Yum China : 2025 Investor Day - Transcript

Yum China (2025 Investor Day) November 16, 2025

Corporate Speakers

• Florence Lip; Yum China; Senior Director of Investor Relations

• Joey Wat; Yum China; Chief Executive Officer

• Warton Wang; KFC; General Manager

• Jeff Kuai; Pizza Hut; General Manager

• Maggie Chen; Yum China; Chief Customer Officer & Lavazza JV General Manager

• Leila Zhang; Yum China; Chief Technology Officer

• Howard Huang; Yum China; Chief Supply Chain Officer

• Jerry Ding; Yum China; Chief People Officer

• Adrian Ding; Yum China; Chief Financial Officer

  Participants

• Chen Luo; Bank of America; Analyst

• Michelle Cheng; Goldman Sachs; Analyst

• Lillian Lou; Morgan Stanley; Analyst

• Xiaopo Wei; Citi; Analyst

PRESENTATION

Florence Lip^ Welcome to Yum China's 2025 Investor Day. My name is Florence Lip, Senior Director of Investor Relations. We have a full agenda today.

This morning, our management team will present our latest strategies, followed by store visits in the afternoon. Some of our management will present in Chinese. Simultaneous interpretation

from Chinese to English will be available.

For our guests here in Shenzhen, if you need a headset for the translation and haven't got one, please raise your hands and our staff will assist you.

For our online audience, you may also choose the appropriate channel by following the instructions online.

Our Investor Day presentations contain forward-looking statements, which should be considered in conjunction with a cautionary statement in our presentations and the risk factors included in our filings with the SEC. Management presentations will be uploaded to our IR website after each session.

Without further ado, let's get started. (video playing)

Joey Wat^ Good morning, everyone. Let's try again. Good morning, everyone. Audience^ Good morning.

Joey Wat^ Thank you, thank you. Very good morning. And very big welcome to all of you to Shenzhen. It's a city of energy and speed and innovation. And so, after two years, it's truly

wonderful to see so many of our investors, shareholders, and everyone who love our Company to come all the way to Shenzhen. And those online, welcome as well. So, heartfelt thank you to all of you. And in addition to that, a heartfelt thank you to our employees, our customers,

shareholders, and everyone.

So, we have about 40, 45 minutes here for my session. And I would like to focus on three things.

First, is to have a very brief recap of what we have achieved together, particularly since 2016

since when our listing in NYSE started. Second, our belief or philosophies. I'll talk about why we go there. And then the third is our strategic priorities or our strategy for the next three years and

beyond. So, three things.

Let's have a recap of our journey in China. Many of you might remember this chart. We shared

that in the last Investor Day back to 2023. This is like the journey, right, the GDP growth rate and then our new store opening.

And it's quite cool to look at. It took us 33 years to build the first 10,000 stores, but then it it's going to take us another just six years to get to the next 10,000 stores. So, last time when we were here, we were at 13,000 stores. Then we set a target of 20,000 stores by 2026. And I'm happy to report to all of you that we believe that we can get there next year.

Now, before I go to the next slide, I would like to also point out that the China market, as you can see, has been very dynamic. And the position of the top 10 players in our market has been dynamic.

And the next slide is to show how our market position by system sales evolved during 2016 to 2024. Simon, please? So, I don't know whether you can see the movement. So, for the top 10, the positioning of the top 10 has moved quite a bit, except the top one, and that's us. So, for nearly a decade, we have stayed firmly at the top as China's largest restaurant company by system sales, well ahead of our competitor year after year.

So, someone funny summarized this chart saying that "你大爷还是你大爷", which roughly translates to the champion is still a champion. I know for those people who understand the Chinese, it's not exactly that translation, but you got the idea.

Our leadership in the marketplace has translated into proven track record from top-line to

bottom-line. So, look at the system sales, 2016 to 2024, over nine years, system sales grew by 60%, 1.6X. Margin expansion happened as well, given our scale, and then the operating profit increased 80%.

So, these are all three dimensions that we have delivered. And in our industry, we call these three dimensions, the combination of three, called impossible triangle, because if you develop one, the other one suffers. To improve on all three dimensions, it is a bit challenging, but we have done it. So, building on this result, our diluted EPS has increased by 70% since listing and delivering, of course, more value to our shareholder.

But this is pretty much a recap of our past, very quick. And then I'm going to talk about the

philosophy or beliefs. And the question is why? Why bother talking about philosophy or belief? Why not go straight to the strategy bit?

Over the years, I met a lot of investors and shareholders. Some wise one asked me very good question, focused on what I believe, what management believe, because whatever strategy that we put together, actually are indispensable from our philosophy and belief, particularly during the tough time, such as pandemic and many other challenges.

And you, guys, seem pretty wise to me today, all of you here and online. So, I thought it would be good to talk about our fundamental belief behind the strategy, so that you really understand management's thinking in a very deep and core level.

First belief is our commitment and belief in value-for-money, very sharp value-for-money. Of course, some of you, guys, ask me, "What has been the secret recipe to deliver profitable growth in the short term and long term?"

Well, in a simple way, sometimes it's not only about what do we do, but what did we not do?

From this chart, you can see, like the price index has a very simple calculation. It's our sales

divided by how many items we sell. And that's the average price of the product we sold in both brands.

We did not really price inflation in the last nine years. It does not mean that we did not increase price. The way that we do it is we expand the price point. We come up with new products so that we still deliver the transaction growth -- KFC, 40% transaction growth, and almost 90% transaction growth for Pizza Hut -- while expanding the operating profit.

Is this the best way to describe value-for-money? Not really. There are some Cantonese-speaking people here. I'll tell you my favorite way to describe value-for-money, "平、靓、正."

Let me do some translation here. I'm not sure that some Chinese translator can translate to Cantonese here. Good price, amazing quality and authentic, all three at the same time. That is value-for-money, "平、靓、正." See, many of the Yum China employees actually know these three Cantonese words. I love Cantonese. It's very, very vivid, so beautiful language.

But for value-for-money, we have slightly different take for KFC versus Pizza Hut. For KFC, we have kept it relatively steady. By having a relatively steady price or ticket average or price index, we deliver more value, new product, emotional value.

For Pizza Hut, we have gone very aggressive. The price index, now, is only 70% of what it used to be nine years ago and thank God we did it. If we did not do it over the years, we'll be in much tougher position today.

So, we have anticipated that since 2016, when we decided we're going to be very, very sharp on value-for-money because of course, it has some history behind it. 10 years ago, both KFC and Pizza Hut, we were in sort of turnaround situation.

In the turnaround process, we have learned, this is critical, we need to commit to it. It's easier said than done. I mean, everybody can do -- want to do it. But whether you can transform all aspect of the Company to deliver the extra value, extra profit for the shareholder while keeping the price very reasonable, that's the tough bit. But it's a must, and we have done it. So, in Chinese, we also call it "定价就是经营，定价定生死" pricing or value-for-money determines survival.

But it's just part of the story. What is our second belief and second philosophy? A company like us, of course, we challenge ourselves, thinking about how to grow and grow faster, grow

stronger, even with our current big scale of business.

Well, our commission comes from building a strong foundation, just like how bamboo works. We find inspiration in it. Well, what are the reasons? One of the reasons is I'm from Fujian. I grew up -- I grew up in a hometown where my parents' house was at the bottom of a hill, and in

the hill, there's a big bamboo forest. You know, of course, it impacted me. That's my background.

And there are a few things about bamboo that you might or might not know. You can use the AI to look for more facts later on. Little do -- little do some people know, before the bamboo shoot break the ground, it actually took years, three to five years typically, to grow a very sophisticated root system underground in darkness, an interconnector, underground, when you cannot see it.

And then when this done, with a little bit of water, it grows rapidly. It breaks the ground, it grows rapidly. How rapid? Bamboo can grow up to one meter a day. And then it grows to several meter, it flowers, then it starts growing taller, and it start to grow wider.

So, within a very short time, we can think about bamboo, within months or if not a year, it'll

become a forest. Bamboo never stands alone. It always grows as a forest. And once a forest, it can endure storms with resilience. And I think as smart as you are, you know where I'm going, what I'm talking about already.

The interconnected root system represents our core competency under the soil. The procurement, food innovation, food safety, et cetera, you name it. Interconnected, but strong and solid.

Therefore, with a strong foundation, it fuels the growth of our emerging business like

KCOFFEE, KPRO, Lavazza, Pizza Hut WOW. And these businesses are breaking through the ground right now. And once they do, they do grow fast.

The third philosophy, our ultimate belief -- and by the -- by the way, if I have to pick one out of

the three, this would be it. People first, people first, people first. "重要的事情讲三 遍" important thing, we speak it three times.

And RGM No.1 is at the heart of our culture. We stay close to frontline, listen to the voices of our restaurant manager. We empower them through the digital tool like AI automation so that they can focus more on customer service.

Beyond competitive pay, we try our best to look after our store manager. Jerry Ding is going to cover more in detail later on about our belief in people. We do take care of them. One example which we are very proud is to provide very comprehensive medical insurance, including their families and their parents.

And the level of support is so valuable that many RGM joked that they need to get their parents' approval to change job. See, if they change job, their parents lose the medical insurance, and they could not find it somewhere else. Simple.

And our commitment in talent have been recognized. Yum China, we are very grateful that have been named Top Employer of China for seven consecutive years, ranking number one in our industry.

So, let me introduce our management team on the screen, and they are sitting here looking very nice and smart. If I could ask them, stand up, turn around, say hi to our wonderful friends here. Thank you. You will see many of them doing the presentation on the stage later on. And then we also have Chief Legal Officer, Pingping, and Chief Development Officer, Hemin, here as well. Feel free to ask them question. I'm deeply grateful to this outstanding team. I'm very grateful to the team's collective talent, dedication and leadership. Thank you. Thank you, guys.

Now, we have covered the three beliefs and philosophy. Let's talk about our RGM strategy for

the future. RGM, again, carries a dual meaning. It stands for Resilience, Growth and Moat. But it's also a simple and meaningful way to honor our restaurant general manager, the most

important people to our strategy.

RGM 1.0 focused on resilience. RGM 2.0 placed greater emphasis on growth. And we are at RGM 3.0. We focus on all three dimensions. We are a little bit greedier now because we feel that we are ready to have a balanced approach, focused on resilience, growth, and moat at the same

time.

And RGM 3.0 is driven by two complementary forces, see the two engines, innovations and operational efficiency. Innovation helps us improve operational efficiency in scale. And our expertise in operational efficiency, in turn, allow us to keep innovating for future.

These two have to happen at the same time. And they actually nicely reinforce each other like an infinity loop, maintaining sustained momentum. This is a summary page, quite an important

page, and we'll want to spend some time on this one.

With the RGM strategy, what are the operational strategies supporting the RGM strategy? And this pretty much cover the rest of my presentation and highlight the theme of all the rest of the management presentation this morning. So, it's worth spending some time here.

In the past, we focused on single-store efficiency. I'm looking at the resilient bit now. Now, as our business has become more diversified, we move towards what we call frontend segmentation and backend consolidation.

So, frontend segmentation to serve customer more effectively, really, you know, looking after their needs, but then backend, we try to have even more efficiency coming out of it. In Chinese, we call it, "前端分层, 后端整合."

Second, when it comes to growth, we have much deeper understanding of our core competencies in the last few years. We now anchor our ambitions around our core brands, particularly KFC and Pizza Hut. There are sub-brands, KPRO and KCOFFEE Cafe and then Pizza Hut WOW and modules, many smaller modules. It's very flexible. That is one area of growth.

The other one, which we started to make the shift, last year, we are shifting from mainly equity-driven business towards equity and franchise hybrid model to drive faster and even more

efficient incremental growth.

Third, we continue to deepen our strategic moat. What -- I would talk more later on, we're

evolving from a business-driven in the past mainly by physical store to the current one, thriving in both physical and virtual worlds.

Just hang on a little bit later. And then the last two strategic moats are surprising. It's becoming more integrated and agile. Last but not least, we are moving beyond digitization. We are currently deploying agentic AI to a lot of new levels of efficiency. This is RGM 3.0, more

resilient, more innovative and more efficient and ready for the future.

So, now, I'm going to go to RGM strategy one by one. Starting with the frontend segmentation and backend consolidation, well, China is a very, very big market and the customers have very diverse needs.

You can segment the customer needs in so many ways. Here's just some examples, by day part, by gathering moments, by channels, IP collaboration is the emotional value, you name it. The list can be very long.

But we know that we can serve customers more effectively through the different brands, different modules, different occasions. We can see that from our numbers. And customers like that.

And these needs are evolving, too, right? So, KPRO is a good example. We are in Shenzhen. In Shenzhen, we have more KPRO than any other cities in China. In Tier 1 city, KPRO is a fantastic lighter option with energy bowls or superfood smoothies, capturing the fast-growing light meal market.

And by the way, the business is particularly good on Monday. Why on Monday? This is about consumer insight. Because for normal restaurant business, Monday is not the busiest day, but for KPRO, it is, because typically, as human beings, we might have eaten slightly too much over the weekend, and then by Monday, we might feel slightly guilty that we want to have a slightly different choice.

And by the way, these are all KFC customers, most of them KFC customers. See, we offer different choices, with different options at the right time. And on the backend, we focus on driving synergies.

To this end, we aim to be both best in class but also best in cost. We want both, cost and quality, we want both. How do we do it? We first streamline our menus, not only menus that customers or you can see in a store, but the ingredients behind that you cannot see. That is also a big saving, and that's even more difficult to streamline than a menu that you can see.

And we also centralize key process, like centralized recruitment and training, one-stop RGM service center. And third, Mega RGM synergy and technology. Among all these four, I would say the Mega RGM is probably the most significant among all, because RGM, they're the most

important group of people.

And in the past, we just don't have enough very good RGM to open that many stores. They were used to be the biggest bottleneck for us to open new stores because when we open a new store, not only we want a new store, but we also want a good new store. And the best predictor of a good new store is a very good RGM.

But now, we are at a very nice position that our RGM can manage multiple stores. We don't have the bottleneck anymore. Therefore, we can continue to build more and very good stores. So,

looking ahead, we are confident.

So, these efforts are paying off, and our operational efficiency has been very strong and will continue to be strong. And here are some numbers. Marketing efficiency, this is again 2024

versus 2016, marketing efficiency has improved by 55%, greater scale of our business and very innovating marketing team. They help deliver.

Rent. Rent cost as a percentage of company sales has decreased by 170 basis point. And that's

very nice. Even better, the rent structure is more resilient. This year, about 70% of our new leases for KFC and Pizza Hut stores are variable rent. Flexibility is good, resilience is good, and we

built it into the structure. And that number is a lot less than nine years ago, that's for sure.

And then, what else? Look at the CapEx. KFC, overall, per store basis, 35% less. Pizza Hut, even more, 50% less. Of course, it's the result of both smaller store and innovations. It's a combined result.

And the key benefit here, which I'm sure you have already figured out, is the sunk costs are even lower because for that cost here, it includes the sunk cost and the equipment that we can move.

So, with this kind of number, the sunk cost is even lower, that minimizes the cost of making mistakes, which is important for our size of business.

So, with resilience in place, let's move on to the next topic: Growth. I'm happy to report that

despite the market dynamics and the concern of macro, we still see China opportunity remains extraordinary.

On purchasing power parity basis, China is the world's largest consumer segment, which is about

1.6x the size of the U.S. So, despite the per capita spending is less, we just have a lot more people.

And after 38 years, we are still only serving about one-third of the Chinese population. And our midterm goal is to serve half of the Chinese population by 2028. And then we look at the restaurant industry, it still offers tremendous growth opportunity. People are on the move and going out more often.

By 2030, urban residents are expected to dine out 5.5 times per week, up from 3.5 times. Only two more times, but the growth is very nice and very great, very big for the market. And then in our industry, the chain restaurant penetration is still low. It's only about 20%. And it's quite

difficult to be at 50% in a more developed market like the U.S.

So, with all this macro opportunity, we see a long runway for the growth ahead, particularly in lower-tier cities. So, there are two numbers here. So, this is the KFC store counts, not system sales, store count share among top five QSR players. In Tier 1, Tier 2, 25%. System sales-wise, our share will be higher, but our local competitor, their stores are smaller. So, the store count number is a bit lower.

And then you look at the Tier 3 and below cities, it's only 15%. So, you might ask, does that

mean that Yum China is not doing as well in lower-tier cities compared to Tier 1/2 cities? Well, I'm very happy to report that, that's probably a fair statement, and I'm happy to see that.

Why? Potential. Market potential is here. We are not having our fair share of market or store in the lower-tier cities yet. Yet. But now, we have innovative store model, we have really good product, we have good value-for-money, we have confidence we can do it.

I mean, for Tier 1 city particularly, you might already have a question, what if the macro

improves a little bit, can we have a bit more pricing opportunity? And I would like to say that that's the upside. That's not built into our model yet. That would be very nice to have. Even if change rate moving our way, would be also another upside.

But for the lower-tier cities, we see the opportunity there. So, with the innovation and operational efficiency, we are setting a milestone, a target that by 2030, we want to increase KFC's lower city penetration from 2,500 to 4,500 cities, almost twice. And that's the milestone we set today.

So, with that, it's time to look at KFC, our flagship brand. It remains a resilient fortress behind our growth. And you will not miss the number at the title here, right?

We are aiming for a new milestone, becoming China's first restaurant chain to achieve 10 billion RMB operating profit in 2028. And this target is grounded in KFC's solid foundation, much like the Lego bricks. I like the Lego bricks. Robust, flexible, always further to build further.

Imagination is the ceiling. Not to mention that 80% of my son's toys budget was with Lego, for sure. Fantastic concept. And we learn from this amazing company.

Even at KFC scale, significant growth potential remains. We continue to reach new customers and unlock new occasions. Like in Warton's presentation later, of KFC Brand Manager, he's going to go through the KCOFFEE, KPRO and then KFC's small town, and I would like to

introduce one new concept here, the Gemini store.

What is Gemini store? So, when we open new store in lower-tier city right now, we have tested this this year, we believe that we have some mileage in this, we open a pair of stores, KFC store and Pizza Hut store at the same time.

Because now with the Pizza Hut WOW model, which is perfect for lower-tier cities, they can share the customer, and they can even drive the traffic for each other. Today, KFC, tomorrow, Pizza Hut. And then we share a lot more equipment, resources, recruiting, everything,

management, behind the scenes, in lower-tier city, that's far away from Shanghai.

This Gemini model is just perfect for lower-tier cities. And another simple way to think about it, if you want to have a lot of kids, having one kid at a time is good, but having twins, many twins at the same time is even better. Simple.

Let's move on to Pizza Hut. My humble suggestion is do not underestimate Pizza Hut China. I know there are concerns towards Pizza Hut as a brand around the world. We all have heard the news.

But Pizza Hut China, after multiple years of hard work, has reached an inflection point last year. And since then, Pizza Hut is on a surge. Look at the store number. It took 23 years to build the first 1,000 Pizza Hut. And Pizza Hut, during quarter three this year, just reached 4,000 stores.

And the last 1,000 stores only took two years. That's pretty decent.

And then again, I'm sure you have seen it already. Right now, Pizza Hut, we are aiming to set the milestone to double the operating profit to more than US$310 million from 2024 to 2029. Jeff, brand GM of Pizza Hut, will talk about it a bit more.

And if you still remember our turnaround journey of Pizza Hut many years ago, we are very clear about our priorities. Sales first, profit later. Now, we have the sales in store, Jeff. We are ready for more profit. No pressure.

Let's talk about our emerging brands. Emerging brands with a lot of hard work under the soil, behind the scenes, actually are gaining momentum. First, let's talk about Lavazza. I mean, Maggie will talk -- we have a presentation on Lavazza later on.

Five years of hard work underground, trial and errors, Lavazza has built a very solid foundation. There are three facts I want to share with you right now. First, Lavazza last quarter has delivered double-digit like-for-like growth. We like that, don't we?

Second, the stores opened in the last two years have been profitable at the store level. Well done,

Lavazza team. Third, the retail business, namely the bean business, the drip business, the concentrate business, they're profitable. It's good scale. The growth is lovely. It's profitable.

By the way, we are also building a local roasting plant in China behind the scenes without telling too many people. So, the foundation has been good. And we are ready to break the ground and ready to scale with professional coffee positioning.

Chinese dining, like we went through the journey thinking that the Chinese dining can be also part of the bamboo forest. After a while, realized it's probably slightly different species. It's the same thing, but different.

So, it takes a bit longer to connect the roots. But this year, we are having this pretty decent breakthrough against side-by-side, not twins, almost twins, side-by-side, Huang Ji Huang, Little Sheep, put them together, a lot of synergy we can get out of it.

We have some pretty interesting momentum out of it already. But Chinese dining as a sector is struggling a bit more in the current macro situation than the QSR, but some nice momentum and encouraging results so far.

Taco Bell, another slightly different little bamboo. But this year, we also see double-digit growth in same-store sales in the first three quarters. And this year, we do expect to achieve store-level cash flow breakeven for the first time. So, all going to the right direction, some faster and some slower. But it's very hard for the smaller brand to compete with the two big brothers in the company, namely KFC and Pizza Hut, but they have to keep working harder.

So, I've covered the growth from the brands. What is the second one I have covered earlier?

Equity-franchise hybrid model as a growth accelerator. We really start to make a shift and determine to focus on that since 2024, last year.

The two focus for our franchising strategy, lower-tier city and strategic channels, such as

highway station, tourist location, strategic channel, typically, are those places where it's quite hard to get the site. Or even universities or hospital, these are strategic channels.

We now have more than 2,000 franchise stores in our system, and we aim for over 5,000 by 2028. In terms of system sales, you can see we are aiming to double that system sales mix by 2028 as well.

So, our transition to the hybrid model is a strategic evolution grounded in decades of experience and learning, some good learning, some more challenging learning, but they're all good

learnings.