 RMB
Pizza Hut Re-accelerating Pace in Lower Tiers
Disciplined approach: Adjusting pace as necessary
Pizza Hut: Unit %, Tier 3 & Below
Pizza Hut – Also Growing Well Beyond Top Tier
Unrivaled Strength Entering New Cities
• Strong consumer acceptance in new cities – Despite lower level of disposable income
• Direct competition in new cities virtually non-existent
• Capability ready day one - Operations, SCM, logistics
• Relatively lower costs versus top tier – labor, rental
• New city unit economics best across our portfolio
Robust New City Pace
200+ New Cities, last 3 years KFC & Pizza Hut combined
100 in Past 12 months
黑
吉
皖
湘
豫
蒙
贵
苏
琼
云
YiNing T5
YanAn T4
XiChang T4
LouDi T4
YinKou T3
LuanNan T5
ChuZhou T4
LeCong T5
QingXian T4
LingXiang T5
Entering New Cities, Both Coastal and Inland
KFC – New Entry City Unit Economics
Today Average Unit Volume ($ million)
$1.4 - 1.5
Average Transactions (‘000) 300+
Cash Margin 25%+
Cash Investment ($000) $560
New Cities last 12 months
Lower cost structure – Labor, Rent Note: FX rate US$ = 6.3454 RMB Sales data used for Y12 P7 YTD
Pizza Hut Dine-In – New Entry City Unit Economics
New Cities last 12 months
Today Average Unit Volume ($ million)
$1.5 - $1.6
Average Transactions (‘000) 70+
Cash Margin 29%+
Cash Investment ($000) $570
Note: FX rate US$ = 6.3454 RMB Sales data used for Y12 P7 YTD
Lower cost structure – Labor, Rent
Building Know-How in New Business Models
• Transportation sites
• Delivery (to home or office)
• Drive-thru
• Late night (24 Hours)
• Hypermarkets, shopping malls
24 Hours
Taking our brands to an increasing variety of trade zones
Discipline and Rigor For Every Unit Decision
• Continuous market mapping and trade zone identification
• Detailed site selection process, one unit at a time
• Disciplined multi-step project approval
• Cross-functional governance for final new unit approval
• Rigorous construction and opening process ensure standards
• Feedback from post-opening analysis, every store
Record Milestones in 2012
5,000+ Units by YE
700 New Units
+ 300 Remodels
1,000 New Assets
Summary
• Development remains a key growth driver
• World class Development capability
• Taking our Brands across all of China
• Not limited by our own resources