Yum China, the master franchisee for KFC and Pizza Hut restaurants in China, reported a 21% growth in revenue for both the fourth quarter and the full year of 2023. The company opened a record number of nearly 1,700 new stores last year, with over half of these stores located in smaller cities that currently have few fast-food options. Yum China ended the year with 14,644 stores and aims to reach a total of 20,000 stores by 2026.
To cater to the preferences of customers in smaller cities, Yum China is introducing made-for-China products, including local-taste items that are not available elsewhere. The company is also expanding its menu and outsourcing more functions to improve efficiency and quality. Yum China is actively franchising its brands and partnering with major e-commerce and social media platforms to extend its reach beyond physical stores.
Yum China’s growth strategy comes as China’s economy slows down, with GDP growth of just 5.2% last year. However, the food and beverages sector has seen strong growth, with sales reaching 5.2 trillion yuan ($723 billion) in 2023, up 20.4% year-on-year. Yum China’s shares rose after the release of its fourth-quarter report, indicating investor confidence in its expansion plans.
While Yum China’s revenue growth is impressive, same-store sales increased by a more modest 4% in the fourth quarter. To drive traffic and attract new customers, the company is broadening the price range of its products and strengthening its loyalty program. Yum China’s branded apps contributed one-third of online sales in 2023, and its loyalty clubs had 470 million members at the end of the year.
In terms of profitability, Yum China has been focusing on cost control and operational efficiency. The company’s restaurant margin increased to 10.7% in the fourth quarter and 16.3% for the full year. Profit for the fourth quarter and the full year rose by 81% and 87% respectively, while operating profit increased by 170% and core operating profit quadrupled.
Yum China’s smaller brands, including Huang Ji Huang and Little Sheep, also achieved significant milestones in 2023. Huang Ji Huang opened 40 new stores and tripled its profit, while Little Sheep returned to profitability. Both brands have plans for further expansion in China and overseas markets.
Overall, Yum China’s growth strategy of expanding into smaller cities and introducing localized products has proven successful. The company’s focus on cost control, digitization, and efficiency has also contributed to its profitability. With its ambitious goal of reaching 20,000 stores by 2026, Yum China is well-positioned to capitalize on the growing demand for fast food in China.
