Yum! China Investor Conference September 8, 2011 Shanghai
WELCOME! Tim Jerzyk SVP, Investor Relations
Agenda Vincent Huang, VP Candy Chan, VP Mark Chu, President & COO (Yum! China) Joaquin Pelaez, Chief Support Officer Lily Hsieh, CFO Sam Su, Chairman & CEO (Yum! China) KFC Marketing Pizza Hut Marketing East Dawning Support Capability Development Summary/Q&A
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 which may cause actual results to differ materially are subject to the safe harbor statement posted on our Web site: www.yum.com.
Building Leading Brands KFC Vincent Huang
KFC s First Days -- in Shanghai KFC Menu Signature, Heritage Food 1989 KFC Convenience Available at a store near you
KFC: #1 QSR brand in China A series of strategic brand building blocks over the years Today Daypart / Service extensions (e.g. Delivery, 24 hours) 5+ Years ago New Fast Food (vs. conventional model) 10+ Years ago Position brand as Rooted in China Day One KFC heritage (fried chicken)
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
KFC Today: Signature products in every category 1987 Today Category Chicken Sandwich Twister/wrap Rice Snacks Sides Desserts Beverages Breakfast Signature Products Colonel s Original Recipe Zinger New Orleans roasted burger shrimp burger dragon twister chicken & mushroom rice hot wing New Orleans wing popcorn chicken veggie soup egg tart 9 lives juice lemonade coffee float milk tea with red bean pastry puff sandwich congee dough stick soy milk New Fast Food
Gradually broaden appeal with meaningful menu variety Roasted Non-poultry Destination Local beverages taste
KFC offers more variety on main meal items Chicken burger KFC Top Competition burger twister rice
KFC has more choices in breakfast burger KFC puff pastry sandwich Top Competition sandwich congee
Offer balanced choice and encourage healthy eating Abundant choices of salad, soup, and juice Consumer education on healthy eating Sponsorship for studies on health and nutrition 13
Promote regular exercise with grass-root sport events Teens 3-on-3 Basketball Leagues Good Morning Program Teens Fitness Dance Program 200,000 participants from 480 cities in 2010 1.5 million students joined from 3,600 schools in 2010
Winning over competition on New Fast Food image (Top 2 box %) KFC Top Competitor chicken expert 61* 42 food taste 62* 53 menu variety 60* 50 innovative 57* 44 balanced choice 48* 42 promote regular exercise 45* 39 rooted in China 58* 41 Data source: Brand Image Tracking in 47 cities, 2011 Q2 *Significant difference 95% confidence level
Gap widening versus competition Store Count Comparison KFC McD
Recent key initiatives sustain our brand growth Food innovation Daypart extension Improve affordability Our future platform for growth
Continuous food innovation Burger Texas BBQ flavored Roasted chicken burger South African periperi flavored Roasted chicken burger Chinese Sichuan flavored Double mighty burger Burger with ham & egg Burger with pork sausage
Continuous food innovation Rice, Soups The popular Chinese eating habit a balanced meal Black pepper beef strip & mushroom Roasted thigh fillet in New Orleans flavor Chicken fillet & mushroom Minestrone Chinese sour & spicy soup
Continuous food innovation Snacks Fried shrimp wrapped with crispy noodle Fried crab meat stuffed in shell Roasted drum stick with Bailey flavor
Continuous food innovation Beverages, Desserts 9-Lives Blended Juice Irish coffee float with Sundae Milk Tea with Red bean stuff Megranate juice with Agar-agar Strawberry Sundae Cranberry Sundae Sundae topped With mixed Q Beans
Leverage asset and grow sales from all dayparts Breakfast Weekday lunch Afternoon break Dinner 24 Hours (overnight) Delivery
Daypart / service extensions generate incremental sales Increasing store coverage and sales year began system unit coverage Breakfast 2002 94% 24H/overnight 2009 47% Delivery 2008 50%
KFC Breakfast: High Quality, Nutritious, Affordable Busier life style, more and more people eat breakfast out of home Most people spend 3 to 5 yuan KFC 6 yuan breakfast value combos meet consumer needs well
Becoming a preferred place for weekday lunch Different eating habits vs. dinner Shorter meal time around 30-40 min Less spending vs. dinner Offer both Western and Chinese choices KFC 15 yuan weekday lunch Value combos effective in expanding customer base
A convenient and value for money choice for afternoon tea time Afternoon tea time habit is becoming more popular Coffee shops, bakery & retail, casual dinning KFC Buy your own tea sets at 9 yuan received very positive response
Summary The #1 QSR brand in China Positioning as New Fast Food A preferred brand deeply rooted in China Superior brand image Growing faster than competition Well penetrated into lower tier cities Recent key initiatives sustain brand growth Continuous food innovation Extending dayparts and services Value initiatives to improve affordability
Pizza Hut Dine-in Pizza Hut Home Delivery Candy Chan
China is in an age of explosive growth But unlike ten years ago, the speed of growth is not the most important thing anymore.
And the Chinese consumer is changing Affordable casual western dining is the immediate fulfillment New taste Aspirational urban lifestyles Proof that I know how to appreciate life, and I CAN.
The unique position of Pizza Hut Dine-in in China The intimate PORTAL to western fare and lifestyle for this generation and the next
The Western Restaurant right next door for China 560+ stores 120+ cities 29 provinces
The First Taste of a sophisticated urban lifestyle
Pizza Hut provides Best WCDR Menu New taste and cultural sensations: Extensive menu more than pizza
New taste and cultural sensations
Wide range of beverage and desserts
Pizza Hut is leading the Tea Time business
Multiple Years of SS TC Growth
Outstanding service, ahead of competitors
Pizza Hut Loved by people of all ages and walks of life
Brand Equity Stronger Than Ever ta Pizza Hut Dine In -- Consumer Data 2009 2011 Q1+Q2 Attributes PHDI PHDI Overall taste 64 78 Variety 61 75 Innovative 59 76 Service 72 78 CDR leading Brand 51 75 Most Favorite Brand 52 75 Most Trusted Brand 71 82
The Bridge to Western food and urban lifestyle
Pizza Hut Home Delivery Candy Chan
The Best Delivery Brand PHHS SS TC Index 118 117 114 FY09 FY10 FY11YTDP9 120+ stores 12 cities
Friendly and reliable ordering service www. 必胜宅急送. com
Professional rider delivering good quality food
Variety at affordable prices
Chinese food to better serve consumers need
More affordable for lunch and tea time
Brand Equity becoming stronger Pizza Hut Home Delivery Consumer Data 2009 PHHD 2011 Q1+Q2 PHHD Based on Brand Awarer 3447 860 Favorite Delivery Brand 69 70 Leading Delivery Brand 74 73 Good Taste 65 75 Menu Variety 72 75 Food Innovation 69 70 Delivery Speed 70 71 Food Temperature 82 80 Value For Money 47 59
Pizza Hut Home Delivery The Best Delivery Brand Thank You!
East Dawning Mark Chu
Chinese Foodservice a Huge, Growing Category Traffic share % Huge opportunity beyond Western QSR & CDR. Growth% Traditional Full Service Rest. 40 36 8.0% Casual Dining Rest. 2 3 43.6% CQSR 19 22 32.6% WQSR Vendors Other * 7 6 19 18 13 15 18.0% 17.5% 36.1% 2010 1 st Half 2011 1 st Half *Others includes other QSR, bakery/coffee shop, retail and other outlets
Accelerated Chinese QSR Growth Government s effort on urbanization Urban lifestyles increasingly busier than before Newer generations trained on Western QSR Chinese food choices out of pace with changing needs Local and unbranded, no quick solution, lack all-daypart service Higher frequency on comfort food Healthy, balanced in nature
East Dawning Our Vision The choice of Chinese QSR Build KFC-like business model for Chinese food Serving all day parts Mainstream, serving broad consumer target Our famous product innovation and varieties Price range to satisfy all occasions Unmatched operations standards
East Dawning Consistent, Strong Progress Strong menu innovation Attractive value offerings Improving consumer scores Improving business model, consistent double-digit transaction growth
East Dawning Strong Menu innovation Menu built for broad appeal Serving all day parts Breakfast Lunch Dinner Afternoon (drinks / snacks / desserts) Food acceptance by regional palate (tested)
East Dawning Product offered for broad appeal Breakfast 2010 2010 2011 Soy Bean Milk Congee Rice Roll Noodles Pocket Sandwich Today, Offering Over 30 Breakfast Choices
East Dawning Product offered for broad appeal Lunch / Dinner (Protein variety) 2009 2009 2010 2010 Dozen Shrimp Noodles Pork Rice Chicken Rice 15 Main Meal Choices Beijing Style Noodle Beef Rice
East Dawning Product offered for broad appeal Snacks 2010 2011 2011 Steamed Dumpling Fried Shrimp Dumpling Roasted Wing Popcorn Clam 6 Main Stream Snack Choices
East Dawning Product offered for broad appeal Drink / Dessert 2009 2009 2009 2010 Egg Tart Milk Tea Crushed Ice Mango Pudding Black Tea Green Tea 15 Drink / Dessert Choices
East Dawning Attractive Value offerings Breakfast RMB 6 Breakfast combos Delicious Chinese Breakfast choices 11 varieties in all Winning on taste and value Fast growing daypart
East Dawning Attractive Value offerings Non-meal daypart Afternoon tea time After dinner hours RMB 7 for 2 items Choose any 2: snacks, drinks, desserts 30 possible combinations in all
East Dawning Highest Unaided Awareness Among CQSR Base = SH P3M CQSR users aged 16-49 (n=604) East Dawning (a) % J-Kungfu (b) % Yonghedawang (c) % KFC n=150 Store No. 19 24 41 239 TTL Unaided 33c 20 17 93 TTL Awareness 89b 76 92b 100
East Dawning Strong appeal to younger generation Chinese youth attracted to Western QSR Still lack Chinese restaurant brand that caters to their needs Achieving new breakthroughs with youth Top of mind Imagery Spontaneous recall
East Dawning Asset Contemporary assets Ambience to enjoy delicious and affordable Chinese food
East Dawning Improving business model Central kitchen opened Simplified restaurant BOH Kitchen space reduction Improving economics via asset leverage Double-digit SSS transaction growth several years in a row
East Dawning Looking Ahead Building leading Great Food Taste positioning via product innovation Grow all day parts including non-meal to build All Day business model Build a KFC-like operation system and team to support expansion Continue work on unit economics Explore lower tier city with cost advantages Expand with good discipline
Building Dominant Brands in China Strong Operations The Foundation of Our Brand Building Great Operations starts with people capability Every store a training store Operations a key enabler for growth New Products, New Brands
Support Capability Joaquin Pelaez
World-class infrastructure and long-term competitive advantage Unmatched Food Innovation Capabilities World Class Distribution Business Unequaled Talent & Experience Highly Developed Supply Chain Management
Food Innovation Capabilities
Innovation is key to our Brands success Chinese consumers demand and expect innovation Innovation is approached with a Future Back perspective with a step change view Innovation is anchored on our New Fast Food Model Immersions Ideation Concepts & Prototype NPC review all concepts & prototypes Focus Groups Screener Innovation is Everyone s Job in the China organization Deep skills developed to support all our Brands that balance the right brain with left brain approach
Our Innovation Model supported by world class infrastructure Local insights driven innovation with strong support from consumer research and product groups BOH engineering know-how capabilities Culinary chef team to help improve food style and quality presentation Strong integration with the Supply Chain group
Our pipeline is full and we are at record pace New Products Launched 160 120 80 40 0 2005 2006 2007 2008 2009 2010 KFC PH PHHS ED
Highly developed Supply Chain Management
Our Sourcing Philosophy Multiple qualified suppliers Collaboration between SCM, R&D, Food Safety and QA Capacity to support growth Efficient market to drive competition Sustainable, Safe and Reliable Supply Best Total Cost Efficient Process Drive innovation Review status for every SKU Prioritize development of new suppliers with R&D and QA Ensure sufficient capacity to support 3 to 5 years store and transaction growth Fair, transparent competition to reward most competitive supplier
Support Group Ensures Organizational Alignment SCM- System MFG FSO YLC Chief Support Office SCM R & D QA EN Boards & Committee, Annual Operating Plan, Financial Targets Alignment with Business Strategy Brand Teams Marketing Finance Other Functions
China SCM Guiding Principle Be the best customer Develop suppliers & capacity Fair, ethical and equitable Orderly competition Supply side expert Proactive brand builder Adept at innovation Sweet spot management
Strong Food Safety System Capability
Strong Food Safety System Capability Supplier QA and field QA to ensure quality compliance to specifications Food Safety office to address all food safety and regulatory issues, and work closely with government authorities and industry association Food Safety Expert Committee leading food safety experts from China assist and advise us on all food safety related issues Strong analytical partnership with Shanghai FDA testing lab to double check our ingredients and raw material
World Class Distribution System
One of the Biggest food supply chain network and the Best Cold Chain in China today Deliver to 4,200+ restaurants for everything from chicken to pizza dough to napkins Receiving from more than 500 mostly Chinese suppliers Managing 17 logistics facilities with 24 hours operations Operating 1 national Consolidation Center in Shanghai Manage more than 400 refrigerated trucks that shuttle 50+ million km/year between our suppliers and restaurants Distributing 78+MM cases/year to 710+ cities Adding 500+ new restaurants every year
YUM self owned integrated supply chain network spread across China
World-class logistics operations End To End Perspective Stable and highly efficient logistic system a critical step for food safety From inventory planning to storage & handling to distribution Food Safety & Quality Approved CIQ supervised importation warehouse Quality inspection process starting from suppliers to restaurants Facility and transportation security
World-class logistics operations Multi-Temperature Distribution Frozen, refrigerated, dry, and fresh-baked goods Operational Excellence Qualified state Pilot Logistics Enterprise ISO9001:2000 certified
World-class logistics operations Supervision Stock control Stock move Fill stock Stock sorting Shipment Load Move in Distribute Reception
Logistics Center functions Customer Services Inventory Ordering Warehousing Transportation
Drive for Excellence Drive for Excellence Purpose Weld a cohesive team by structuring LC visit from different aspects Frequency--One LC per month Recognize Yum! Desired behaviors Go deep Yum! culture & value BSC Review & Coaching Review level of people capability
谢谢!
High-Return Development Lily Hsieh
Profitable Development Opportunity in China China strong economic growth continues Yum! expanding multiple category-leading brands Unit economics generate excellent returns New growth opportunities geographically Gap versus competition continues to widen Unparalleled development capability
Profitable Yum! Development, Pace Quickening # of Yum! China restaurants Today 4,000 + 3,000 2,000 1,000 1987 1 st Unit 15 years 4 yrs 2 yrs 2 yrs
Rapid Rise of China Economy To Continue GDP Per Capita (USD) 2020 ~10,000 2010 ~4,500 1989 <450
China: a Big Growth Opportunity for Restaurant Industry GDP/Personal income growth among top globally Large and growing middle class Government plan to raise living standard for low income Restaurant chain market share low (in contrast to U.S.) High purchase intent for western brands New trade area opportunities Alliances with major retail players national & regional Government led transport infrastructure Metropolitan areas hub cities
Continued Urbanization Part of Government L/T Plan Planned Urbanization Transport networks New city hubs Economic centers Designated City Clusters Development Zone Source: National Development and Reform Commission (NDRC). June 2011
Unrivaled Development Resources & Know How Today, 750+ Development professionals 300+ added past five years Team on the ground in every province (except Tibet) Extensive people development programs Advanced technical know-how and strong execution Database of 700+ cities 4,000+ new build decisions provide rich catalog of learning 3,500 trade area data points on QSR 500 data points on Casual Dining
KFC - Strong New Unit Economics Mainland China KFC Traditional Units Today Average Unit Volume ($ million) $1.2~$1.3 Average Transactions ( 000) 300+ Cash Margin 25%+ Cash Investment ($000) $550 Strong Return Sales Are 2X Investment Note: FX rate US$ = 6.4956 RMB
KFC Brand Strong in Lower Tiers Strong consumer acceptance in lower tier cities Despite lower level of disposable income Unit economics at least as good as top tier cities Relatively lower costs versus top tier labor, rental New units typically cash flow positive in first year
KFC s Strength Goes Well Beyond Big Cities Number of Cities with KFC 300+ new cities 680 T3 & Below 364 T1 & 2 30 30 2005 5 Years 2010
Development Balanced Across Cities Large & Small KFC New Builds -- Tier Cities Tier 3 & Below 48% 52% Tier 1,2
Pizza Hut Dine-In - Strong New Unit Economics Pizza Hut Dine-In Units Today Average Unit Volume ($ million) $1.1~$1.2 Average Transactions ( 000) 60+ Cash Margin 25%+ Cash Investment ($000) $550 Strong Returns Sales Are 2X Investment Note: FX rate US$ = 6.4956 RMB
Pizza Hut Also Going Beyond Big Cities Number of Cities with Pizza Hut 70+ new cities 101 T3 & Below T1 & 2 28 27 30 2005 5 Years 2010
Tier 3 City Example: Wuhu Wuhu Population -- 2.3 million 5 Years ago Today GDP (US$) $0.6 billion $1.7 billion Disposable income per capita $1,481 $2,881 Retail sales - consumer goods $293 million $677 million Note: FX rate US$ = 6.4956 RMB
Tier 3 City Example: Wuhu Wuhu 5 years ago Today KFC Units Pizza Hut Units - Sales (US$) $2 million $11 million+ Profit (US$) < $1 million $ 3 million Note: FX rate US$ = 6.4956 RMB
Continued Discipline in Our Rapid Expansion Relieve pending capacity constraints with adjacent new units Continually monitor, proactive to optimize service levels Helps solve queue wait times New unit impact built into our economic model
Rigor Every Step of the Way Market mapping and trade zone identification Site selection and acquisition Project approval Construction and opening Post opening analysis Feedback loop, huge catalog of learning
Transportation Network Expanding T Transport Network High-speed rail (4x4) Highways Airports
Giving Rise to Non-traditional Units Bringing our Brands to wider variety of destinations 4 years ago Today Railway station 29 81 ~3x Bus station 9 34 ~ 4x Airport 11 32 ~ 3x
Contemporary Assets to Complement Our Brands Maintain contemporary assets that fit with our brands QSR: Convenient, accessible, dine-in or take-away Casual Dining: Destination, ambience, group gathering Asset designs adapted to meet variety of trade zones Transport, mall, drive-thru Reinvesting in our estate with discipline
Asset Renewal: Taking a page from others 1989 Today
1987 Asset Renewal: Updated Assets China s First Ever KFC - Beijing Today
Asset Renewal: Contemporary Interiors Contemporary Dated
Asset Management: New Menu Boards Before After
Summary Development continues to be a key growth driver Helped by strong returns World class Development capability Team/disciplined process/database big competitive advantages Not limited by our own resources