KFC Dominates in China—Is Yum China the Best Restaurant Stock to Buy?
Yum China now operates over 15,000 restaurants in over 2,100 cities and towns spanning every province and autonomous region across mainland China. Its leading brand, KFC, is the largest quick service restaurant (QSR) in China in terms of 2023 system sales, suggesting its overall market dominance. As of the end of June 2024, it has grown to over 10,000 KFC restaurants in over 2,100 cities across China.
Next, Pizza Hut is the leading and the largest casual dining restaurant (CDR) brand in China in terms of 2023 system sales and number of restaurants as of December 31, 2023. It has opened over 3,500 Pizza Hut restaurants in over 700 cities. Other brands under Yum China are Taco Bell, Little Sheep, Huang Ji Huang, Lavazza and Shaofaner.
Due to the current weak economic demand, Yum China is promoting new kinds of shops focused on lower-priced food to cater to increasingly cost-conscious Chinese consumers. It established KCOFFEE cafe, beside its KFC outlets, and Pizza Hut WOW stores, converted from existing pizzerias. These 2 new models have a purpose to attract more consumers through cheap deals and engaging the consumption habits the old stores would not have such as its KCOFFEE to allow customers to drink a coffee and chill.
The creation of these new brands alongside its mainstream brands is a strategy to be resilient in the raging price war in China. This also maximizes Yum China’s reach to its audiences as far as possible.
The cafe's bargain is its 9.9 yuan combo of a coffee and hotdog. The other benefit of opening up this store beside KFC, is sharing a kitchen and maximizing the production capacity while reducing the cost. China is currently having a “9.9 yuan price war” amongst food and beverages stores. Burger King also has a campaign offering 9.9 yuan hamburgers. Local coffee and bubble tea chains have also dropped prices below 10 yuan by offering coupons. One of the biggest chains, Mixue, sells drinks for as little as 5 yuan.
The new cafe model was introduced as a pilot in the inland province of Hubei last year. As of the end of last month, the store count was close to 300. The company hopes to open about 500 to 600 stores by the end of 2024.
Pizza Hut WOW also provides cheap products such as Iced lemon tea starting at 6 yuan, appetizers like Korean-style fried chicken begin at 9 yuan and a plate of pasta can be had for 15 yuan. The cheapest pizza slices are 19 yuan.