Yum China’s delivery and menu shake-up lift fast-food sales

Crayfish burgers, lotus leaf-wrapped rice and chicken burgers topped with kimchi are among the offerings that have helped Yum China boost sales at its KFC and Pizza Hut outlets in the country after years of lacklustre growth.

Yum China, which operates more than 8,600 restaurants, said last Tuesday that its revenue in the first quarter increased 4 per cent from the same period last year to $2.3bn, with sales at its existing stores growing 4 per cent. 

The quarter followed a difficult few years in which revenue growth has been driven mainly by new openings. Same-store sales grew just 1 per cent last year, with a 5 per cent decline at Pizza Hut outlets.

Analysts said the company was slow to adapt to growth in food delivery, while consumers began to see its brands as stale. 

“The key problem was that like any brand that has been around for a long time you need to refresh,” Joey Wat, the company’s chief executive, told the Financial Times, citing new offerings such as chicken wrapped in potato chips and peach-flavoured tea.

Same-store sales at Pizza Hut rose 1 per cent for the first quarter of this year, following last year’s decline, after the company changed three-quarters of menu items. “When we come up with a new product that gets customers to come in, that is how we create same-store sales,” Ms Wat added.

New York-listed shares of Yum China, which was spun out of its US parent company in 2016, performed poorly last year but have risen by a third since January.

The company has hired about 50,000 couriers, and deliveries now account for nearly 20 per cent of its sales. 

Ms Wat acknowledged that increasing same-store sales would become “more challenging”, due to a larger base but said growth would be driven by around 650 outlets opening this year. “There are 1,000 cities where we don’t have stores,” she said.

She said the wage and social security for workers rose about 6 per cent a year, but Yum has kept staff numbers roughly flat due to the rise of ordering by mobile phone and digital screens in stores.

Nearly 90 per cent of KFC orders are paid for digitally, up from 18 per cent in 2016. “In the past that store would have six or seven people at the counter collecting money, now that would be one or two, because we have more digital and mobile orders,” said Ms Wat. “That is making a big change to our business.” 

The company’s shares rose more than 4 per cent as its same-store sales growth beat estimates, even as it reported a 23 per cent decline in profits for the quarter due to a deal to acquire a company operating some of its stores in eastern China.

The company plans to add duck meat to its menu and increase its seafood offerings this year. “What worries me the most is that innovation ideas will dry up,” said Ms Wat. “Customers always ask for something new.”

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