YUM 09/23/08

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

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



In-Store Experience


Rooted in China


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



In-Store Experience


Rooted in China


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



In-Store Experience


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


Pizza Hut, Differentiated Experience

Upscale décor package

Event driven in-store activities

Hostess program to enhance “5-Star” feel

Tailored Tea Time menu design


One national phone number

Well trained call center staff

Neat, clean & tidy delivery staff

Delivery time promise

Pizza Hut, Differentiated Communication

Escape from daily routine / ordinary

Festival / holiday fun moment

Exotic / interesting

PR effect for community involvement


Retail message driven

Deliver functional benefits

Focus on leaflet

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


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


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


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


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


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


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


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


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


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



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


When there are no supplier options to execute our strategy (Dough Balls for Pizza Hut Home Service)

Dough Commissary


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


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

YUM 09/23/08

Economy & Finance

Transcript of YUM 09/23/08