Image Source: Yum China

Yum China (YUMC) reported record earnings in the second quarter of 2023, with double-digit year-over-year increases in total revenues, system sales and same-store sales. 

The company, which operates KFC and Pizza Hut restaurants in China, posted quarterly total revenues of $2.65bn, an all-time high for Q2. System sales grew 32% while same-store sales grew 15% year-over-year. Meanwhile, operating profit more than tripled, with restaurant margin reaching 16.1% compared to 12.1% in the prior year period.

Through improved digital engagement with customers, fun and innovative food offerings, enticing promotions and agile operations, Yum China was able to capture surging consumer demand around holidays and festivals in the quarter. On Children’s Day on June 1, KFC teamed up with Sanrio, maker of Hello Kitty, to feature meal sets with a range of adorable toy collectibles. The promotion was a smash success, resulting in over 3 million sets sold across China. Pizza Hut also extended its fruitful collaboration with gaming company Genshin Impact for the second year, selling 2 million meal sets with themed accessories.

Innovative new meal offerings are proving very popular with customers. In Q2 2023, KFC introduced the "K-zza", a creative twist on pizza that utilized existing ingredients. Meanwhile, new product releases for K-Coffee, KFC’s coffee segment, have done well, helping to fuel 50% sales growth in the second quarter. For example, the Iced Sparkling Americano with Lemon, a drink which stores could produce without any additional capital investment, became K-Coffee’s bestselling limited time offer product. 

Pizza Hut launched its new menu in May, with over half of menu items new or upgraded from a year ago. This revamp has been instrumental to consistently strong sales performance – with Pizza Hut posting same-store sales growth of 13% in the second quarter. The brand continued to build its reputation in China as a “Pizza Expert” through offering a wider range of toppings and stuffed crust fillings. Introduced in Q2 2023, the Bolognese Pizza with Beef, with the familiar taste of spaghetti bolognese, is a new customer favorite, particularly with children.

Yum China’s sustained growth has allowed it to continue its aggressive store expansion. New store openings accelerated in Q2 2023, with a record-breaking 655 net new stores in the first half of 2023. The company remains on track to achieve its target of 1,100 to 1,300 net new stores in the full year of 2023. 

It is worth noting that KFC and Pizza Hut are not just opening new stores in China’s lower-tier cities – which is indeed an important growth area for the company – but also continue to expand in higher tier cities. KFC has also been exploring new channels such as university campuses, hospitals, and high-speed railway stations to increase its reach with a variety of consumer segments.

Leveraging its growth momentum, innovative food, flexible store formats, and supply chain and operational capabilities, Yum China looks well positioned to capture long-term growth opportunities across China.