- Earnings call transcript Q3 2022

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Operator

Thank you for standing by, and welcome to the Yum China Third Quarter 2022 Earnings Conference Call. [Operator Instructions]. I would now like to hand the conference over to Ms. Michelle Shen, Director of Investor Relations. Please go ahead.

Michelle Shen

Ashley. you, Thank Hello, everyone. China's Yum Quarter Earnings joining XXXX Third Call. for Conference you Thank Ms. are call today's our On CEO, Joey CFO, and Wat; our Mr. Andy Yeung.

on the We are experience please reconnect. during we today. locations as remain call, dialing in any from technical different the we line If difficulties

I'd events get remind to and and uncertainties. started, earnings which are you forward-looking Xmaterials contain Before statements, our subject call like we that investor to future

cautionary All statements results with Our also our in conjunction materially forward-looking statements. statements measures. financial differ forward-looking in included should certain may includes and actual with the release these the in earnings factors call the considered be from non-GAAP SEC. risk This filings our

You an quarter. Andy and includes performance Today's performance should Reconciliation third call measures. is update in in the sections. the cover then earnings of and GAAP detail. Joey will release. outlook regarding GAAP greater X carefully our provide non-GAAP included financial the consider comparable will measures in our

Finally, we'll open the call to questions.

the the call for the of find a activities. latest information our website. IR stores, showcases You this on that you financial offers PowerPoint on can prepared Also and presentation, contains video find and quarter, can our webcast site, which operational we and the

call the CEO to Now like to China. Joey? I would turn Ms. Wat, Yum Joey over of

Joey Wat

our business thank growth, top operate fundamentals. both to Thank adapting We you, line. and line the strengthening learning, environment fantastic ability with Michelle. uncertain and Hello, us you demonstrates today. joining This in for and quarter everyone, in achieved outstanding by third bottom an performance

our negative agility During helped resilient tougher us impacts. and model the times, business manage

sales cost formula captured XXXX profit than capabilities, summer and sales our in in-house year-over-year digital and winning supply calmer relatively includes elements even solid this our peak and and teamwork chain, year-over-year recovered opportunities Key delivery industry-leading restructuring execution. System $XXX levels. tailor-made makes in possible. higher Great surged to XX% with the during Operating million, X% were we August, growth. season. conditions COVID As July

KFC to Pizza move Let's and Hut.

We to presence the years, satisfy new costs. This chain, and beef products scale, by supply established past cravings. new pizza. and powerful a strong innovating such in chicken X as optimizing securing production at customer streamlining have supply durian whole enabled was have been categories In we by burger,

Let every stories. extra meaningful we XXXX, sold rapidly them market At success XXX me about May share beef in second. to over our burgers our Since permanent juicy That's KFC, beef million share. burgers menu captured X burgers. the adding have

by For in Wagyu taste from to generate love expect signed a money. burgers cater X [Foreign Customers Northeastern We multiyear year, for secure locally great source enterprise. the ovens. burgers. patty super our for CNY juicy China our using to and We our beef, value to Chinese to their have and contract making close taste we full from the beef billion sales specialty Language],

Our for an juicy product, use also has size meal on Pizza And become take-home have has chickens. we popularity sold its versatile for over and quickly a last whole a Year-to-date, Whole million consumption. since breed chicken chicken is gained year. dine-in different launch We XX both whole well. good smaller Hut, sharing good of it's individual favorite. at At for as pizza table perfect a that dining is particularly cost with customer and better home the durian chicken juicy. the late

durian Xth pizza. In a fact, we was every during QX promotion, sold pizza

lovers. of popular types Last durian about quarter, increasingly Language], boost on event, to every with a be Language]. trio a generating especially Since have campaign, are been campaign not compromise significant [Foreign Thursday in the value-conscious, including food, widely offering [Foreign yet amazing XXXX, limited-time durian value. Our we The we Customers delicious latest Thursday. at phenomenal sales Crazy innovation continues KFC's we durian was pizza, popular quality. shared do with X

Thursday Crazy Our these Many creating customers create of the huge hype theme. content using us. postings witty for and playful gone social viral, has media

Save meat perception widens weekend our value families is successful themed new The We to Language]. a our abundant try buy average. select gifts. exclusive for kids, Language]. stores, sold Now to partnership. burger More can I'm ticket more, Apart appealing product and launched for popular [Foreign Sunday preparation to items. also XXX,XXX with decorated for restaurant buzz. activity in Buy Genshin good We transformed generated XX% from and In added super Language], have introduced entry-price this has we combo to Pizza while In when process bigger highest Hut for September, and brands and lower-tier This social off X into recorded up APP momentum our campaign breast we And a [Foreign successful updated to for we our get meals. the campaign customers. to a promotion [Foreign built in partnering offered This step Super This keep over just chicken its gamers, breast looking ever. the more our forward social is We the burger. More, with great extra X value, they minutes, golden hubs crews a stores events wonderful fried extraordinary customers make Impact, game, RPG choices traffic discount drive an protecting first we burger, July. breast juicy Customers with chicken tender. cities. youthful

digital move Let's and to delivery.

mix ecosystem coming We and off-premise delivery of leading were Empowered dedicated make year-over-year quarter have sales are XX%. with delivery our fast. over our capabilities, X. fundamentally sales enhancing been digital takeaway, growing our reached in. stronger. XX% delivery Delivery riders XX% by love business sales Customers Together in and grew to and digital

impact so only customers serve model and off-premise to but off-premise protect capture cushion situation. demand in closure both us it sales not sales the to store fluid due profit also conditions. because to XX% ability fundamental effectively business This our COVID enabled to Our our despite really is

by account launched the delivery Smart recently, [Foreign daypart, to Delivery, customers more We have Most of adjust dynamically nearby we store and into been hours system helped upgraded for flexibility maximizing technology. using taking each more operating serve stores. efficiently. delivery The coverage Language], us AI coverage

quarter key subscriptions. our serve points two, sold with reached touch program as our XXXX, capabilities milestones Our in X, ecosystem: cumulatively, over X and XXX million loyalty members; customers. privilege since In million digital reached KFC one, XXX digital we

privilege Our offer money, been great value for driving subscriptions and in spending. have and frequency too, expected

arranges quarter. digital more from Digital account capabilities table-side have in and in X Our efficiency. to to crucial improve Hut's the members just of sequencing ordering efficiency its sales helps experience, labor XXXX. quarter Pizza sales [Foreign are to than grown streamlining XXXX customer launch restaurant frees wage XX% optimize and This also enhance system in to time. Language], exponentially service. we To crew customer This orders in mitigate quarter. up wait the intelligent shorten digital at order introduced inflation for KFC, mobile orders automatically X% third rising in-store XX% at

coffee, to third building, on and Lavazza is move strategy. store making its let's delivery pillars along expanded Now capabilities include our menu engine. and digital brand solid progress X-pillar upgrades, development. growth The clear

expertise. Here's how century-long we a built coffee this out. Branding. Lavazza reputation has for

We experience. an coffee as leading Italian will upgrade. Italian Menu the its to continue brand authentic brand, offering positioning accentuate

premium drink single-origin We Language]. flatbread egg including something or our unique with products, offerings like stuffing, are food more with Italian and Kafa an which beans meat is Chinese broadening and tigelle, Italian [Foreign

fragrant latte. as a and delivery. and customers. the and even received many Chinese used lovely, new latte, trend These Osmanthus, [Foreign products capture by coffee latte, products [Foreign localized such We coconut latest been Digital is well Language], very also osmanthus in flower desserts. launched have our Language]

sales fundamentals and improve program are Store to Delivery building in mix traffic. development. online attract digital XX% our of membership almost We experience X. and quarter customer reached

Now have further growth. with XX our we the store for models, stores, way refined paving

confident We in do market. to We with These learning our grow & right but every this We coffee China. partnership wind brand at COFFii with lot COFFii work time. time. opportunities Lavazza growing Lavazza to the In we have We business so made decided want Group, learned take in build selection to progress us great site invaluable operation a branding successful & step far, a This with from close the remains. things are Joy. capture Joy to help and will more. experience to operations down right,

positioning: with on our our and innovations authentic years and market have and our value convenience; stronger. summarize, To the business work hard made we coffee. business Coffee, Going on Italian distinct coffee will focused forward, grow focused pandemic Lavazza, X fundamentally K in

We are further team's in unlock adversity ability our confident to opportunities and find potential China. in in

our call over We will stands will long-term to our execute framework and that, position resiliency, which strengthen competitive Andy. to capture and growth. growth Andy? I the to turn continue With moat, for RGM,

Andy Yeung

Thank and hello, you, everyone. Joey,

the level sales mainly a recovered System the August, Eastern remains a to growth sales, highest COVID same in sales sales which to sequential performance August expectations. the me in detail. exceeding and We year-over-year heavily through We year restaurant impacted July timing saw margin From perspective, the XXXX, prior new in and due and on compelling go was third August through the China. products This ago. by we driving Let above saw recovery volatile the Delta Same-store well XXXX, same-store impacted value. quarter In to and outbreaks. focused frequent returned in a year. trend quarter. was our variant lapping now since outbreak the sequential improvement third

in measures tightened were Around declined or temporarily September, August. and areas. in COVID-related limited sales services around July However, closed stores on stores September compared XXX to average as same-store provided health mid-single digits in XXX many in

productivity we side, opportunities, cost identify structure. continue labor margin and cost-saving to drive our the On rebase

the foreign exchange. noted financials Let otherwise, me our the Unless control through go changes of before cost effect initiatives. percentage all are and

of Foreign quarter. in impact exchange the had a negative X% approximately

KFC. due average same-store By consolidation Third System to temporary average were Abundant same-store and sales year's translation. sales flat increased Ticket grew traffic prior constant currency, than in store was increase the the in and XX% dine-in. foreign currency Same-store exchange of mix, ticket has value billion X%. at units new the grew total reported of The partially were mainly due XX%. margin offset volume. contribution utility in revenue due a X% to sales temporary grew closure relief level. year-over-year quarter a Bucket flat delivery to higher revenues same-store while with partially higher commodity, has was than year-over-year. also Rider Same-store than lower XX.X%, and Family traffic X% was mix, also Hut sales points ticket. offset which leveraging. Buy by High of were to total brand, ticket to year-over-year. by like flat. dine-in In These XXX cost which Hangzhou X% the campaigns, More, KFC $X.XX offset sales and delivery increase productivity, and by management. higher high strongly grew by costs. Save delivery average was Restaurant last was basis Pizza wage year. higher contributed ticket average grew to year-over-year More discount increased due inflation X%, This

team lower was Cost through more quick and XXX to structure, for on diligently so to have money. drive cost improve worked allowed effective next of let Our the XX.X%, efficient than be That line most basis actions sales points me item our to traffic. expense taken. while go year. the us campaign value cost last We focused each ensuring we

percentage three, sharing lapping XXXX across impact of wage commodity by, X%. cost from delivery quarter one, outbreak. mix due variant lower ordering year. There increase digital of mainly Occupancy last partially than in We year. XX.X%, than rider mainly as automate Delta XXX also scheduling were a labor points tools offset was productivity leveraging $XX third expense optimizing and stores; management. due low improvement levels was We lower labor to improved and managed Cost to XXX cost-saving and price sales restaurant sales. staff was the digits. labor in basis relief to million. single hiring; by These rental caused recognized also initiatives due digital sudden to was of the This productivity such and This higher lower to inventory our others as two, XX%, by and last inflation management and higher in was inflation in a of processes, teams basis points and staffing

last In advertising. conversions due expenses net and economics; mainly expenses KFC brands. benefit consolidation Kong. KFC store rental were primary of one, Rental Operating Hangzhou XX% negotiating incremental better million, and XX% due increased listing It store the of lower our quarter The Hangzhou which the net associated $XXX consolidation was assets will lower emerging onetime There from pulled rental a expenses, G&A of a the format XXX amortization on of XX.X%, incurred roughly marketing contribution consolidation, operating and $XX same the to, Hangzhou in line, year-over-year, million intangible the resulting was relief back expenses this also year X% addition, compensation through variable loss from we million; expenses more two, components. due operating quarter. Hong was was year. to quarter. than with quarter. points rate. acquired, includes increase with of tax It Meituan JVs mark-to-market were $XX investment increased three, run in the investment and upfront total year-over-year. profit lower with equity relief smaller last This and Prior basis lower net Below not tax, from The per was income the we in higher profit to effective a period in than in rate loss in year. was in on consolidation. tax subject KFC to equity to end the

tax income $X.XX, in negatively rate a Diluted increase EPS $X.XX. the double million, EPS than impacted more come year $XXX our The XX% Meituan We mark-to-market period. loss to XXs. expect effective was low full by prior year was Net in around year-over-year. the

We our year-to-date. have slowed and to primary We by sheet, returned the Helped will balance to disciplined strategy. execute temporarily quarter allocation strong around share we in shareholders in third continue $XXX to dual cash the prior repurchase repurchases dividends million conversion. capital balanced our and

Our of third cash $XXX free the operating quarter, generated In strong. cash we million. flow flow remains

stores the Let Downward limited remains we of inflationary average that consumer to October. environment The quarter us at challenging. or on are skewed October, pressures and measure In preventive temporarily offered COVID-related health were take have look external cautious the closed a face. environment happenings economy, also services. around our in X,XXX fourth spending outlook. on continue

third in level. Our same-store sales the below quarter pre-pandemic were the

sales of and is that, of will in recovery quarter full and terms everyone would remind and like quarter profit. path also sales I to lower remain take -- time sales fourth a seasonally expect nonlinear. same-store one, We of a to uneven the

impact appreciation fourth $XX So there in Two, of service profitability. austerity and the against balance of sales the the level. on unlikely affect volatilities reduction around we Three, repeat could have most our may quarter, a to third back relief more And dollar temporary numbers. was is dial potent which in measures quarter. four, reported continue to negatively U.S. cost to the yuan million some

and year-to-date. strong. gives opened new quarter, for confidence lower Store relentlessly healthy optimizing years upfront store headwinds, for XXX continued despite resumed third the store further Now in performance net we new stores expansion. payback the with our store Hut. of pace years us be at remained By This openings for economics strong X to investment, X KFC and Pizza

We will profitable approach, and at store opening a disciplined continue systematic new to implement robust opening and our pace. stores

stores. to in peak confident quarter new store As for target the season the net X,XXX reaching is we full the fourth usually are of X,XXX openings, year

our Lastly, became let me in touch along It XX listing inclusion primary October on Stock in with Hong our conversion Southbound Connect. Kong. on effective

and base on access shareholder our liquidity. We additional expect investors, will provide new increase status the to

to So will to years. the and we're uncertainties in continue to to volatilities X round challenging, normal. COVID through up, conditions adapting navigate but we the past remain have new learned

execution. effectively new and demonstrated we When business fundamentals, third resilient results. control to model the agility allow Our again cost able pivot and and once is to are solid capture have upside us calmer, develop the our the relatively streams. and market we quarter, In strong transformative deliver quickly

returns in I confident start to back will in are Q&A. long-term generate We you to achieve shareholders. our to Michelle? China pass ability that, Michelle growth and to the sustainable With

Michelle Shen

questions. call [Operator Thank you, Instructions]. We'll now Andy. for open the

Q&A. the Ashley, please start

Operator

Instructions]. [Operator

Your with America. first Bank comes Chen Luo of question from

Chen Luo

results. Congratulations on QX the very strong

question outbreak in very my on margins. China, the focus fluid amid situation restrictions will COVID and Given the

pre-pandemic results. Delta quick the outbreak usually, expansion even -- very big past observed lead we But that in year such margins and massive that Eastern lockdowns agile pattern the we to quarters years, to we can going achieve mid-teens? than this be the our level, one Omicron might also a QX fair margin markets quarters margin over question. assume early it and And the the the that our or quarters, have is actually next very not that we that such first could a see We is actually in largely And see few QX erosion. is outbreak, as outbreak following China, few as to during would we to in COVID X outbreak around seen core we restaurant managed in of year, the margin pre-pandemic of a say is achieve So this big let's year, adaptation higher to another are Wuhan comparable which that impressive a my of last the level. wave

Andy Yeung

for done you a team difficult deliver a thank fantastic situation. amidst has your solid questions. Obviously, Chen, challenging margins to our and job very

of our forward. transformation, margin some would last these fundamental improvement, Now going that obviously,

austerity and as things return Some of temporary more this is measures back these to some of normal. may dial

our improvement, sales temporary by for you if right, Now quarter, largely at it the high and productivity, also leveraging. and look relief some was margin

so initiatives we mentioned, efficiency have also couple look undertaken past few the past we of structure Now quarters, and have when initiatives our rebase the cost we gain. to over years, at that the drive have to we over taken

lot of pricing the you inflation cost assets, and we So also new prices. a our how the innovation terms commodity and manage of product in see

some roll team to commodity supply supply and continue our products us of We of prices of robustness consumer meet impacts that allow to high and those strength in sort terms also quickly to the also And partially -- continue new our chain innovate and of out our chain. from supply be core managing mitigate to demand.

productivity. labor you one is, look other the at The obviously,

have technologies. we deployed example, For

automate help labor continue our improve processes, productivity. technologies to We to to system in invest

our quarter, out probably stores. for last to we management a we're beginning mentioned As tool roll have

used couple can team stores. over over look not and we rental And multiple the some to for have, years, past years, few restructure be across flexible cost relief, at seeing rent hard store for our the the management example, of more obviously, rental but we lower our the rental to the past rental, but especially variable if and also only landlord, work you see cost structure very with also So structure.

continue are for thing going those investment. transformations we fundamental Same so our And forward. digital

new our past if outreach few that to to, us have during have marketing which continue we in allow at ourselves, roll consumer, a you new continued out the be allow digital campaigns also pandemic, to XX% efficiently program, to our program to and years, sales. us invest membership for for example, Over north the heavily strong accounts our membership the direct look products, of of -- very foundation for now

So efficiency. us will operating help to forward continue maintain those to going and efficiencies

However, this of as before, some mentioned we temporary. is

increase example, of in our rate many for the as rental of wages adjust third in year, but delayed have pandemic we some increase. in the delay our fourth, the especially the the relief, maybe labor usually, in quarter, third relief market, relief the impact because the or some as this market For rate in markets government of well costs, incentives quarter the

may this back come also of and some So program. that some of austerity

think stay some time. subside So can measures think over some expect all changes all, and would in of these I fundamental these looking temporary you forward, I -- of may

Joey Wat

team, company. an future. do further keeps and then some terms higher. our why of could do right to margin believe stones is the what thrown and this I color convert in team go and our we anti-fragile just stone that the believe protect management helps this team, this would trying now us, That's thing. stones like company we Well, the into we to the model, at Whatever is stepping these and possibly team's our management to that and thinking also in business add

XX%. XX% earlier, of very -- was by In up presentation is that it important business in as does it's that terms that mean? mentioned look is we which brand, model, from in I our to off-premise. XX%. And recognize year, now last KFC What if at our Well, is off-premise business actually my right

Hut tell the even off-premise Pizza more XX%. Hut, Now Pizza story. amazing is an sales

to XX%. was it from XX%, only pandemic, XX% Before

stronger and business, higher. So Pizza Hut business in off-premise our much, our is much

to these numbers are will sales tougher the in become because naturally that of fluid , incredibly XX% transfer the some important of will situation when are higher Given from more a in we there additional off-premise sort and dine-in pandemic, because situation, business. times be

to strong because That very go So higher. sales with business, naturally margin in that have XX% ourselves, there. protects will not the a sales off-premise, leverage difficult situations, our to fluid is it's when the percent

line margin out, Andy So hard and that's we that to protect. that as pointed And other great the has job. lot side team in X has it's not side, have last only all a on done also years, the prepare, the comprehensively a but sales work the the of we

Chen Luo

capability again. Andy, and Joey your margin really Congratulations is management impressive.

Joey Wat

Thank you.

Andy Yeung

Thank you.

Operator

Stanley. with Lou Your comes next question Morgan from Lillian

Lillian Lou

and management My question different follow-up line a Joey and cost on a about you sales on items, is also the angle side. mentioned Andy, the maybe because, also question but from leverage margin management

on So it, in also focusing rejuvenizing really you've quarter the third and the X very initiatives a of promotional campaign. pandemic all the maybe effective in product and been these look kind during and new launch stores, smaller menu at the years, the

actually your understand stores, fundamentally So small that to when are higher that change designing portion would trying Especially new this, incrementally thinking our now stores our you with behind? of a what's especially suffer margin it campaign, instead it's in improved but forward? also, on opposite quarter, didn't third And margin more side, profile going return, you promotional margin. the the have you on actually,

that a bit I'm from achieve further trying efforts. these little understand So how you to

Andy Yeung

Thank you, Lillian.

our terms the because situation. the I emphasize fluctuations in I It think COVID of impacted in and correlation with at want got in margins, the we term, sales. think situations, I least of COVID to high short see

through come even see right? in without lower down drive margins. pandemic, margin restaurant season normal generally store margin. quarter, lower sales And sales will and actually us higher things during for second period the Higher can see that, fluctuate the also us we fourth especially lever see we'll a first time, higher And impact So is deleveraging the biggest of when higher the generally quarter, that a sales, quarter is year the we and sales and generally for you'll also in quarter margins. the then and third see

emphasize what I and terms and mentioned also important us to driving Joey sales echo is of want to had leverage. earlier, very So in margins

Now recent did better into store make in format store it in and not This a the store we come healthy our hard of also years. terms have just naturally, remains probably format the very, then our mix, operations cetera, to the et menu format, economics, very lot of work put unit design, but work.

Now is our townships store format, have obviously, for right that. we X still And right? a we lot One cities we now can are areas, geared So a to have largely. of greenfield, format that the our on and then serve.

we're for formats where catering delivery have cater and increasing and area the to the mix also of to business. density higher takeaway We urban

they one is in store are format generally that terms -- lower. thing in have upward all And of common, so investment but our

So we're compared to X.X a RMB few spending, per store. years ago, million average, on

like $X.X down like million $X.X million, spending $X less to drawing maybe Now to close store. we million, than per are

of sort we more So nimble more unit upward new to us very the to us that stores be that economics for That helped agile, allowed investment. strong open. like continue see and reduce

Now depending for the at it's still KFC, our remarks, payback our at I on it's X you Obviously, some And years. pandemic. be there look on fluctuations as healthy years. period for X Pizza if Hut, prepared very mentioned may

to close at with model, store the satellite KFC look very as what mentioned can achieve you we is performance before, already. If we its

I us think confidence of the on we're And would too that's concerned expansion. mix least material from what going margin don't about, in economics, robust store terms our forward. store so impact And that, a that at have give

to store store you also Joey, for stores. our format anything do So to have add then and that's new the economics it?

Joey Wat

Yes.

again, color in and some management. of promotion margin me the terms me Let add between let relation --

to weekends, As and Save But during we Language], They mentioned More Buy and careful the products. earlier, drive impactful, such mechanism, [Foreign we on more our which very, very is as consolidate help we at effective. we our time, are More. fewer same quite our manage promotion focus sales

whole -- the guys right? you whole chicken example, one chicken, give it. For example, The will I'll get you

to the XX It's million so get is is Oil reason Sometimes not why. very year. Why far year here chicken? chicken fried it's more sold detail We chicken. it. roast this Well, expensive. whole this

healthier, has we if benefits. roast Customers costs it's it. chicken, less. So do two, X it love it One,

So we detail, not that go has at cost. at-home make little consumption. dine-in but both for works sure but it only good And through products every great that

a everyone, of our no our everyone sense. in margin small Everyone protect difficult single protect achieve QX, result manage was except they I to every for give very I'll that We in structure, quarter. it. would way terms XXX,XXX-strong layoffs. time. margin, a innovation appreciate our can to employees' just example our jobs, another belief protect our sense reiterated cost during here. tough company. we jobs like want results. at single you to We And So a very And to needs staff's of the protection, share go commitment our staff, good to our it very some We our which security during team, to to pause Back layoffs. looked fluid situations. every And

question. to on move next Let's

Operator

from comes question Citi. Xiaopo next with Your Wei

Xiaopo Wei

future, actually cetera. I can say in openings, rebound that the I all X of you picture that you open are another we will started the what since Joey, take quarter, the of the we seeing more in store some that which look Should question X third that et of that seeing the ask But happened But new the bigger with for about will stores. the was first but years. happened see consumption, captured past margin about greatly Andy, amazing we maybe investment a window it's at in restaurant are the short COVID, very in upside also the working time years margin, situation. the what well I If consumption the approach, past we rebound.

forward, close new Looking ago, are than look the terms met out, Pizza and KFC say to Hut. forward, having are higher-than-expected transformed XX%? related that delivery Pizza for contribution forward, that would sales is, to actually KFC if KFC years we has when sales Hut very never and first had I XX%, phasing more contribution. question which we store KFC impression be contribution the we Pizza in that hit delivery actually, high sales to Shall a when sales Joey, is seeing at contribution, I contribution And been kind remember probability now of expecting the I looking do COVID is delivery this fundamentally amazing, looking actually of had pronounced are close Hut. before? we Another delivery very approaching

Andy Yeung

a pleased about there's question with today. Obviously, we're our third So margin margin I the quarter. performance of lot in think very

will As there mentioned, come able the only a the upside time, regain leveraging, we able sales but sales only also not to capture not leveraging. sales the will we to

as and what there's fundamental undergone, a before, our about structure initiative. have rebasing One of is So obviously, store But we X things, profitability. cost is I of right? that asking you think number mentioned transformations margins I the new are about

other mix, going what's is one The the delivery sales the forward. percentage

margins -- ramp the to takes any is it a thing economics, we to think couple of that to up sales generally Now think I look and new at store, a one new mature for level. remember store for when I truly it years

that, pleased. is So we're the part other obviously, very

very within we at level. slightly this tracking look historical ramp-up better margin months' robust, front, when mentioned, X But very the breakeven large opened them time, which turned the look we year, to we continue strong. or a performance, new period. the that to they than even our majority mentioned better be store If or on of restaurant you store As I par the for is at

find hard there, also the of we And worked format, total have is the not right? One things so right size, the to happening that we but menu the offering and reducing very couple mean, I there's operations, size the just obviously a as important, is, is mentioned, the mix.

So that. these all in conjunction worked with

also We we changing management hard on the have -- mentioned, restaurant as worked we like structure.

labor share developed store improvements. a they We can to with productivity the make have management pool

component. resilient, very we more continue with -- high and of worked if store, work then think to to variable a also, . landlords to cost us in rental, terms keep rental -- So I have for we obviously, a new But importantly, look proportion of cost hard lower develop the to at you

And resilient to so us more that allowed over time. be

So and open we we open and our systematic, to continue that fourth but stores, store. store as very not discipline and the only pace likely drive profitable to at disciplined accelerate continue continue opening store new I approach a to mentioned new before, so will we I very robust to as new quarter, we'll think when is during that

we mentioned, over And period think scale, think for X Pizza par, think, KFC, is Hut, stores which contribution years is economies for of time. is total for so X years But I payback pretty new as the consistent. important the I I on is

So that's and for new profitability. store margin

we've mix to of Delivery see terms change then would the in a depending our all We've term, be back. now for mix thing dine-in I business. sales are our the in there's now. and of situation, come delivery right a calmer on in off-premise In see tighter But we a measures. account can and majority short And traffic right we now obviously, higher all, going oftentimes, delivery big to going mix, then the think COVID see sales shift. that

And we store developing so those when do smaller urban why the for before, more like that's our to takeaway business. format, mentioned as catering we we're format,

If we'll we the system growth, the deliver the format have will want achieve our And I digital have we think to own . and So more. app depend that, it on help high traffic to more, on consumer. they side. especially Like drive then

and whenever can want, them. to order have store they consumer the we So serve delivery a

Operator

with comes question next Cheng Your Sachs. Goldman from Michelle

Michelle Cheng

expansion. store about is question My

aside specifically So all a other more are smaller do the given we could on initial the suffering. you And into expansion, expansion from in we Any Pizza given brands, on brands other further accelerate about KFC, think know chance very brands thoughts have relatively expansion so XXXX? profit also by reshuffling how we plan the past do quite few aggressively players any we're this Hut maintaining actually strong margin, since momentum stronger quarters.

Andy Yeung

store before, I reasonable, to also as about and set impacted that new mentioned, then get be try but will many each market and how fundamentals is stores for is we ultimately, by opened sometimes the that COVID. what I the would and performance also, as year, it I we target new Michelle, store be a mentioned we strong. our mean And think continues

So to and will continue approach. we maintain systematic that disciplined

the the or you'll assumption see refresh more the acceleration see so when it's we're the doing, system because are itself, regularly. and we approve. that you we more to will impacted, are good, deceleration , So market and Obviously, see economics the very because propose when that model so economics then we unit the like more some due moderately

as mentioned to strong will we'll opening. very Obviously, continue we that disciplined very for fundamentals greenfield. store see, We So the I before, maintain approach. see

we that more We KFC, only in, more a in almost Pizza see little KFC another potentially X,XXX a have bit stores we Hut Pizza [indiscernible] that cities. Hut, already have probably X,XXX don't enter can We we're like store. than

opportunity. So there's a greenfield

very expansion, and we So expansion opportunity feel network good store there. about store

change have terms of format, to opportunities hard store on dramatically right, see we'll obviously continue consumer right in obviously, in -- Now now. because the to -- could the these work and we

because very attractive like we the perform Our X very in and pandemic, X, pay will now we restaurant pipeline strong everything. feel time After on rent continue industry. is very our to of years well, right

our So only is but emphasis, more profitable that open attractive tenant, opportunity. approach more again, a we store, similar we sure make move discipline attractively not have we and so new them on stores. even new and to open But

important. so that's And

some our brand. did as Now we you management on portfolio mentioned,

a which opportunities, to down winding the are side lot coffee potential very C&J we we earlier, resources mentioned of Lavazza, our on Joey there. As see focus on good

And so approach. that's a different

market homegrown in East this Dawning decade And been also a business. also part the wind for a this Dawning East close down now. to year, have is We locations. positioning tourist -- Unfortunately, brand we of earlier

been X imagine. challenging And Now new in can that as business has the you very the short years, don't any over past very, with see time. normal improvement we currently,

decided to we that business wind down. So

be So disciplined discipline are very portfolio that. about it again, it management, systematic be level expansion, to store that approach, in we in and back

continue going we so that And will forward about the brand development.

Joey Wat

add comments few a I'll Michelle, store expansion. about the just

more stores. First, we even opening are smaller certainly

about for stores result in continue store satellite cities, promising. that's small is the So alone, and well X% half. where and of And this some and our store, store smaller exciting these lower-tier either are particularly work year pretty the KFC opened we is expansion. new Pizza will And Hut or

comment giving operations new product that's number are the number -- So two smaller support one. is opening the and focus that and smaller stores. side, new to on Comment stores the also require we

lower-tier stores X.X. brilliant. It's burger, our introduction for business. chicken is new example, as breast good. The price to It's the amazing It's Language]. very For city [Foreign

same process small The these lower-tier other store. points, stores. terms the price products which cities news for work specifically that continue Well, developed still at number terms the and one with of of can for And product shareholders. like also [Foreign lower we also in operating how Language], innovate changes to we process, requires time, of only a for stores But example, within for safety. of fewer we our it products protect specifically to accommodate smaller in staff, new make introduction great to is operating quality, the

You name it.

also cause are focusing that the the are just stores, only of we product not new So the opening on. process and operating but

Operator

with Your next Anne question Jefferies. Ling from comes

Anne Ling

look price a track the supplier. management increase costs the of XXXX, maybe understand same we agreement we But the when share like us do at -- into time, in you XX-odd your which has parts. costs can side, into increase. making cost I chicken the moving other what terms the use and the terms cost, chicken commodity way we is Or the at or great your P&L? year percent with your kicking chicken see really current whole like that in a also, saw also And increased. Regarding of with like of you costs this

Andy Yeung

to? want you Do Joey.

Joey Wat

on. go no, No,

Andy Yeung

we to year, see like probably self-mitigate last see pricing get globally at you have you team have job us beginning the obviously, is also commodity we We And we'll past well. mentioned, the inflation, food And moderate up. fantastic price in commodity pricing China XXXX. -- in that China comment how on China, increase. product when before, We're as real happening. to But help to I mentioned, mentioned work think admit year. Language] now very [Foreign we all it. poultry and we to and Commodity to probably, pressure that still, continue cost inflation. as escalating a very Obvious our be will innovation pressure. is inflationary increase to over increase I more continue look favorable is So And see to this price commodity see price as we building so a as done true do manage hard pricing right it's see in

The mention of quarter locked other supply, the chain that generally our time. before, a down or one supply is mentioned as I half want to most we X have

And So little try chain there lagging the inflationary is supply pricing get obviously, to inflationary long-term a in to deploy longer. will be some bit an to we it lock environment, possible impact contracts because side. on also our when

lock in they done But For for example, fantastic you job a commodity the at pricing longer-term have time. of cannot a locking such coffee, some contract. a longer

up So as building commodity quarter the well. pricing in we'll coming pressure see some

and done Joey up on there probably efficiency the mentioned. besides already product mentioned pricing has Now pressure fantastic a products, we give that of the has the developing stuff also is The job new have, you team to of as part as even chain that chicken, supply utilize innovation, beef.

the like breast. be meat people flavorful. chicken But chicken we like chicken dark because and refer burger, dark in talk consumers, tender have before sandwich tends than more about For that when more more or for they will meat to mentioned Chinese white our folks as generally, U.S., generally meat to

very chicken Joey this we successful see quarter, but mentioned, in that developed burger consumer. our have we chicken in example, is as sandwich, a for what fantastic this, So

managing key long-term will demand and kind product also of will be very us that . like innovation help manage consumer Now for prices, commodity to satisfy

how be also, term obviously, campaign, So manage other all [indiscernible] in manage our yes, the do so inflation. then we costs, that we on And marketing commodity offered manage long will for was pricing that us to the [indiscernible]. do how

Now for cost as time, before, at will see increase. inflation, we we generally good labor mentioned labor likely

digits. high sometimes single China, trend delay, is But to mid- long-term will moderate. the it more Sometimes in it's

continue will gained we can to efficiency will operations, in our innovate, infrastructure, to as Joey that to have be store term, to productivity, their invest labor maintain that technology, and work we continue improve improve invest long IT, in offset that inflation. so hard to to continue so And mentioned, labor in

And so inflation. price labor that and commodity sort of like

Joey Wat

one. been the pricing feather. add on one out duck. But pork, fish and team have then We accept use like chicken have both team, the do introduce different able that beef, part just product we comment use innovation that and we proteins; to chicken our every to also point would I'll team, the of Anne, and I

burger. we chicken and We now as are selling burger duck duck now, speak right right

So and a thinking what look in at much price the not only bigger on the our use we best share for these us, can good market. available and I quality, they is depending in to in And the price. turn then Same variety a scale, we that terms fantastic can proteins promote, also rather mean, price, pipeline much, we of have is quality I food. you just great at guess. of the ingredient simple,

good So Thank food very the deliver to price at our flexibility and we customers Anne. value. amazing you, good both and very the to scale have

Operator

Peng question from Christine UBS. comes Your next with

Christine Peng

So on product the is side. question my

So a product, which interesting very new the mentioned, which is burger. I Joey beef supported

that this I be which is means that instead product long-standing So of been noticed May menu LTO. a this likely product since has XXXX, on the of to

KFC will share very in the for trends, going product terms supply case, burger terms this for the is margin can to impact I'm et in cetera. the structural going And be important that on a that category potentially be forward. this competition, terms distinction KFC product behind in the is the also what become future of this of forward? understand if of to what's Joey, a chain with going So Because and interested rationale, you management plan

very So can you us, that anything will appreciated. share with be much

Joey Wat

portfolio. customer important the a in and because talk of the speed business. The meaningful for it already. X% from I support very our KFC original X%. sales years, contributes lot KFC Thank X% already expectation. these recipe a that quantify product mean It but you, it's to about of X%, sales Well, burger, a already It's already to mix mix, Christine. about we To it's exceeds sales about is our beef after all the

So already. of original it's our recipe sales chicken half

So side. number that's the

will I product who you unusual a terms have burger, encourage are opinion you about try side, do you of strongly company to selling can rather the then try China, it, you chance know once understand the you try, for it's a future for In in beef it, yourself but those I of to this if form product. chicken sell why.

have way We price product hard Wagyu to all tastes from beef, Andy entry the burger good beef mentioned, range amazing. Wagyu a And burger. you beef of as which choice tastes imagine, can't it's burger. still, amazing there but burger, burger, it to Angus Wagyu [indiscernible] beef beef

burger it's still fantastic I I won't price. value. beef -- mean, good value. and very the say price So Wagyu is low is

of fantastic. So choice product the is

has our other are we of kitchen And traditional very plenty taste. Because that juicy, KFC beef that positioned do ovens uniquely might And taste, Chinese prefer because in the focus. have love made some customer it's the are been burger. they flavor, barbecue to to our the our produce quality this There juicy burgers. each kitchen, very the Third is beef the flavor, for lover comparing burger we high of -- very thing our the distinct while is about burger, our beef competitors. is versus burger focus. our One and video burger customer

is grill. is a on in an So patty, not oven, beef it cooked burger the

hope gives you some that flavor I of So I myself. this love product that amazing

Andy Yeung

bit range when for eat still little fan beside and Wagyu variety #X does I'm have X is like me have self-proclaimed think increase the fantastic frequency a The yell of chicken burger into to the beer so burger appeal have but to -- want because we but beef choice often, not add burger of points. KFC now I need burger. myself -- fantastic. KFC beef, I beef different to can like do the go pricing beef I as rice here I only sometimes store to Joey, a beef I my I because had burgers, let and that have a burger,

I because proteins, different you different greater provides think fantastic a mentioned, from standpoint, customer choices. it's it So like variety

I And love it anyway. so

Operator

Veronica Your Credit Song Suisse. next from question comes with

Veronica Song

Congratulations results. on COFFii a business. have question very strong regarding the a set of I

we're JOY . mentioned, & wind Joey business the and down the COFFii as more on focus So going and Lavazza K-Coffee to

So the & we especially So adopt JOY share Lavazza's of the drive more any color learned of economics? could store and on and terms you how success? on valuable current expansion achievement experience or in situation color to from COFFii we can Lavazza, KFC store

Andy Yeung

And think Okay, experience. the that business will coffee can is have quickly, market. resources, brands. currently, repeat which value I on down of coffee I give, focus [indiscernible] is mentioned, more the I convenience and think to strategy X obviously, the more key wonderful and C&J want more you we laser resources K-coffee, be the on winding we which focus, as so is focus common One our on serves team looking segments. so Lavazza, it And on for offering our the authentic Italian first all, and

Hut we segment. Coffee X saying, new thing So years, business from business. fried and that And past obviously, is have we've is one this C&J, with when we enter over business very homegrown learn a from a have different, keep we brand Pizza into lot. obviously our chicken the

the critical. to coffee. then , and good And is think the their whatnot. coffee, coffee develop product lot how at then also good the time the coffee Chinese figure to of milk, is very of still learn are, of our in spot of to whole trade still our to right and consumer us different lot very And product, A development. the segment. economics obviously, trying there's to and to also new customer, preference need Chinese obviously, in out a format, and to there what relatively make coffee, new give coffee are zones what I store terms So process for learning also format water, and market taste is apply too, for

as C&J and of business rebounded. I because So to expand And obviously, its from to obviously us has apply to learning lot a help a business. in a franchise with Lavazza we out wonderful part that And would lot of of time Lavazza, a this from, for a Shanghai we recently, go we continue think, store see early recover this learning, in year. we did

the the in right terms they of I track. on team, product, to think the continue be

I business in in think time, great there new the a building we going think a we is job terms -- but -- yet, I done -- a don't to have like we're don't to say take right brand, they the innovate new putting organizing continue putting team, the but can of the product. right

seen product in latte buffalo That success and of consumer. is a also You've that Italian here like the [indiscernible] innovation. think, And we'll Chinese then more, offer flavored but do in thing. experience, to I to continue that like that terms same we training coconut of where and with innovations, drinks of wonderful lot -- all consumer. been latte see have and the milk sort right, also new a the the food

I we year, have continue develop they They that. on that also its to and level also patient They we continue out. we stores stores for see obviously, have awareness, continue more and digital bit And open the sales consumer a And quite capability. it and to capabilities. XX to reach time Right its of to takes You think I unit and economics double. this little then bit be roll develop continue almost overall, profitability, stores. the more think to now, experiment their a them have to also improve the people you see some and but

the that you now and continues can if membership see increase you program also So look at mix program sales to like of XX% now, now. delivery mix almost delivery sales the

especially improvement, COVID. great a the environment that's So given with challenging

In ago some from have year a be not XX will you I mentioned, as and should -- obviously There to impact. X-fold improvement, of more will store but stores. COVID development, increased felt like like terms --

I year, stores is and going to on But COVID. some think depending conditions, mentioned committed timing we X,XXX to much the that be we're market especially very with obviously, last that. of

stock a like systematic more approach we're open. the with improved, disciplined pretty confident will But have we now new even think very see store Lavazza. I brand the coffee you As and as we mentioned, has

stock the So Lavazza. on update that's

Operator

no There to at Shen are this now further I time. hand back for questions will remarks. closing Mr.

Michelle Shen

call. Thank Ashley. you forward We call for with all look you the on you, Thank to the joining earnings today. speaking next

a please on questions, If release the information in and website. day. our reach you contact Have out great our further through have earnings

Operator

for for participating. conclude does That conference our today. Thank you

You now disconnect. may

Yum China (YUMC) 2 Nov 222022 Q3 Earnings call transcript