China’s largest quick-service restaurant operator

Yum China is the leading quick-service restaurant franchise in China and operates the KFC and Pizza Hut brands. The company first commenced operations in China in 1987 as a subsidiary of Yum Brands before being spun off in 2016. Today, the company operates the largest store network in the country with over 10,000 stores in 1,200 cities.

The company’s scale, execution ability and innovation are significant sources of competitive advantage. For example, the company has a smart promotion system that regularly engages millions of their KFC and Pizza Hut loyalty scheme members, who in turn generate over 50% of sales. Yum China possesses a nationwide supply chain and logistics network, a 1000 strong team focusing solely on store expansion, and its own delivery platform and rider fleet, all of which enables it to grow while controlling costs and maintaining product quality.

The company also takes its environmental and social obligations as a quick-service restaurant seriously. For example, Yum China incorporates healthier items such as salad and congee in its menu and is an active member in the Chinese Nutrition Society. The company also aims to reduce wastage and have cut paper and plastic usage by 9,000 tons every year. They are also committed to further improving palm oil and paper sourcing. The company also values its people and provides welfare and insurance coverage not only to its front line staff but also their elderly parents.

Yum China is an example of a company that has strong alignment with the management and a culture that embraces innovation. We have been shareholders of Yum China in our Global Emerging Markets portfolios since 2018 and we believe these investments will enable them to benefit from China’s growing domestic consumption.

KFC restaurant penetration (restaurants per m people)

High Return On Invested Capital (ROIC)*

*Return on invested capital (ROIC) is the amount of money a company makes that is above the average cost it pays for its debt and equity capital.

*Return on invested capital (ROIC) is the amount of money a company makes that is above the average cost it pays for its debt and equity capital. 

Source: Company data, Macquarie Research, Bloomberg, as at 31 March 2020.

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