536 new stores added in Q3, Yum China races ahead in the "value for money era"

Amid the era of super cost-effectiveness in the food and beverage industry, Yum China is accelerating its expansion.

In the third quarter of this year, Yum China's total revenue was $3.2 billion. Excluding the impact of currency exchange rates, this represented a 4% year-on-year increase, while operating profit grew by 8% year-on-year to 400 million yuan.

However, due to a negative impact of 8 million yuan from its investment in Meituan during the third quarter, net profit saw a year-on-year decline of 5%.

The primary source of rapid revenue growth is the quick expansion of store scale.

This quarter, Yum China had a net addition of 536 stores. By the end of September, the company had 17,514 stores in China. Referring to its annual target, the store opening plan has already surpassed 60% completion.

Among them, KFC had a net addition of 402 stores, a record high for the third quarter.

COFFii & JOY's expansion rate once again exceeded the company’s previous guidance.

Yum China had twice raised its annual store guidance for COFFii & JOY in financial disclosures for the first and second quarters. In August this year, Yum China expected that COFFii & JOY would reach 1,700 stores by year-end.

But by the end of the third quarter, COFFii & JOY had already reached 1,800 stores.

COFFii & JOY adopts an "in-store shop" model operating "shoulder-to-shoulder" with KFC: designating an independent area within existing standard KFC stores, sharing the kitchen and space, significantly reducing the difficulty of location selection and initial capital investment for each store.

In addition, KPRO, which also operates in an in-store shop model and focuses on healthy light food, has expanded to more than 100 stores in high-tier cities.

Yum China stated that most active members have not yet tried COFFii & JOY or KPRO, implying huge growth potential for this model within the existing membership system.

Pizza Hut also had a record net addition of 158 stores in the third quarter.

WOW stores, which focus on "solo dining," have expanded to 250 stores, with close to 50 new locations added since the start of this year, helping the Pizza Hut brand enter 40 new cities.

Yum China expects Pizza Hut's store count to achieve double-digit year-on-year growth for the full year.

Yum China's sales performance makes it clear that cost-effectiveness remains the main theme in the current fast food market.

Since the start of the year, KFC's "OK Meals" and Pizza Hut's entry-level pizzas have both achieved double-digit sales growth.

To adapt to changes in the market environment, Yum China has, in recent years, implemented differentiated pricing for its two main brands while ensuring profit margins: keeping KFC's per-customer transaction value stable, while strategically reducing prices at Pizza Hut.

However, the market has long taken a wait-and-see attitude towards its "volume-for-price" strategy.

The reason is that although Yum China’s same-store transaction volume has recorded year-on-year growth for eleven consecutive quarters, it was not until the second quarter of this year that same-store sales returned to positive growth.

In addition to operational efficiency gains brought by the "shoulder-to-shoulder" model and automation, another important lever for Yum China to enhance quality and efficiency is product innovation.

That is, how to leverage existing ingredients to develop new product combinations and innovations, expand consumption scenarios, and attract a broader customer base — all without significantly increasing supply chain costs — to support profitability under low-price strategies.

For example, KFC's "Crispy Golden Sand Chicken Wings" have rapidly achieved sales comparable to the classic New Orleans roasted wing, further expanding the sales scale of its core category; Pizza Hut launched "Pizza Burgers," which re-combine existing ingredients into a burger shape that precisely meets the needs of solo diners.

A relevant person from Yum China told Xin Feng that KFC is exploring the launch of "large-carb" products priced below 20 RMB through specific channels in certain regions to reach budget-conscious customers and strengthen its appeal in lower-tier cities.

In the third quarter, the restaurant operating margins for KFC and Pizza Hut reached 18.5% and 13.4% respectively, up by 20 and 60 basis points year-on-year.

However, as the share of delivery business increases rapidly, operational efficiency is also facing structural impacts.

During the same period, Yum China's delivery sales increased by 32% year-on-year, with delivery accounting for 51% of total restaurant revenue, up from 40% a year earlier.

At the earnings conference, Joey Wat stated: although promotional activities on delivery platforms have increased, the company's core brands consistently focus on balancing growth and profits, ensuring profit margins while driving traffic. In the long term, based on historical experience, the company expects subsidy levels to normalize.

Benefiting from the exposure driven by platform subsidies, in the third quarter, COFFii & JOY saw its average daily cup sales grow by 30% year-on-year, while LAVAZZA experienced double-digit same-store sales growth.

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