Yum China: New Menu Offerings, Engaging Campaigns And Rapid Store Expansion Deliver Record Q2 Earnings

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Yum China Holdings Inc (NYSE:YUMC) posted record sales performance in the second quarter, aided by campaign success, innovative new menu items and store openings.

Total revenue reached US$2.65 billion, a new second-quarter high. System sales grew 32% while same-store sales grew 15% year-over year. Dine-in sales also rebounded significantly year-over-year while delivery continued to grow. Operating profit also rose 216%, with restaurant margin reaching 16.1%, 400 basis points higher than the prior year period.

After solid sales in April and a robust May 1 Labor Day holiday, customer traffic softened in May, partially due to a wave of COVID infections across China. By successfully leveraging multiple scenario planning, the company regained sales momentum in June. Trading during the June 1st Children’s Day was record breaking, with 8.5 million transactions on the holiday alone, equivalent to one transaction every minute across the company’s entire 13,000-store portfolio.

Enhanced menu choices helped to win over consumers. KFC’s K-zza, a new limited time offer product offering a creative twist on pizza, generated strong results. In May, Pizza Hut launched its new menu in China with over half of menu items newly added or upgraded, which was instrumental in driving sales growth. One customer favorite was the recently introduced Bolognese Pizza with Beef, which proved especially popular with younger diners.

KFC’s coffee segment K-Coffee, which focuses on delivering strong value for money, posted 50% year-on-year sales growth with 47 million cups sold. The newly released Iced Sparkling Americano with Zesty Lemon helped customers beat the summer heat, becoming K-Coffee’s best-selling limited time offer product.

Meanwhile, promotions featuring popular toy and gaming brands provided an additional boost. During the Children’s Day holiday, KFC teamed up with Hello Kitty owner Sanrio to feature a series of toys in children’s meals, leading to a record 3 million meal sets sold. In addition, Pizza Hut’s collaboration with gaming company Genshin Impact (原神) continued to pay off, with 2 million sales of meal sets with themed accessories during the quarter, triple that of last year. 

Digital engagement was also a key factor in Yum China’s strong performance. Yum China’s loyalty programs now exceed 445 million members – nearly one in three people in China – with member sales accounting for 66% of total sales for Q2 2023.

The company continued its aggressive expansion into both high- and low-tier cities in China, opening 655 net new stores first half of 2023, also a record high. KFC now operates over 9,500 stores in over 1,900 cities across the country, with over 500 stores in Shanghai alone. Pizza Hut also opened its 3,000th store in China in June, a milestone that very few casual dining restaurant chains can claim.

Joey Wat, Yum China’s CEO, said the company continues to see ample white space in China, while healthy store payback reinforces confidence for accelerated growth. “With our flexible store formats, we continue to expand addressable markets across city tiers,” Wat said in the company’s Q2 earnings report. “By actively pursuing our RGM (Resilience-Growth-Moat) strategy and leveraging our industry-leading strengths, we are confident in our ability to capture long-term growth opportunities.”