MS Test 2

Summary

KFC, a global fast-food giant with over 29,000 restaurants, is experiencing significant growth in China, where it recently opened its 10,000th store. With a menu tailored to Chinese tastes and a focus on digital ordering, KFC China has become Yum! Brands' largest market. Despite facing food safety scandals and economic challenges, the company continues to expand, leveraging AI and automation to streamline operations and plans to explore franchising and the coffee market for future growth.

Takeaways

• 🍗 KFC is one of the world's largest fast food chains with over 29,000 restaurants and 800,000 employees globally.
• 🇨🇳 The majority of KFC's growth is in China, where it has more than 10,000 stores compared to just over 4,300 in the US.
• 📈 In the last four years, KFC has experienced its highest speed of development in its 36-year history, with over 40% of its stores built during this period.
• 🏪 China is KFC's largest market and Yum's second largest pizza market, showing remarkable success in a highly competitive restaurant environment.
• 🍚 KFC's menu in China has been adapted to include local favorites such as rice, congee, steam dumplings, and egg tarts.
• 📱 Digital ordering and delivery are significant components of KFC's business in China, with over 4,300 million members using their app for ordering.
• 🔍 KFC China has faced challenges including food safety scandals, COVID-19 lockdowns, and concerns about the health of Chinese consumers.
• 💰 Yum China, the operator of KFC in China, generated $7.2 billion in revenue from its KFC segment in 2022 and plans to return $3 billion to shareholders over the next three years.
• 📊 KFC has managed to overtake other fast food chains in China by offering a fusion of Chinese characteristics in its menu and leveraging its early entry into the market.
• 🤖 Investments in automation and AI have helped KFC reshape its business, improving efficiency in areas such as supply chain management and customer orders.
• ☕ KFC is expanding into the coffee market in China, with its in-house brand K Coffee aiming to sell 180 million cups of coffee in 2023.

Q & A

How many restaurants does KFC have worldwide, and how many employees does it employ?

KFC has more than 29,000 restaurants and employs approximately 800,000 employees globally.

What is the rate at which KFC is opening new locations?

KFC is opening a new location every 3 and a half hours.

How does the number of KFC stores in China compare to the United States?

KFC has over 10,000 stores in China, while in the United States, there are a little over 4,300 KFCs.

What is the significance of the 10,000th KFC store in China?

The opening of the 10,000th store in China represents the highest speed of KFC development in the company's 36-year history.

What percentage of KFC's stores have been built in the last four years in China?

Over 40% of KFC's stores in China have been built in the last four years alone.

What is KFC's position in the Chinese market compared to other Yum Brands?

KFC is the largest market for Yum Brands in China, and it is also Yum's second-largest pizza market.

What are some unique menu items that KFC offers in China that are not typically found in its US locations?

KFC's menu in China includes items such as rice, kanji, steam dumplings, and egg tarts.

How does KFC China define its members and what is the size of its membership base?

KFC China defines members as someone using a member coupon QR code for ordering through its app, and it claims to have over 4,300 million members.

What challenges has KFC faced in China, and how has it addressed them?

KFC faced food safety scandals, lockdowns due to COVID-19, and concerns about the health of Chinese consumers. The company addressed these challenges by investing in digital capabilities, improving its supply chain, and focusing on automation and AI.

What is the revenue generated by KFC China in 2022, and what are the company's plans for returning capital to shareholders?

KFC China generated revenue of $7.2 billion from its KFC segment in 2022. The company plans to return $3 billion to shareholders over the coming three years.

How has KFC managed to overtake other fast food chains in China, and what is its strategy for future growth?

KFC managed to overtake other chains by offering a fusion of Chinese characteristics in its menu, having a first-mover advantage, and focusing on digital orders and delivery. For future growth, KFC is considering franchising and expanding its coffee brand, K Coffee.

Outlines

00:00

🌏 KFC's Global Expansion and Success in China

KFC, with over 29,000 restaurants and 800,000 employees, is a leading fast-food chain that has experienced significant growth, particularly in China. The brand has opened its 10,000th store in China, surpassing its US presence of just over 4,300 stores. This rapid expansion is attributed to China's large economy and the company's strategy of adapting to local tastes, such as offering rice, kanji, steam dumplings, and egg tarts alongside digital ordering and delivery services. Despite facing food safety scandals and COVID-19 lockdowns, KFC China has a strong customer base with over 4,300 million members, some visiting over 100 times in 2023. The company plans to return $3 billion to shareholders and is exploring future growth strategies amidst increased competition from US brands entering the Chinese market.

05:00

📊 Yum China's Strategic Growth and Digital Innovation

Yum China, the operator of KFC in China, has grown to become one of China's largest restaurant companies with over 14,000 restaurants in 1900 cities. After spinning off from Yum Brands in 2016, the company has focused on owning and operating the majority of its stores, which has contributed to its rapid growth and profitability. Yum China's revenue reached $9.5 billion in 2022, compared to Yum Brands' $6.8 billion. The company has also invested in digital capabilities, automation, and AI to streamline operations and improve efficiency, with digital orders accounting for 89% of KFC's sales in the third quarter of 2023. However, economic strains, including a trade war with the US and rising unemployment, have impacted the business, and there are concerns about potential backlash against Western brands and the overall slowdown in the Chinese economy.

10:01

☕️ KFC China's Challenges and Future Opportunities

KFC China faces challenges such as potential consumer apathy towards Western brands and the impact of the COVID-19 pandemic on sales, with temporary closures and a decline in same-store sales. However, the establishment of its own delivery platform has been a lifesaver, contributing to 39% of sales. The company is exploring options for future growth, including expanding franchising and entering the coffee market with its in-house brand, K-coffee, aiming to sell 180 million cups in 2023. Despite the challenges, KFC China's total revenue increased by 9% in the third quarter of 2023. The company's biggest challenge may come from increased competition as other Western fast-food brands expand in China, with brands like McDonald's and Starbucks doubling down on their presence in the market.

Keywords

💡KFC

KFC, or Kentucky Fried Chicken, is a global fast-food chain known for its fried chicken. It is central to the video's theme as it discusses KFC's rapid expansion and success in China, where it has become one of the largest fast-food chains with over 10,000 stores, compared to just over 4,300 in the US. The script mentions KFC's growth strategy, menu adaptations, and digital initiatives in China.

💡Fast Food Chains

Fast food chains refer to restaurants that serve food quickly and are typically part of a large corporation. The video discusses KFC as one of the world's largest fast food chains, highlighting its growth and competition with other chains like McDonald's and Starbucks in the Chinese market.

💡China

China is a significant focus of the video as it portrays the country's role in KFC's growth. With a large population and growing economy, China has become the largest market for KFC, surpassing the US in terms of store count and contributing to a substantial part of the brand's global sales.

💡Menu Adaptation

Menu adaptation refers to the process of modifying a restaurant's offerings to cater to local tastes and preferences. The script mentions how KFC has adapted its menu in China to include items like rice, kanji, steam dumplings, and egg tarts, which are not typically found in Western KFC outlets.

💡Digital Ordering and Delivery

Digital ordering and delivery are key components of KFC's business model in China, as highlighted in the script. It discusses how KFC China has embraced technology to allow customers to order through its app, contributing to a significant portion of its sales and demonstrating the importance of digital integration in the Chinese market.

💡Yum Brands

Yum Brands is the parent company of KFC, Pizza Hut, and Taco Bell. The script explains that Yum Brands spun off its China division, creating Yum China, which now operates as an independent company with exclusive rights to operate KFC, Pizza Hut, and Taco Bell in China. Yum China's success is tied closely to KFC's growth in the country.

💡Franchise

A franchise is a business operation that is granted the right to sell a company's goods or services in a particular area. The video mentions that unlike Yum Brands, which has a high percentage of franchised stores, Yum China owns and operates the majority of its restaurants, which has contributed to its rapid expansion.

💡Food Safety Scandals

Food safety scandals refer to incidents that damage consumer trust in a brand due to concerns about the safety or quality of the food being sold. The script discusses how KFC faced such scandals in China in 2012 and 2014, which negatively impacted its growth and sales.

💡Economic Growth

Economic growth is a key factor influencing the expansion and success of businesses. The video mentions the expected slowdown in China's economic growth and its potential impact on KFC's performance, indicating the importance of a robust economy for the fast-food industry.

💡Competition

Competition in the video refers to the rivalry between KFC and other fast-food chains like McDonald's, Starbucks, and Taco Bell in the Chinese market. The script discusses how KFC has managed to overtake these competitors and the challenges it may face as these brands continue to expand in China.

💡Digital Capabilities

Digital capabilities are the technological features and tools that enable a business to operate efficiently in the digital space. The script highlights KFC China's investment in improving its digital capabilities, such as AI and automation, to enhance customer experience and streamline operations.

Highlights

KFC is one of the world's largest fast food chains with over 29,000 restaurants and 800,000 employees globally.

China is the primary growth market for KFC, with its 10,000th store recently opened, compared to just over 4,300 in the US.

KFC China's rapid expansion in the last four years accounts for over 40% of its total stores.

KFC has adapted its menu in China to include items like rice, kanji, steam dumplings, and egg tarts, resonating with local tastes.

Digital ordering and delivery are integral to KFC's operations in China, with over 4,300 million members using its app.

KFC China claims to have a million customers who visited at least 100 times in 2023, showcasing its customer loyalty.

Food safety scandals and COVID-19 lockdowns have presented challenges to KFC's growth in China.

Yum China, the operator of KFC China, generated $7.2 billion in revenue from its KFC segment in 2022.

Yum China plans to return $3 billion to shareholders over the next three years, indicating strong financial performance.

KFC's early success in China was attributed to its fusion of Chinese characteristics into the menu and a first-mover advantage.

Yum China, as an independent company, owns and operates the majority of its restaurants, unlike its US counterpart.

Investments in automation and AI have reshaped KFC's business operations, improving efficiency and supply chain management.

Digital orders, including delivery and mobile orders, accounted for 89% of KFC China's sales in Q3 2023.

KFC China's aggressive expansion and ownership model have allowed it to quickly increase its store count.

Economic strains and a potential slowdown in China's economy pose challenges to KFC's future growth.

KFC China's same-store sales declined in 2022 due to the impact of the COVID-19 pandemic on its business.

KFC China established its own delivery platform, contributing to 39% of sales and supporting growth during challenging times.

Franchise expansion and the coffee market are potential areas for KFC China's future growth.

Competition from other Western fast food brands expanding in China may pose a significant challenge for KFC.

Transcripts

with more than 29,000 restaurants

800,000 employees and a new location

opening every 3 and a half hours KFC is

one of the world's largest fast food

chains but while much of the Brand's

early success came from the US today the

majority of that growth is in China in

the city of Hong Joo about an hour

outside of Shanghai KFC China recently

celebrated the opening of its 10,000

store by comparison the US has a little

over 4,300 KFCs the last four years is

the highest speed of KFC development in

our 36 years history because the the the

sheer scale of the

economy provides us opportunities to

build more stores over 40% of our stores

have been built in the last four years

alone China is a very important Market

you know for yum it is the largest KFC

market and Yum's second largest pizza

Market remarkably successful in a market

Market you know full of restaurants it's

not like there there aren't a lot of

restaurants in China they're everywhere

known for more than just chicken a

typical menu in China can include items

like rice kanji steam dumplings and egg

Tarts digital ordering and delivery are

also a major component and here I can

choose the the nearest restaurant and

this one is the restaurant I'm right now

KFC China claims it has over 4,300

million members it identifies members as

someone using a member coupon QR code

for ordering through its app a million

of those customers visited at least 100

times in 2023 but the business has space

headwinds including food safety scandals

lockdowns due to covid concerns about

the health of the Chinese consumer as

well as questions about plans for future

growth definitely as more us Brands

enter KFC might see itself facing more

direct competition from the faces it's

used to seeing only in the US yum China

the operator of KFC China generated

revenue of $7.2 billion from its KFC

segment in 2022 over the coming 3 years

the company plans to return $3 billion

to shareholders so how did KFC overtake

other fast food chains in China like

McDonald's Starbucks and Taco Bell and

can the business continue to grow CNBC

traveled to hongo China to find

out the first KFC franchise opened in

Salt Lake City in 1952 but the chain

didn't get its start in China until

1987 a leg up on the competition and an

in Fusion of Chinese characteristics

into the menu were key to its early

success so 36 years ago we only serve

eight products in the restaurant

including original recipe chicken um

right now our manual is bigger um 40

item on the menual however every year

including 2022 we introduce 180

different product to our customer in

China they more than any other Western

uh food Concept in China early on

understood the need and necessity of not

only introducing uh you know flavors and

menu items that would resonate with the

Chinese palet but adjusting their menu

at that time it was still owned by

PepsiCo and so PepsiCo was more

concerned with beating Coke and less

concerned with what its restaurant

Brands were doing so they kind of went

Full Throttle in China PepsiCo spun off

its fast food business including KFC

Pizza Hut and Taco Bell in 1997

the business was later renamed Yum

brands by 2000 China accounted for 12%

of the sales in the international

restaurants category at yum brands other

fast food chains were capitalizing on

China's economic transformation too

McDonald's launched there in 1990 the

reason that yum is larger the reason

that KFC is larger in China versus

McDonald's is really twofold the first

is that yum owned the distribution

business in China so just allow them to

access smaller cities first and get that

first mover advantage

and the second piece is that chicken as

a part of KFC is just naturally more

appealing in China where chicken is

larger protein than beef they look at

Colonel Sanders and there is a Chinese

expression for them for Colonel Sanders

they call him like old grandpa and so

he's kind of an iconic figure just like

Ronald McDonald you know a

representation as an American cultural

icon but the brand was hit with a series

of food safety scandals in 2012 and 2014

that weighed on its growth yum Brand's

China division saw same store sales

decline 5% in 2014 and additional 4% the

following year it the brand was a bit TI

at that time uh the the stores were a

bit TI uh the same store sales uh was on

negative double

digit uh we start to ask the question

whether Chinese people still like fried

chicken end of 2015

yum China was having some challenges

that the same store sales recovery was

nonlinear and was underwhelming investor

expectations at the time there was

activist pressure at the time to

separate the two businesses that the

company uh adhered to Yum brands spun

off its China business in 2016 to create

yum China an independent Company

Incorporated in Delaware enlisted on the

New York and Hong Kong Stock Exchange

Joey watt took over the role of CEO in

2018 today the has over 14,000

restaurants in 1900 cities and is one of

China's largest restaurant companies

with exclusive rights to operate KFC

pizot and Taco Bell Brands there unlike

its us counterpart yum brands with 98%

of its stores franchised yum China owns

and operates the vast majority of its

restaurants in yam China over 90% of our

stores are still owned by our company

they're not franchise I mean the

investment payb of our store is

incredible in in China that ownership

model has helped to boost the company's

store count yum China had revenue of

$9.5 billion in 2022 compared with yum

brands that had revenue of $6.8 billion

that year yum brands has over 55,000

restaurants in 155 countries in

territories when we run our Equity store

in China we can open our store very very

fast we don't have to negotiate with

franchise how many do we open the store

in one Province the other one we can

execute in a very very high speed I

think usually when you see this kind of

behavior it's usually an indication that

they they prefer to keep most of the

profits to themselves rather than

sharing those profits with individual

owners and so therefore it's kind of an

indication that on a unit level basis

the China stores are are are not only

well operated but they're profitable it

also it's Yum brands yum China pays a

license fee to Yum brands of 3% of net

sales in the third quarter of 2023 China

made up 25% of yum Brad's KFC system

sales for comparison the US its Home

Market only accounts for 15% of its

system sales every quarter investments

in automation AI have also helped

reshape the business the first one is

the uh delivery to home and the second

one is dining or takeway and the third

one is order a coffee so we choose this

one right

now in 2023 the company said it would

invest an additional 3.5 to5 billion

over the next 3 years to improve its

digital capabilities boost its door

account and bolster its supply

chain instead of having my staff to

order how many buns or how

many uh burger or how many chicken to

the store this is done by AI already our

staff don't have to touch it going

forward

how could aigc help our staff the The

Next Step from AI to aigc is the the new

technology allow the the language to be

spoken as a human for example our staff

our manager will already have a watch

the watch will tell them oh it's time to

uh marinate another 50 chicken to

prepare for the next bch of

customer it is also allowed at the trim

staff yum China cut its Workforce by

10,000 people over the past 7 years

while at the same time almost doubling

its store count from 7,500 restaurants

to over

14,000 digital orders including delivery

mobile orders and kiosk orders accounted

for 89% of yum China's KFC sales in the

third quarter of 2023 yum China's

digital orders exceeded $8 billion in

2022 Chinese consumers are digital first

in their

behavior across the board you cannot be

retail anything in China without being

on top of digital much more than in the

US so you know the fact that most of

these companies Walmart Alibaba all of

them Zara they their digital teams in

China often end up being the Innovation

Center for the rest of their operation

globally a trade war with the US and

Rising unemployment have caused strains

not only for the Chinese economy but

also for KFC

economic growth in China is expected to

slow from 5.2% in 2023 to 4.2% in 2025 y

China recently warned on its third

quarter call that there's been a little

bit of slowdown and it's hard to tell if

this is something that's seasonal and

might improve or if there's just a

general pessimism in the Chinese economy

if you look at their profitability it's

starting to taper and then we have to

figure out you know to what extent is

this related to the overall sort of

slowdown in the Chinese economy or is it

or or is it more related to the concept

itself there's also some concern that

there might be a little bit of backlash

or apathy towards Western brands in

particular which might not hit KFC to

the same extent as say Starbucks but

it's still something to

consider the pandemic also impacted

sales the number of yum China stores

temporarily closed or that offered only

takeout or delivery options reached over

4,300 in November 2022

total revenue at yum China declined 3%

in 2022 from a year

earlier KFC's China same store sales

declined 7% during that same period Co

pandemic really did put a hit on KFC the

only thing that kept them alive was the

delivery business KFC China established

its own delivery platform in 2010 by

2022 about 90% of KFC's in China offer

delivery contributing to 39% of

sales but KFC continues to expand

franchising might be one option for

future growth in 2019 yum China

announced its first KFC franchise at gas

stations with China petrochemical and

China National Petroleum combined the

two companies operate more than 50,000

gas stations going forward we're going

to open up more to franchise business

because we have enough um our alumni our

employee who are you know going moving

on want to do next thing you you know we

might give them opportunity ex yum China

employee to be a franchisee and if they

do foresee the opportunity to

franchise that actually potentially

makes their stock more

interesting because within those 10,000

locations they could sell those

locations off to individual families and

recover a lot of capital which would

really boost their stock coffee is

another Market KFC is hoping to capture

Starbucks launched in China in 1999

today there are over 6,500 stores K

coffee KFC's in-house coffee brand has

about 300 locations including inside

trucks kiosks and small formats

Nationwide KFC China said it expects to

sell 180 million cups of coffee in 2023

we're seeing a proliferation of CH of

coffee Concepts in China given the fact

that it's high Roi with low barriers to

entry and the added benefit of the gross

margin on coffee is far better than

really any other product a restaurant

can sell per capita consumption of

coffee in China is about 5 cups a year

versus the US where it's Clos to 400

cups annually total revenue for yum

China in the third quarter of 2023

increased 9% from a year earlier to $2.9

billion but moving forward KFC China's

biggest challenge might come from closer

to home as other Western fast food

brands continue to expand there now a

lot of them are really leaning in

especially as the economy has opened up

since Co so we've seen for example

McDonald is really doubling down on

China Starbucks has said you know

multiple times no matter what happens to

their stores in China that they are all

in on China popey is obviously a close

competitor of KFC in the US um so that

sets up an interesting competition there

in the future popey's plans to open

1,700 restaurants in China over the next

decade really only serving onethird of

Chinese population what happened to the

other two3 one reason we are not serving

the other two3 is we just don't don't

have enough store yet to serve them we

are not even close to where do they live

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