Hotelex 2013: Yum! reports huge growth in China

The Chinese arm of food giant Yum! now equals almost half of the multinational brand’s profits.

According to Jane Gannaway, vice president of engineering at Yum! China, the combination of strong, steady growth in restaurant sales and an underdeveloped market provide huge opportunities for the growth of the chain in China.

The brand operates the KFC and Pizza Hut brands within the country, plus 28 East Dawning restaurants and the Little Sheep concept, a Chinese hotpot restaurant chain.

In total Yum! currently has more than 5,700 restaurants in more than 850 cities, including more than 4,200 KFC restaurants – that’s opening at a rate of more than one new KFC a day in China since the brand arrived in the country.

“We think that the math in China is amazing,” said Gannaway, speaking at the Hotelex conference in Shanghai this week. “There are more people here in the middle classes than in the whole of the US.

“We are really excited; we think we’ll be here for quite some time.”

The China arm of Yum! is now the largest arm of the restaurant giant, equalling a third of the company in terms of new restaurants, 42% of the profits and over $1bn in operating profits. In 2011, business reached $7bn in sales.

In US, there are 66 Yum! operated restaurants per one million people; in China, this is currently one per million people. “Our growth potential is exponential,” Gannaway added.

A key focus of the restaurant growth has been on environmental credentials, and Gannaway told the Hotelex audience how the group had been working hard to reduce packaging, utility costs and the environmental impacts of the brand.

She also stressed the importance of local considerations when entering a country.

In 2010, the firm launched its E3 programme, representing energy, environment and economics, and has made this programme the pillar of its corporate responsibility agenda in China. This has both reduced carbon and saved money, Gannaway said.

“Most of the time, when you invest in reducing waste, or energy, or packaging, it is going to be an economically attractive option,” she said.

Because of the nature of their brands, KFC restaurants in particular, she admitted there will always be some disposable packaging. But she said focus had been on “reduce” rather than “eliminate”.

Measures including using paper wraps rather than clamshells, not handing out stirrers or napkins automatically and thinning packaging materials have helped them to save 8,2000 tons of paper in 2012; $21m in savings.

The brand opened two LEED compliant restaurants in China, and has tested energy saving technology and equipment which are now being rolled out across new builds. The first two LEED restaurants, in Hanghzhou and Jingpan in Shanghai, saw a 30% reduction in energy costs; a 20% reduction in ongoing costs.

So far she estimates that they have reduced their carbon footprint by about 90,000 tons.

“Sustainability is not just about the planet, it about the profits and the people too,” she said. “The business costs are usually solid.”

“We do go into a country or a region and think about the consumer. What Chinese consumers like is a diverse menu. They want a series of snacks, they want to share food.”

The Pizza Hut brands in China have diversified accordingly, she said, with pizza only about 60% of the food sold in the country, and the KFC menu offered is different to other markets.

In terms of considering the local market, she said the division only employs four Americans, with the rest of the group drawn from local talent. “We are a very solid employer in this country,” she said.

Her views on the huge potential for growth in the Chinese market were backed up by figures showing demand remains strong across Asia.

According to Robin Ashton of Foodservice Equipment report, who spoke earlier at the Shanghai session, Chinese people make an average of 226 visits to commercial restaurants in a year; more than in the US where 196 visits per average are made.

Most of the visits in China centred around breakfast and lunch, Ashton said, meaning there are huge growth opportunities around those markets. While the US market equates for 42% of the total global consumer food market, and China only current accounts for 1%, the US market is mature and the relatively immature Chinese market has seen huge growth in recent years.

China saw more than 13% increase in sales according to the NPD last year, far outstripping growth in Canada and Japan – the only other two countries to see any 2012 growth.

The Shanghai-based China division of Yum! has a target of delivering at least 500 more restaurants per year, and opened well above that at 889 new restaurants in 2012. Yum! has a long-term aim of at least 20,000 units in China.

Helen Roxburgh

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