Store network

Yum China adds machines, not workers, as it expands its store network

Yum China’s network of KFC and Pizza Hut outlets has grown steadily throughout the Covid-19 pandemic, although its workforce size has remained stable, the group’s chief executive said.

“We have increased our stores, but not increased the total number of employees,” Joey Watt said during a call with analysts and investors on February 9, highlighting Yum China’s investments in artificial intelligence and technologies. digital technologies to support operations and training.

Many stores now have touch screens where customers place their orders. In several Chinese cities, KFC robots serve soft ice cream cones. Elsewhere, takeout orders can be collected from digital lockers without contacting staff.

Watt noted that the company now has about 420,000 full-time and part-time employees, roughly the same number as in 2016 when it was founded by U.S. parent company Yum Brands.

During the same period, the number of outlets increased by 56%, reaching 11,788 in December with the addition of 1,282 net outlets in 2021. Meanwhile, between 2016 and 2021, net profits annuals nearly doubled to $990 million, although last year’s figure included a one-time gain from a joint venture in the city of Hangzhou.

Announcing its annual results, Yum China said it plans to open an additional 1,000 to 1,200 net stores this year across its brands, including Taco Bell, local Chinese hot pot chains Little Sheep and Huang Ji Huang, and COFFii & JOY and Lavazza coffees.

Of its projected annual capital expenditure of $800 million to $1 billion, about half would be spent on new stores, but Watt pointed out that they were individually less expensive than before despite their cutting-edge technology. In 2016, she noted, the company opened 575 outlets with an overall investment budget of $436 million. Last year there were 1,806 openings for spending of $689 million.

“The key is efficiency,” she said, again emphasizing the role of automation. In October, she announced that the company would invest up to $200 million to open research and development centers in Shanghai, Xi’an and Nanjing to tap into those cities’ tech talent pools.

As construction continued apace last year, Covid weighed on Yum’s sales. Revenue from stores open for at least a year fell 11% in the October-December quarter from the same period a year earlier.

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More than 500 outlets were closed for dinner or completely last month amid Omicron outbreaks. Chief Financial Officer Andy Yeung said sales were lower during the Lunar New Year holiday compared to 2021 and the situation “remains volatile”, but did not disclose numbers.

Watt added that Yum would end East Dawning, a cluster of five Chinese-style fast food outlets focused on transportation hubs where customer traffic has dwindled amid the pandemic.

Most new stores in the country are opened by Yum China itself, but Watt said he will continue to seek franchisees in remote areas such as Tibet and strategic channels such as highway rest areas. .

With franchise stores, there are “a lot of service quality challenges that we care about most,” Watt said, adding that improving automation and technology has given him “better comfort” to ensure the quality of service of these partners. Franchise outlets now account for about 15% of Yum China’s store portfolio.

Despite the workforce cap, Yum China’s labor costs continued to rise, reaching $2.25 billion last year, up 31% from 2020. Employee benefits also accounted for a growing proportion of total store operating expenses, reaching 29.2% last year. , compared to 25.5% in 2016.

This is partly explained by higher insurance expenses. Last year, the company increased medical coverage for select store managers to Rmb 1 million ($157,182) while extending critical illness and other coverage to 100,000 frontline employees and family members.

With the help of new outlets, Yum China’s revenue grew 19% last year to $9.85 billion.

A version of this article was first published by Nikkei Asia on February 9, 2022. ©2022 Nikkei Inc. All Rights Reserved