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Yum! BrandsChina Investor/Analyst Conference
23 September 2008Shanghai, China
Today’s Agenda
Introduction and Yum! Overview Tim Jerzyk
Building Big Brands Angela Loh
Support Capability Joaquin Pelaez
High-Return Development Lily Hsieh
China Business Perspective Sam Su
Power of Yum!
GLOBAL PORTFOLIO
GLOBAL GROWTH
GLOBAL CASH GENERATION
Not Your Ordinary Restaurant Company
% of Total Operating Profit
Note: Excludes corporate allocation
2013 F
China
U.S.
2008 F
41%U.S.
31%YRI
28%China
30%U.S.
30%YRI
40%China
U.S. YRIMainland China
Note: Traditional units only (2007)
18,000Restaurants
2,600Restaurants
300million300300
millionmillion
12,000Restaurants
5+billion
5+5+billionbillion
1.3billion1.31.3
billionbillion
Restaurants PerMillion People 60 2 3
Long Runway for Growth
Leading International Retail Developer
1,0771,189 1,181
1,3581,300+
’04 ’05 ’06 ’07 ’08 F
International New Builds
Strong and Consistent Track Record
+5% +6% +5% +6%Net Unit Growth +6%
Huge Global Potential
2000 2030
Middle & Upper Class Growth
Developing Countries
Developed Countries
1 Billion
3 Billion
Source: World Bank Global Development Prospects 2007
~90% of Growth Coming from Developing Countries
Asia Pacific to ContributeMajority of Growth
Middle & Upper Class Growth by Region
Source: World Bank Global Development Prospects 2007
Europe/Central Asia +0.3 Billion
Asia Pacific
+1.1 Billion
Latin America +0.3 Billion
Middle East/Africa +0.1 Billion
Developed Countries +0.2 Billion
4,606
2,558
3,272
876
Developing Country Growth
1,397
1,687
433
330
7,164
4,148
3,084
763
International Units in Developing Countries(1)
5 Year Net Growth(2002-2007)
China
(1)Units as of year-end 2007 using World Bank definitions of developing countries Source: Public disclosures
3. Dramatically ImproveU.S. Brand Positions,
Consistency and Returns
3. Dramatically Improve3. Dramatically ImproveU.S. Brand Positions,U.S. Brand Positions,
Consistency and ReturnsConsistency and Returns
2. Drive Aggressive International Expansion and Build Strong Brands
Everywhere
2. Drive Aggressive 2. Drive Aggressive International Expansion International Expansion and Build Strong Brandsand Build Strong Brands
EverywhereEverywhere
1. Build Leading Brands in China in Every
Significant Category
1. Build Leading Brands 1. Build Leading Brands in China in Every in China in Every
Significant CategorySignificant Category
4. Drive Industry-Leading, Long-Term Shareholder and Franchisee Value
4. Drive Industry4. Drive Industry--Leading, Leading, LongLong--Term Shareholder Term Shareholder and Franchisee Valueand Franchisee Value
4 Key Strategies to Drive Growth
. . . with Substantial Infrastructure and Long-Term Competitive Advantage
Country-WideDistribution
System
Country-WideDistribution
System
TargetedManufacturing
TargetedManufacturing
Unmatched Development
Capability
Unmatched Development
Capability
UnparalleledTalent &
Experience
National Scale — 500 Cities
UnparalleledTalent &
Experience
Building Big Brands
Building Building Big BrandsBig Brands
Angela Loh Chief Marketing Officer
Unique Approach to Brand Building
East DawningEast Dawning
Category Leaders
“Life is tastier with KFC” “Happy Moments at Pizza Hut”
#1 QSR #1 Casual Dining
KFC’s Positioning: New QSR for Chinese Consumer
Traditional QSR
Core QSR strengths QSCV
Focus on few products to generate volume
Focus on product consistency (industrialize)
Value drivers (“up size”)
Eat lots of same product frequently
New QSR
Maintain the core (QSCV)
Offer variety
Focus on product taste
Offer balanced choices
Encourage balanced meals & regular exerciseEducate consumer on healthy life style
Top 2 box% KFC McD
Chicken expert 66* 45
Food expert 56* 45
Good taste 71* 55
Food variety 65* 54
Interesting new products 64* 47
Data source: BIT July 2008 *Significant difference,N=1900 in 47 cities 95 confidence level
KFC outperforms McD’s in major Food-Related Measures…
Top 2 box% KFC McD
Fun and energetic 58 56
The leading QSR brand in China 63* 53
A brand I can trustThe QSR brand I like most Advocate healthy life-style Deeply rooted in China
67*60*50*58*
63464344
… and in most Brand Imagery Attributes
Data source: BIT July 2008 *Significant difference,N=1900 in 47 cities 95 confidence level
Building a Big Brand at KFC
Community Involvement
In Store Experience
Menu designed for Broad Appeal
Rooted in China
integrated into their life
Building a Big Brand at KFC
Community Involvement
In Store Experience
Menu designed for Broad Appeal
Rooted in China
integrated into their life
KFC Menu Design Strategy
KFC is the chicken expert, but not chicken only
Different cooking platform to enhance variety
Meaningful side items/snack to support balancedchoices
Relevant menu for different daypart/occasion
Product Innovation adapted to local taste
Building a Big Brand at KFC
Community Involvement
In-Store Experience
Menu designed for Broad Appeal
Rooted in China
integrated into their life
A Step Ahead on In-Store Experience
Passionate crew brings Customer Mania to life
Up to date interior design
Dedicated hostess program in every store
Chicky program, a big hit with Kids2 birthday parties per day on average in each storeChicky show during holidaysKids fun club to incorporate educational content
Building a Big Brand at KFC
Community Involvement
In-Store Experience
Menu designed for Broad Appeal
Rooted in China
integrated into their life
Community Involvement, Not Gimmicks
First Light Foundation- Awarding scholarships, building schools
Chicky school program- Support by Educational Bureau on program design
3-on-3 Basketball tournament- Year 1 – 9,000 teams in over 150 cities, 48,000 participants
- Year 2 – 13,200 teams in over 232 cities, 65,000 participants- Year 3 – 17,500 teams in over 300 cities, 80,000 participants- Year 4 – 21,000 teams in over 369 cities, 126,000 participants- Year 5 – 24,033 teams in over 400 cities, 140,000 participants
Building a Big Brand at KFC
Community Involvement
In-Store Experience
Menu designed for Broad Appeal
Rooted in China integrated into their life
KFC Brand has Emerged Stronger than EverKFC Brand has Emerged Stronger than Ever
How we did it
Development capability held penetration
Strong belief in product innovation
World class operation to support new sales layer(Breakfast, delivery)
Robust local store marketing resource (Over 80 LSM coordinators / 9,300 hostess in the field)
New success in youth segment
Pizza Hut, Dual Channels Brand Building
Inspiring Communication
Complete casual dining experience
Menu structured to explore Western culture
More than just pizza, a unique 1st
western casual dining experience
Casual Dining Brand Home Delivery Brand
Functional focused marketing
Hot and on time with 5 star service
Menu designed for efficient, complete
home meal replacement
Best delivery brand with everyday affordable value
Pizza Hut Menu Strategy
Pan, stuff crust and thin & crispy dough
Complete Casual Dining experience (appetizer, soup, salad, drinks & dessert)
Exotic & interesting
New traditional dough, fast bake
Risotto & pasta line to enhance varieties
Appetizer, soup, salad and dessert make meal complete
Casual Dining Brand Home Delivery Brand
Pizza Hut, Dual Channels Brand Building
Inspiring Communication
Complete casual dining experience
Menu structured to explore Western culture
More than just pizza, a unique 1st
western casual dining experience
Casual Dining Brand Home Delivery Brand
Functional focused marketing
Hot and on time with 5 star service
Menu designed for efficient, complete
home meal replacement
Best delivery brand with everyday affordable value
Pizza Hut, Differentiated Experience
Upscale décor package
Event driven in-store activities
Hostess program to enhance “5-Star” feel
Tailored Tea Time menu design
Casual Dining Brand Home Delivery Brand
One national phone number
Well trained call center staff
Neat, clean & tidy delivery staff
Delivery time promise
Pizza Hut, Dual Channels Brand Building
Inspiring Communication
Complete casual dining experience
Menu structured to explore Western culture
More than just pizza, a unique 1st
western casual dining experience
Casual Dining Brand Home Delivery Brand
Functional focused marketing
Hot and on time with 5 star service
Menu designed for efficient, complete
home meal replacement
Best delivery brand with everyday affordable value
Pizza Hut, Differentiated Communication
Escape from daily routine / ordinary
Festival / holiday fun moment
Exotic / interesting
PR effect for community involvement
Casual Dining Brand Home Delivery Brand
Retail message driven
Deliver functional benefits
Focus on leaflet
Pizza Hut, Dual Channels Brand Building
Inspiring Communication
Complete casual dining experience
Menu structured to explore Western culture
More than just pizza, a unique 1st
western casual dining experience
Casual Dining Brand Home Delivery Brand
Functional focused marketing
Hot and on time with 5 star service
Menu designed for efficient, complete
home meal replacement
Best delivery brand with everyday affordable value
East Dawning – The Choice of Chinese QSR
East DawningEast Dawning
A promising future
Higher frequency
Sister to KFC
Healthy, balanced in nature
East Dawning – Asset
House SpecialtyFry Dough
Savory Soft Bean Curd
Chicken Congee with Mushroom
Rice Roll
East Dawning – Nutritious Breakfast
GuizhouSpicy
Chicken Rice Set
Ground Pork with Chicken
Wing Rice Set
Chinese Sausage/Ham
Rice Set
Tomato BeefNoodle
Sichuan Spicy Pork Rice Set
East Dawning – Mouthwatering Main meal
BBQ Pork Puff Spicy Chicken Wing
East Dawning – Tempting Snackables
Steam Pork Dumpling
Mango Pudding Crushed Ice with Milk
Summer DrinkVarieties
Sesame Ball
East Dawning – Inviting Sweets/Drinks
East Dawning – The Choice of Chinese QSR
Chinese Fast Food meets KFC’s Standards
Differentiated brand vision, based on consumer needs
Stay relevant, ahead of trend
Build core competency around food innovation
Building Dominant Brands in ChinaBuilding Dominant Brands in China
Support Capability
Joaquin Pelaez Chief Support Officer
Support Capabilities That Set Us Apart
Logistics
Quality Systems
Innovation Capabilities
Manufacturing
Yum! Logistics China
Distribution Centers: 11
Satellite DC: 5
Processing: 2
A Powerful Advantage
Yum! Logistics China
Brand Stores SKUs
KFC 1,951 2,264
Pizza Hut Casual Dining 293 934
Pizza Hut Home Service 43 150
East Dawning 8 108
Total 2,295 3,456
Data thru July 2007
. . . Last year our team traveled 31 MM kms, ~ 5X around the world
Upgrading Distribution Assets
Upgraded and New DCs:Beijing, Shanghai, Guangzhou, Xiamen, Qingdao, Nanjing, Wuhan Shanghai Dough Commissary
Current Upgrades and Construction Underway:Hangzhou, ChengduHangzhou Egg Tart Factory
Future Upgrades:Shenyang, Xi’an, Harbin
Cost: ~$5 million of CAPEX
Why Upgrade?
Investing for Safety, Security, Growth
Food safety / Ensure cold chain
Secure freezer space for the future
Plan for future store / volume growth
Increase efficiency
Prepare for store and brand growth 5 + 5 year plan
Provide staff with improved work environment
World-class distribution system to support world-class restaurant operation
Yum! Logistics China
World Class Facilities
Food Safety and
Quality Systems
Food Safety and
Quality Systems
Yum! China Food Safety Quality Systems
Recent media attention has highlighted food safety
and quality issues in China
Seafood products
Toys
Pet foods
Toothpaste
Commitment to Food Safety
Much work has been done to improve food safety
policy in China
Has become top priority for the central government
Importantly, our supplier base has shown high
commitment to our standards and practices
The whole industry is moving in the right direction
Yum! China Model Is Based onTraceability from Farm to Table
Restaurant QA Restaurant
HACCPMicro and Temperature
criteriaPerformance
criteria
Microbiological and Chemical
Criteria
Yum China Food Safety HACCP Based Program
(Traceability based program)
Yum! China Food Safety & Quality Model
Supplier Selection and
Risk Assessment
Raw MaterialsControl
Yum ChinaStandards
Education EnforcementRestaurant
Support
Certificate
Yum! China Food Safety & Quality Model
Re-qualified the right suppliers based on food safety, food quality, supplier quality programs and commercial standards
Qualify suppliers based on Food Safety and quality capabilities and their implementation of HACCP programs
Implemented at Yum! China a robust specification system
Supplier Selection and
control
Yum! China Food Safety & Quality Model
More specific criteria used for suppliers when purchasing raw ingredients
Potential exposure to chemicals and pesticides
Microbiological limits
Irrigation water quality
Labor and hygiene standards
More surveillance at scheduled frequency
Evaluation of how supplier’s food safety and quality program work
Yum! sampling and testing of ingredients at our Food Safety Lab
Enforcing regulatory compliance
Raw Materials Control
Specification•Technical•Functional
QA Audits HACCP and compliance
based
Yum! Food Safety Lab Random
Testing
Identify Critical Elements for Food Safety, Functional Performance and Traceability
Confirm certificate for
key items
New System in Place
Not done prior to Sudan incident
Supplier provides
certificate and performance
data
Issue specification to qualified suppliers
Yum China Standards
Yum! China Food Safety & Quality Model
Integrated educational requirements beyond primary suppliers
Implemented Yum! China’s crisis management program
Instituted HACCP discipline across all suppliers in Category I and
including commissaries
Created our Food Safety Experts Consulting Committee
Communicated with our consumers, JV partners and all constituents
about our efforts and commitments.
Education
Yum! China Food Safety & Quality Model
Monitor:
Adulterants and contaminants surveillance
Sent letters of non compliance all the way to disqualification
to those suppliers in violation of our standards
Performance and set incentives for suppliers for high and low
compliance
Specification compliance and traceability based on HACCP
Enforcement
Yum! China Food Safety & Quality Model
Dedicated Field QA Dedicated Field QA teamteam ((108 professionals108 professionals) in all markets) in all markets
Support all restaurant openings
Technical audit is conducted on every single restaurant 4 times per year
Conduct technical audit ad product cuttings in the field
Visit local authorities and develop good relationship
Provide on site technical expertise on food safety, product knowledge to the restaurants
Restaurant Support
Yum! China Food Safety & Quality Model
Created the Food Safety and Regulatory Office
Collected and updated the database on food law/regulation/standards and ensure full compliance
Conducts random testing 10 times per year on our raw materials
Participates in the formulation of Chinese food standards
Operates the Yum! China Food Safety Advisory Committee (3 conducted)
Communicates with officials, media and consumers on food safety issues
Restaurant Support
Yum! China Food Safety & Quality Model
Lessons Learned Thus Far
Our Food Safety approach has been suggested as a strong model for China
Collaborating with officials at the central and local level to improve food safety practices across China
Leadership commitment from the top (gov’t, industry) essential
Demonstration of corporate leadership with actionable plans has earned credibility with consumers and regulatory officials
Suppliers learning a great deal about traceability
As a whole, the industry is moving in the right direction
Food Innovation Capabilities
Food Innovation Capabilities
Food Product Innovation
Food innovation a core value in Yum! China
Clear goal: Deliver great tasting, differentiated food for all brands and occasions
Grounded in consumer insights, clear menu visionMenus with breadth in variety, quality, occasionStrategic brand fit
Local know-how developed well over a decade
Team understands local palate and cultural differences associated with food in China
Food Product Innovation
Each brand focuses on business pillars and day parts
Typically launch 80 + new products annually across our brands170+ products in our pipeline at any time
Yum! China has become an innovation leader for Yum! worldwide Pizza Hut DeliveryPizza Hut Casual DiningKFC Roasted productsBeverages and Desserts
Leveraging our know-how for big payoff: Chinese QSR
KFC Innovation
ChickenSandwiches
Second Proteins
KFC Innovation — Soups & Salads, Snacks & Portables
KFC — Beverages & Desserts
Egg TartsHot & Cold Drinks
Pizza Hut Casual Dining
Elevating Food to New Standards
Pizza Hut Home Service
New Traditional Dough Pizza
East Dawning Innovation
East Dawning Innovation
Key challenges in the development of a Chinese QSR concept
Commercialization of Chinese cooking techniques
Food preparation and assembly in the BOH (Back Of the House) to meet the speed of service expectation of 90 sec.
Yum! China Manufacturing
Yum! China Manufacturing
Yum! China Manufacturing
Why manufacturing ourselves?
When there are no supplier options to execute our strategy
When there is a proprietary product and we can do it better and more cost effectively that suppliers
When manufacturing is a key enabler of our business model
Yum! China Manufacturing
When there are no supplier options to execute our strategy (Dough Balls for Pizza Hut Home Service)
Dough Commissary
Yum! China Manufacturing
When there is a proprietary product and we can do it better and more cost effectively than suppliers(Egg Tart Commissary)
Hangzhou DC and
Egg Tart Factory
Yum! China Manufacturing
When manufacturing is a key enabler of our business model and no capability exists in China
Support Capabilities Summary
Strong logistic capabilities to support our growth
Food safety and quality a “top corporate priority and a company mindset”
Strong innovation capabilities for all our brands leading the pace in many business segments
Developing self manufacturing capabilities where no capabilities exit
High-Return DevelopmentHighHigh--Return Return
DevelopmentDevelopment
Lily Hsieh Chief Financial Officer
Profitable Expansion Continues
Expanding multiple category-leading brands
Unit economics yield excellent returns
More than traditional units
Penetrating large and smaller tier cities
Unrivaled development capability
Unmatched Resource Commitments
Today . . . 600+ development professionals on the ground
Extensive people development programsTechnical know-how and execution
Incentive programs extract the best out of our teams
Database of 475+ cities
2,500+ new build decisions provide rich catalog of learning
Strong Unit Economics
Average Unit Volume ($ million)
$1.0 to 1.2
Average Transactions (‘000) ~300
Cash Margin 25%
Cash Investment ($000)
$490 to 540
Mainland China KFC Traditional Unit
Strong Return – Sales Are 2X Investment
Broad Reach, Extending to 475+ Cities
City Tier# of
Cities Entered
Total Population
(MM)
Numberof
KFC Units
1 4 52 610
687
340
348
331
2,316
2 26 81
3 43 65
4 85 59
5, 6 318 81
TOTAL 476 339
Penetrating Beyond the Big Cities
2006 2007 2008 YTD
% of Total New Builds by Tier
57% 54%Tier 1,2
Tier 3,4,5,6 46%
57 %
Going Beyond Traditional Units
Bringing our Brands to a wider variety of destinations
UnitsRailway station 35+
Bus station 15+
Airport 20+
Drive-Thru 25+
New Opportunities in Drive-Thru
Car ownership rising sharply
Foot traffic still important to unit economics
Maintaining Discipline in Our Rapid Expansion
Build adjacent units to relieve pending capacity constraints
Proactively optimizing service levels
Helps solve queue wait time
New-unit impact built into our economic model
Rigor Every Step of the Way
Market mapping and trade zone identification
Site selection and acquisition
Project approval
Construction and opening
Post opening analysis
Feedback loop, huge catalog of learning
Leverage Development Capability for Emerging Concepts
Pizza Hut Home Service East Dawning
Development teams already on the groundLeveraging the same extensive city, trade zone database
Expecting Another Solid Year of Expansion
167
266302 302
354409 396
506 475
'00 '01 '02 '03 '04 '05 '06 '07 '08 F
New Restaurant System Openings
Summary
Development continues to be a key growth driver
Driven by strong returns
Development capabilitiesTeam/disciplined process/database a big competitive advantage
Capability ready for new brand expansion
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