Yum! China Investor Conference_9-8-11_FINAL_For Website.pdf

7/28/2019 Yum! China Investor Conference_9-8-11_FINAL_For Website.pdf

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Yum! China Investor ConferenceSeptember 8, 2011

Shanghai


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WELCOME!Tim Jerzyk

SVP, Investor Relations


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Agenda

Vincent Huang, VP KFC Marketing

Candy Chan, VP Pizza Hut Marketing

Mark Chu, President & COO (Yum! China) East Dawning

Joaquin Pelaez, Chief Support Officer Support Capability

Lily Hsieh, CFO Development

Sam Su, Chairman & CEO (Yum! China) Summary/Q&A


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Forward Looking Statements

This presentation will include forward-lookingstatements that reflect managementsexpectations based on currently available

data. However, actual results are subject tofuture events and uncertainties. Theinformation in the presentation related toprojections or other forward lookingstatements which may cause actual results to

differ materially are subject to the safe harborstatement posted on our Web site:www.yum.com.


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Building Leading Brands

KFC

Vincent Huang


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KFCs First Days -- in Shanghai

KFC Menu

Signature, HeritageFood

KFC Convenience

Available at a storenear you

1989


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Daypart / Service extensions (e.g. Delivery, 24 hours)

New Fast Food (vs. conventional model)

Position brand as Rooted in China

KFC heritage (fried chicken)

KFC: #1 QSR brand in China

Today

5+ Years ago

10+ Years ago

Day One

A ser ies o f strategic brand bu i ld ing block s o ver the years


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The New Fast Food business model

Great tasting and safe food;high-quality and speedy (whatconventional fast food offers)

Balanced in nutrition; healthylife style

Rooted in China, continuousinnovations


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KFC Today: Signature products

in every category

Category Signature Products

Chicken Colonels Original Recipe

Sandwich Zinger New Orleans roasted burgershrimp burger

Twister/wrap dragon twister

Rice chicken & mushroom riceSnacks hot wingNew Orleans wingpopcorn chicken

Sides veggie soupDesserts egg tart

Beverages 9 lives juicelemonadecoffee floatmilk tea with red bean

Breakfast pastry puff sandwichcongee

dough sticksoy milk

New

Fast

Food

Today

1987


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Gradually broaden appeal

with meaningful menu variety

Roasted Non-poultry Destination Local

beverages taste


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KFC offers more variety on main meal items

KFCTop

Competition

Chicken

burger

burger

twister rice


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KFC has more choices in breakfast

KFC TopCompetitionburger

puff pastry

sandwich

congee

sandwich


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13131313

Offer balanced choice and encourage healthy eating

Abundant choices of salad, soup, and juice

Consumer education on healthy eating

Sponsorship for studies on health and nutrition


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Good Morning

Program

Promote regular exercise with grass-root sport events

Teens Fitness Dance Program

1.5 million students joinedfrom 3,600 schools in 2010

Teens 3-on-3

Basketball Leagues

200,000 participants from

480 cities in 2010


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Winning over competition on New Fast Food image

Data source: Brand Image Tracking

in 47 cities, 2011 Q2

*Significant difference

95% confidence level

(Top 2 box %) KFCTop

Competitor

chicken expert 61* 42

food taste 62* 53

menu variety 60* 50

innovative 57* 44

balanced choice 48* 42

promote regular exercise 45* 39

rooted in China 58* 41


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Gap widening versus competition

KFC

McD

Store Count Comparison


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Recent key initiatives sustain our brand growth

Food

innovation

Daypart

extension

Improve

affordability

Our future platform for growth


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Continuous food innovation Burger

Texas BBQ flavoredRoasted chickenburger

South African peri-peri flavoredRoasted chickenburger

Chinese SichuanflavoredDouble mightyburger

Burger with ham &eggBurger with porksausage


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Continuous food innovation Rice, Soups

The popular Chinese eating habit a balanced meal

Black pepper beef strip &mushroomRoasted thigh fillet in New

Orleans flavorChicken fillet & mushroom

MinestroneChinese sour & spicysoup


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Continuous food innovation Snacks

Fried shrimp wrappedwith crispy noodle

Fried crab meat stuffedin shell

Roasted drum stickwith Bailey flavor
http://c/Documents%20and%20Settings/vxh4497/KFC/snack/golden%20crab/tvc/KFC%E9%BB%84%E9%87%91%E8%9F%B9%E6%96%97english%20version.mpg


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Continuous food innovation Beverages, Desserts

Megranate juice

with Agar-agar

9-Lives

Blended Juice

Milk Tea with

Red bean stuff

Irish coffee float

with Sundae

Strawberry

Sundae

Sundae topped

With mixed

Q BeansCranberrySundae


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Leverage asset and grow sales

from all dayparts

Breakfast

Weekday lunch

Afternoon break

Dinner

24 Hours (overnight)

Delivery


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Daypart / service extensions generate

incremental sales

Increasing store coverage and salesyear began system unit coverage

Breakfast 2002 94%

24H/overnight 2009 47%

Delivery 2008 50%

KFC B kf t


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Busier life style, more and more people eat breakfastout of home

Most people spend 3 to 5 yuan

KFC 6 yuan breakfast value combos meet consumerneeds well

KFC Breakfast:

High Quality, Nutritious, Affordable


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Becoming a preferred place for weekday lunch

Different eating habits vs. dinner

Shorter meal time around 30-40 min

Less spending vs. dinner

Offer both Western and Chinese

choices

KFC 15 yuan weekday lunch

Value combos effective in expanding

customer base


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A convenient and value for money choice

for afternoon tea time

Afternoon tea time habit is becomingmore popular Coffee shops, bakery & retail, casual

dinning

KFC Buy your own tea sets at 9 yuan

received very positive response


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Summary

The #1 QSR brand in China

Positioning as New Fast Food

A preferred brand deeply rooted in China Superior brand image

Growing faster than competition

Well penetrated into lower tier cities

Recent key initiatives sustain brand growth Continuous food innovation

Extending dayparts and services

Value initiatives to improve affordability


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Pizza Hut Dine-in

Pizza Hut Home Delivery

Candy Chan


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China is in an age of explosive growth

But unlike ten years ago,the speed of growth is not

the most important thing anymore.


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Aspirational urban lifestyles

Affordable casual western dining is the immediate fulfillment

New taste Proof that I know how toappreciate life, and I CAN.

And the Chinese consumer is changing


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The unique position of Pizza Hut Dine-in in China

The intimate PORTAL

to western fare and lifestyle

for this generation and the next


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The Western Restaurant right next door for China

560+ stores

120+ cities

29 provinces


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The First Taste of a sophisticated urban lifestyle


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Pizza Hut provides Best WCDR Menu

Extensive menu more than pizzaNew taste and cultural sensations:


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New taste and cultural sensations


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Wide range of beverage and desserts


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Pizza Hut is leading the Tea Time business


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Multiple Years of SS TC Growth


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Outstanding service , ahead of competitors


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Pizza Hut Loved by people of all ages and walks of life


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Brand Equity Stronger Than Ever

ta Pizza Hut Dine In -- Consumer Data

20092011

Q1+Q2

Attributes PHDI PHDI

Overall taste 64 78Variety 61 75

Innovative 59 76

Service 72 78

CDR leading Brand 51 75

Most Favorite Brand 52 75

Most Trusted Brand 71 82


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The Bridge to Western food and urban lifestyle


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Pizza Hut Home Delivery

Candy Chan

h l d


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FY09 FY10 FY11YTDP9

114

118

117

120+ stores

12 cities

The Best Delivery Brand

PHHS SS TC Index


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Friendly and reliable ordering service

www . . com

Professional rider delivering good quality food


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Professional rider delivering good quality food

Variety at affordable prices


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Variety at affordable prices

Chi f d t b tt d


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Chinese food to better serve consumers need

More affordable for lunch and tea time


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More affordable for lunch and tea time

B d E it b i t


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Brand Equity becoming stronger

Pizza Hut Home Delivery Consumer Data

20092011

Q1+Q2

PHHD PHHD

Based on Brand Awarer3447 860

Favorite Delivery Brand 69 70

Leading Delivery Brand 74 73

Good Taste 65 75

Menu Variety 72 75

Food Innovation 69 70

Delivery Speed 70 71

Food Temperature 82 80

Value For Money 47 59

Pi a H t Home Deli er The Best Deli er Brand


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Thank You!

Pizza Hut Home Delivery The Best Delivery Brand


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East Dawning

Mark Chu

Chinese Foodservice a Huge Growing Category


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40 36

2 3

1922

7 6

19 18

13 15

Huge opportunity beyond Western QSR & CDR.

Chinese Foodservice a Huge, Growing Category

Traditional FullService Rest.

Casual Dining Rest.

CQSR

WQSR

Vendors

Other *

2010 1st Half 2011 1st Half

8.0%

43.6%

32.6%

18.0%

17.5%

36.1%

Growth%

*Others includes other QSR, bakery/coffee shop, retail and other outlets

Traffic share %

Accelerated Chinese QSR Growth


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Accelerated Chinese QSR Growth

Governments effort on urbanization

Urban lifestyles increasingly busier than before

Newer generations trained on Western QSR

Chinese food choices out of pace with changing needs Local and unbranded, no quick solution, lack all-daypart service

Higher frequency on comfort food

Healthy, balanced in nature

East Dawning Our Vision


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East Dawning Our Vision

The choice of Chinese QSR

Build KFC-like business model for Chinese

food Serving all day parts

Mainstream, serving broad consumer target

Our famous product innovation and varieties Price range to satisfy all occasions

Unmatched operations standards

East Dawning Consistent Strong Progress


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East Dawning Consistent, Strong Progress

Strong menu innovation

Attractive value offerings

Improving consumer scores

Improving business model, consistent double-digittransaction growth

East Dawning Strong Menu innovation


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East Dawning Strong Menu innovation

Menu built for broad appeal

Serving all day parts

Breakfast Lunch

Dinner

Afternoon (drinks / snacks / desserts)

Food acceptance by regional palate (tested)

East Dawning Product offered for broad appeal


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Breakfast

Soy Bean Milk Congee Noodles Pocket Sandwich

20112010

Today, Offering Over30 Breakfast Choices

Rice Roll

2010



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Lunch / Dinner(Protein variety)

Pork Rice Beef RiceChicken Rice Beijing StyleNoodle

Dozen ShrimpNoodles

2009 20102009 2010

15 Main Meal Choices



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Snacks

Fried Shrimp Dumpling Roasted WingSteamed Dumpling Popcorn Clam

20102011 2011

6 Main Stream Snack Choices



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Drink / Dessert

Black TeaGreen Tea

Milk Tea Crushed Ice Mango PuddingEgg Tart

20102009 2009 2009

15 Drink / Dessert Choices

East Dawning Attractive Value offerings


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Breakfast

RMB 6 Breakfast combos

Delicious Chinese Breakfast

choices

11 varieties in all

Winning on taste and value

Fast growing daypart



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Non-meal daypart

Afternoon tea time

After dinner hours

RMB 7 for 2 items

Choose any 2: snacks, drinks, desserts

30 possible combinations in all

East Dawning

Highest Unaided Awareness


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g

g

Among CQSR

East Dawning

(a) %

19

33c

89b

J-Kungfu

(b) %

24

20

76

Yonghedawang

(c) %

41

17

92b

Store No.

TTL Unaided

TTL Awareness

KFC

n=150

239

93

100

Base = SH P3M CQSR

users aged 16-49 (n=604)

East Dawning Strong appeal to younger


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g g pp y g

generation

Chinese youth attracted to Western QSR

Still lack Chinese restaurant brand that catersto their needs

Achieving new breakthroughs with youth Top of mind

Imagery

Spontaneous recall

East Dawning Asset


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East Dawning Asset

Contemporary assets

Ambience to enjoy deliciousand affordable Chinese food

East Dawning Improving business model


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g p g

Central kitchen opened Simplified restaurant BOH

Kitchen space reduction

Improving economics via asset leverage

Double-digit SSS transaction growth severalyears in a row

East Dawning Looking Ahead


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g g

Building leading Great Food Taste positioningvia product innovation

Grow all day parts including non-meal tobuild All Day business model

Build a KFC-like operation system and team tosupport expansion

Continue work on unit economics

Explore lower tier city with cost advantages

Expand with good discipline

Building Dominant Brands in China


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Building Dominant Brands in China

Great Operations starts with people capability Every store a training store

Operations a key enabler for growth

New Products, New Brands

Strong OperationsThe Foundation of Our Brand Building


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Support Capability

Joaquin Pelaez

World-class infrastructure and long-termtiti d t


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gcompetitive advantage

Highly DevelopedSupply ChainManagement

UnequaledTalent &

Experience

UnmatchedFood Innovation

Capabilities

World Class

DistributionBusiness


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Food Innovation Capabilities

Innovation is key to our Brands success


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Innovation is key to our Brands success

Chinese consumers demand and

expect innovation

Innovation is approached with aFuture Back perspective with a stepchange view

Innovation is anchored on our NewFast Food Model

Innovation is Everyones Job in theChina organization

Deep skills developed to support allour Brands that balance the rightbrain with left brain approach

Ideation

Focus Groups

Screener

Immersions

Concepts & Prototype

NPC review all concepts &

prototypes

Our Innovation Model supported by world classi f t t


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infrastructure

Local insights driven

innovation with strong supportfrom consumer research andproduct groups

BOH engineering know-how

capabilities

Culinary chef team to helpimprove food style and qualitypresentation

Strong integration with theSupply Chain group

Our pipeline is full and we are at record pace


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Our pipeline is full and we are at record pace

0

40

80

120

160

2005 2006 2007 2008 2009 2010

New Product s Launched

K FC PH P HHS ED


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Highly developedSupply Chain Management

Our Sourcing Philosophy


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Our Sourcing Philosophy

Review status for every SKU Prioritize development of new suppliers with R&D and QA

Ensure sufficient capacity to support 3 to 5 years store and transaction growth

Fair, transparent competition to reward most competitive supplier

Multiple qualified

suppliers

Capacity tosupport growth

Efficient marketto drive

competition

Collaboration betweenSCM, R&D, Food Safety

and QA

Sustainable, Safe

and Reliable Supply

Best Total Cost

Efficient Process

Drive innovation

Support Group Ensures Organizational Alignment


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Support Group Ensures Organizational Alignment

Brand Teams Finance

Other Functions

Alignment with Business

Strategy

R & D

SCM

EN

QAFSO

SCM-System

MFG

YLC

ChiefSupportOffice

Marketing

Boards & Committee, Annual Operating

Plan, Financial Targets

China SCM Guiding Principle


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Supply side expert

Proactive brand builder

Adept at innovation

Sweet spot management

Be the best customer

Develop suppliers & capacity

Fair, ethical and equitable

Orderly competition


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Strong Food Safety System Capability

Strong Food Safety System Capability


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Supplier QA and field QA to ensure quality compliance to

specifications

Food Safety office to address all food safety and regulatory issues,

and work closely with government authorities and industry

association

Food Safety Expert Committee leading food safety experts from

China assist and advise us on all food safety related issues

Strong analytical partnership with Shanghai FDA testing lab to

double check our ingredients and raw material

g y y p y


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World Class Distribution System

One of the Biggest food supply chain network andthe Best Cold Chain in China today


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Deliver to 4,200+ restaurants for everything from chicken to pizza

dough to napkins

Receiving from more than 500 mostly Chinese suppliers

Managing 17 logistics facilities with 24 hours operations

Operating 1 national Consolidation Center in Shanghai

Manage more than 400 refrigerated trucks that shuttle 50+ million

km/year between our suppliers and restaurants

Distributing 78+MM cases/year to 710+ cities

Adding 500+ new restaurants every year

the Best Cold Chain in China today

YUM self owned integrated supply chainnetwork spread across China


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network spread across China

World-class logistics operations


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End To End Perspective

Stable and highly efficient logistic system a critical step for foodsafety

From inventory planning to storage & handling to distribution

Food Safety & Quality

Approved CIQ supervised importation warehouse

Quality inspection process starting from suppliers to restaurants

Facility and transportation security

g p



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Multi-Temperature Distribution

Frozen, refrigerated, dry, and fresh-baked goods

Operational Excellence Qualified state Pilot Logistics Enterprise

ISO9001:2000 certified

g



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Fill stock

Stocksorting

Stockmove

Stockcontrol

Supervision

Shipment

Load

DistributeReception

Move in

Logistics Center functions
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g

Customer

Services

Inventory Ordering

Warehousing Transportation

Drive for Excellence


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Drive for Excellence

PurposeWeld a cohesive team by

structuring LC visit from different

aspects

Frequency--One LC per month

Drive for

Excellence

Recognize Yum! Desired behaviors

Go deep Yum! culture & value

BSC Review & Coaching

Review level of people capability


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!


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High-ReturnDevelopment

Lily Hsieh

Profitable Development Opportunity in China


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p pp y

China strong economic growth continues

Yum! expanding multiple category-leading brands

Unit economics generate excellent returns

New growth opportunities geographically

Gap versus competition continues to widen

Unparalleled development capability

Profitable Yum! Development, Pace Quickening


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# of Yum! China restaurants

1,000

2,000

3,000

4,000

1987

1st Unit

Today

+

15 years 4 yrs 2 yrs 2 yrs

Rapid Rise of China Economy To Continue


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~10,000

~4,500


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g pp y y

GDP/Personal income growth among top globally

Large and growing middle class

Government plan to raise living standard for low income

Restaurant chain market share low (in contrast to U.S.)

High purchase intent for western brands

New trade area opportunities Alliances with major retail players national & regional Government led transport infrastructure Metropolitan areas hub cities

Continued Urbanization Part of Government L/T Plan


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Designated City ClustersDevelopment Zone

Planned

Urbanization

Transport networks New city hubs

Economic centers

Source: National Development and Reform Commission (NDRC). June 2011

Unrivaled Development Resources & Know How


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Today, 750+ Development professionals 300+ added past five

years

Team on the ground in every province (except Tibet)

Extensive people development programs

Advanced technical know-how and strong execution

Database of 700+ cities

4,000+ new build decisions provide rich catalog of learning

3,500 trade area data points on QSR

500 data points on Casual Dining

KFC - Strong New Unit Economics


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Today

Average Unit Volume

($ million)

$1.2~$1.3

Average Transactions (000) 300+

Cash Margin 25%+

Cash Investment ($000) $550

Mainland China KFC Traditional Units

Strong Return Sales Are 2X Investment

Note: FX rate US$ = 6.4956 RMB

KFC Brand Strong in Lower Tiers


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Strong consumer acceptance in lower tier cities Despite lower level of disposable income

Unit economics at least as good as top tier cities

Relatively lower costs versus top tier labor, rental

New units typically cash flow positive in first year

KFCs Strength Goes Well Beyond Big Cities


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364

680

3030

2005 2010

Number of Cities with KFC

T3 & Below

T1 & 2

300+

new cities

5 Years

Development Balanced Across Cities Large & Small


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KFC New Builds -- Tier Cities

Tier 3 & Below

48%52% Tier 1,2

Pizza Hut Dine-In - Strong New Unit Economics


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Pizza Hut Dine-In Units

Strong Returns Sales Are 2X Investment

Today

Average Unit Volume

($ million)

$1.1~$1.2

Average Transactions (000) 60+

Cash Margin 25%+

Cash Investment ($000) $550


Pizza Hut Also Going Beyond Big Cities


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27 30

28

101

2005 2010

Number of Cities with Pizza Hut

T3 & Below

T1 & 2

70+

new cities

5 Years

Tier 3 City Example: Wuhu


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Wuhu

Population -- 2.3 million

5 Years ago Today

GDP (US$) $0.6 billion $1.7 billion

Disposable income per capita $1,481 $2,881

Retail sales - consumer goods $293 million $677 million


Tier 3 City Example: Wuhu


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5 years ago Today

KFC Units

Pizza Hut Units -

Sales (US$) $2 million $11 million+

Profit (US$) < $1 million $ 3 million


Wuhu

Continued Discipline in Our Rapid Expansion


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Relieve pending capacity constraints with adjacent newunits

Continually monitor, proactive to optimize service levels

Helps solve queue wait times

New unit impact built into our economic model

Rigor Every Step of the Way


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Market mapping and trade zone identification

Site selection and acquisition

Project approval

Construction and opening

Post opening analysis

Feedback loop, huge catalog of learning

Transportation Network Expanding


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T

Transport Network

High-speed rail (4x4) HighwaysAirports

Giving Rise to Non-traditional Units


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Bringing our Brands to wider variety of destinations

4 years ago Today

Railway station 29 81 ~3x

Bus station 9 34 ~ 4x

Airport 11 32 ~ 3x

Contemporary Assets to Complement Our Brands


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Maintain contemporary assets that fit with our brands QSR: Convenient, accessible, dine-in or take-away

Casual Dining: Destination, ambience, group gathering

Asset designs adapted to meet variety of trade zones Transport, mall, drive-thru

Reinvesting in our estate with discipline

Asset Renewal: Taking a page from others


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1989 Today

Asset Renewal: Updated Assets


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Chinas First Ever KFC - Beijing

Today1987

Asset Renewal: Contemporary Interiors


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Dated

Contemporary

Asset Management: New Menu Boards


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Before

After

Summary


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Development continues to be a key growthdriver

Helped by strong returns

World class Development capability Team/disciplined process/database big competitive

advantages

Not limited by our own resources

Yum! China Investor Conference_9-8-11_FINAL_For Website.pdf

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