Yum China Holdings, Inc. (‘Yum China’) operates as a restaurant company in China.
The company’s growing restaurant network consists of its flagship KFC and Pizza Hut brands, as well as emerging brands, such as Lavazza, Huang Ji Huang, Little Sheep, and Taco Bell.
The company has the exclusive right to operate and sublicense the KFC, Pizza Hut, and, subject to achieving certain agreed-upon milestones, Taco Bell brands in China, excluding Hong Kong, Macau, and Taiwan. It owns the intellectual pr...
Yum China Holdings, Inc. (‘Yum China’) operates as a restaurant company in China.
The company’s growing restaurant network consists of its flagship KFC and Pizza Hut brands, as well as emerging brands, such as Lavazza, Huang Ji Huang, Little Sheep, and Taco Bell.
The company has the exclusive right to operate and sublicense the KFC, Pizza Hut, and, subject to achieving certain agreed-upon milestones, Taco Bell brands in China, excluding Hong Kong, Macau, and Taiwan. It owns the intellectual property of the Little Sheep and Huang Ji Huang concepts outright. KFC was the first major global restaurant brand to enter China. The company has developed extensive operating experience in the China market. There are significant opportunities to further expand within China, and the company intends to focus its efforts on increasing its geographic footprint in both existing and new cities.
As of December 31, 2024, the company owned and operated approximately 85% of its restaurants. Franchisees contribute to the company’s revenue through the payment of upfront franchise fees, ongoing royalties based on a percentage of sales, and payments for other transactions with it, such as purchases of food and paper products, advertising services, delivery services, and other services.
Restaurant Concepts
KFC
KFC is the leading and largest quick-service restaurant (‘QSR’) brand in China in terms of 2024 system sales. As of December 31, 2024, there were various KFC restaurants in over 2,200 cities across China. In addition to Original Recipe chicken, whole chicken, and other chicken products, KFC in China has an extensive menu featuring beef burgers, pork, seafood, rice dishes, congees, fresh vegetables, desserts, coffee, tea, and many other products. KFC also seeks to increase revenue from different channels, including dine-in, delivery, and takeaway. KFC primarily competes with western QSR brands in China, such as McDonald’s, Dicos, and Burger King.
Pizza Hut
Pizza Hut was the leading and largest casual dining restaurant (‘CDR’) brand in China in terms of 2024 system sales and number of restaurants as of December 31, 2024, offering multiple dayparts, including breakfast, lunch, afternoon tea, and dinner. Pizza Hut has grown rapidly and, as of year-end 2024, there were various Pizza Hut restaurants in over 800 cities across China. Pizza Hut has an extensive menu offering a broad variety of pizzas, pasta, steaks, rice dishes, burgers, and other entrées, appetizers, beverages, and desserts. Pizza Hut also aims to further drive growth from different channels and occasions, including dine-in, delivery, and takeaway. Pizza Hut also offers packaged foods, such as steak and pasta.
Other Concepts
In addition to KFC and Pizza Hut, the company’s restaurant brand portfolio also includes Lavazza, Huang Ji Huang, Little Sheep, and Taco Bell.
Lavazza: In April 2020, the company partnered with Luigi Lavazza S.p.A. (‘Lavazza Group’), the world-renowned family-owned Italian coffee company, and established a joint venture (‘Lavazza joint venture’) to explore and develop the Lavazza coffee concept in China. The Lavazza joint venture operates both the coffee shop business and the retail business. Lavazza coffee shops offer a premium and authentic Italian coffee experience. As of December 31, 2024, there were various Lavazza coffee shops in China. The retail business involves selling retail coffee products beyond Lavazza coffee shops.
Huang Ji Huang: In April 2020, the company completed the acquisition of a controlling interest in Huang Ji Huang. Huang Ji Huang had various units in China and internationally as of December 31, 2024. Huang Ji Huang primarily operates a franchise model and is an industry-leading simmer pot brand.
Little Sheep: Little Sheep, with the company’s roots in Inner Mongolia, China, specializes in ‘Hot Pot’ cooking, which is very popular in China, particularly during the winter months. Little Sheep had various units in both China and international markets as of December 31, 2024. Little Sheep primarily operates a franchise model.
Taco Bell: Taco Bell is the world’s leading western QSR brand specializing in Mexican-style food, including tacos, burritos, quesadillas, salads, nachos, and similar items. The company opened its first Taco Bell restaurant in Shanghai, China, in December 2016. As of December 31, 2024, there were various Taco Bell units in China.
Strategies
The company has been implementing its ‘RGM’ strategy, which stands for ‘Resilience, Growth, and Moat,’ since 2021, and has been transitioning its ‘RGM’ strategy to place greater emphasis on growth. It centers on expanding its store footprint, increasing sales, and boosting profits. The company is accelerating its store network expansion to reach its next milestone of 20,000 stores by 2026.
The company’s strategies are Footprint Growth - Continue to strategically expand its restaurant network, such as further expanding geographical coverage, exploring new restaurant formats, capturing franchise opportunities, and growing emerging brands; and Sales and Profit Growth - Continue to improve unit-level performance and develop new sources of revenue, such as focusing on food innovation and value proposition, pursuing the best in-store experience, growing the coffee business, optimizing delivery capabilities, enhancing digital capabilities, and investing in high-quality assets.
Operational Management
Restaurant Unit Management
The company’s restaurant management structure varies among its restaurant brands and restaurant sizes. Generally, each restaurant that it operates is overseen by a management team led by a restaurant general manager, or RGM, together with one or more assistant managers. The company has also introduced a shared management model by using AI-enabled digital tools to improve store efficiency and empower its capable restaurant managers to oversee multiple stores without compromising quality. RGMs are skilled and highly trained, with most having a college-level education. The performance of RGMs is regularly monitored and coached by senior operations leaders. Each restaurant brand issues detailed manuals, which may then be customized to meet local regulations and customs. These manuals set forth standards and requirements for all aspects of restaurant operations. The restaurant management team is responsible for the day-to-day operation of the company’s restaurants and for ensuring compliance with operating standards. Each RGM is also responsible for handling guest complaints and emergency situations. In late 2023, the company launched Project Fresh Eye to enhance operational efficiency. By simplifying, centralizing, and automating key processes, it eased the burdens on its RGMs and allowed them to focus on better serving its customers.
Franchise Restaurant Management
As of December 31, 2024, approximately 15% of the company’s restaurants were franchise restaurants. The company’s franchise program is designed to promote consistency and quality, and it is selective in granting franchises. Franchisees supply capital initially by paying a franchise fee to the company and by purchasing or leasing the land use rights, building, equipment, signs, seating, inventories, and supplies; and, over the longer term, by reinvesting in the business through expansion. Franchisees contribute to the company’s revenue through the payment of upfront franchise fees, ongoing royalties based on a percentage of sales, and payments for other transactions with it, such as purchases of food and paper products, advertising services, delivery services, and other services.
The company’s franchise agreements set out specific operational standards, which are consistent with the standards required for company-owned restaurants. Like the company’s company-owned restaurants, its franchise restaurants are also subject to its internal quality audits and reviews.
Expansion Management
The company expanded its restaurant count from the end of 2016 to the end of 2024. It expects to expand its business through organic growth, growth of franchise units, and development of its emerging brands.
The company’s expansion strategy has been systematically focused on high-potential locations across city tiers, including increasing store density in existing cities and entering new cities. Each potential restaurant site is assessed and evaluated individually based on its site potential, potential financial return, and potential impact on nearby stores. The company takes into account factors such as economic and demographic conditions and prospects, consumption patterns, GDP per capita, and population density of the local community, presence of activity centers such as shopping complexes, schools, and residential areas that generate guest traffic, and the presence of other restaurants in the vicinity during its site selection process. It also considers guest traffic and distance from the existing restaurants under the same brand to reduce sales transfer that may occur from existing restaurant units. The company’s flexible store formats and partnership with franchisees empower it to expand to additional strategic locations, including highway service centers, school campuses, and hospitals.
Supply Chain Management
The company’s restaurants, including those operated by franchisees, are large purchasers of a number of food and paper products, equipment, and other restaurant supplies. The principal items purchased include protein ingredients (including poultry, beef, pork, and seafood), cheese, oil, flour, vegetables, and paper and packaging materials. The company has not experienced any significant, continuous shortages of supplies, and alternative sources for most of these products are generally available. Prices paid for supplies fluctuate from time to time. The company controls its raw material costs by entering into long-term bulk purchase agreements for its key food ingredients, fully utilizing all chicken parts, increasing local sourcing, and developing long-term relationships with suppliers.
The company partners with over 800 independent suppliers, which are mostly China-based. It implements a strict supplier qualification process that includes supplier compliance checks and on-site audits to ensure the supplier meets its food safety and quality control standards. The company has formulated detailed specifications for food ingredients and consumables it procures. Its in-house and integrated supply chain management system employs over 1,000 staff in food safety, quality assurance, procurement management, logistics, engineering, and supply chain systems.
In addition, the company operates a tailor-made, world-class logistics management system, which is capable of accommodating large scale, wide coverage, and advanced information dissemination, as well as fast store expansions. The company utilizes 33 logistics centers to distribute supplies to company-owned and franchised stores, as well as to third-party customers. The company owns and operates a substantial portion of these logistics centers. Its current network covers its stores in over 2,200 cities and towns, with the capacity to cover more than 3,000 cities and towns. With the company’s long-term growth in mind, it plans to reach 45 to 50 logistics centers in the next 3 to 5 years, aiming to cover more than 5,000 cities and towns to reduce service lead time and transportation costs. In addition, the company owns seasoning facilities for its Chinese dining business unit, which manufacture and sell seasoning products to Huang Ji Huang and Little Sheep franchisees. The company’s supply chain strategy of working with multiple suppliers, as well as building a vast logistics network, allows for a continuous supply of products in the event that supply from an individual supplier or logistics center becomes unfeasible.
Government Regulation
The company is subject to Chinese regulations on loans to and direct investment in Chinese entities by offshore holding companies. For example, loans by the company to its wholly-owned Chinese subsidiaries to finance their activities cannot exceed statutory limits and must be registered with the local counterparts of the State Administration of Foreign Exchange (‘SAFE’).
The company is subject to regulations relating to certain investments and acquisitions relating to businesses in China, including under the PRC Anti-monopoly Law, Provisions of the State Council on the Thresholds for Declaring Concentration of Business Operators, and the Provisions on M&A of a Domestic Enterprise by Foreign Investors jointly adopted by six PRC regulatory agencies, including MOFCOM, the State-owned Assets Supervision and Administration Commission, the Chinese State Taxation Administration (‘STA’), the State Administration for Industry and Commerce of the PRC (now known as the State Administration for Market Regulation of the PRC), the China Securities Regulatory Commission (‘CSRC’), and SAFE.
The company is subject to heightened data and cybersecurity regulations, including those enforced by the Cyberspace Administration of China (‘CAC’), including the PRC Cybersecurity Law, which imposes tightened requirements on data privacy and cybersecurity practices, the PRC Data Security Law, which imposes data security and privacy obligations on entities and individuals carrying out data activities (including activities outside of the PRC), requires a national security review of data activities that may affect national security, and imposes restrictions on data transmissions, the PRC Personal Information Protection Law, which sets out the regulatory framework for handling and protection of personal information and transmission of personal information, among others.
The company’s independent registered public accounting firm was subject to the determinations announced by the Public Company Accounting Oversight Board (‘PCAOB’) on December 16, 2021. Pursuant thereto, on March 30, 2022, the SEC added Yum China to the conclusive list of ‘Commission-Identified Issuers,’ subject to the trading prohibition and supplemental disclosure requirements under the Holding Foreign Companies Accountable Act (the ‘HFCAA’). Subsequently, in August 2022, the PCAOB announced that it signed a Statement of Protocol with the CSRC and the Ministry of Finance, which it described as the first step toward opening access for the PCAOB to inspect and investigate completely registered public accounting firms in mainland China and Hong Kong. On December 15, 2022, the PCAOB vacated its 2021 determination that the positions taken by authorities in mainland China and Hong Kong prevented it from inspecting and investigating completely registered public accounting firms headquartered in those jurisdictions, including its independent registered accounting firm.
Intellectual Property
The company’s use of certain material trademarks and service marks is governed by a master license agreement between Yum Restaurants Consulting (Shanghai) Company Limited (‘YCCL’), a wholly-owned indirect subsidiary of the company, and Yum! Brands Inc. (‘YUM’), through YRI China Franchising LLC, a subsidiary of YUM, effective from January 1, 2020, and previously through Yum! Restaurants Asia Pte. Ltd., another subsidiary of YUM, from October 31, 2016, to December 31, 2019. Pursuant to the master license agreement, the company is the exclusive licensee of the KFC, Pizza Hut, and, subject to achieving certain agreed-upon milestones, Taco Bell brands and their related marks and other intellectual property rights for restaurant services in the PRC, excluding Hong Kong, Macau, and Taiwan. The term of the license is 50 years from October 31, 2016, for the KFC and Pizza Hut brands and, subject to achieving certain agreed-upon milestones, 50 years from April 15, 2022, for the Taco Bell brand, with automatic renewals for additional consecutive renewal terms of 50 years each, subject only to the company being in ‘good standing’ and unless it gives notice of its intent not to renew. In exchange, the company pays a license fee to YUM equal to 3% of net system sales of the licensed brands. The company has also agreed generally not to compete with YUM. In addition, it was granted a right of first refusal to develop and franchise in the PRC certain restaurant concepts that YUM may develop or acquire. On April 15, 2022, the company and YUM, through their respective subsidiaries, entered into an amendment to the master license agreement to amend the development milestones for the Taco Bell brand, including a measurement condition of at least 225 stores by the end of 2025, subject to the terms of the agreement.
The company was granted by YUM a royalty-free license to use the name and mark of ‘YUM’ as part of its name, domain name, and stock identification symbol pursuant to a name license agreement entered into between YUM and the company on October 31, 2016.
The company owns registered trademarks and service marks relating to the Little Sheep and Huang Ji Huang brands and pays no license fee related to these brands.
Competition
KFC’s competitors in China are primarily western QSR brands, such as McDonald’s, Dicos, and Burger King, and to a lesser extent, domestic QSR brands in China. Pizza Hut primarily competes with western CDR brands, including Domino’s and Papa John’s, as well as other domestic CDR brands in China.
Seasonality
Due to the nature of the company’s operations, it typically generates higher sales during Chinese festivities, holiday seasons, as well as summer months, but relatively lower sales and lower operating profit during the second and fourth quarters (year ended December 31, 2024).
Research and Development Expenses
The company’s research and development expenses were $6 million in 2024.
History
Yum China Holdings, Inc. was founded in 1987. The company was incorporated in Delaware in 2016.
