A large number of overseas stores have closed, and domestic discounts have begun. Pizza Hut has suffered a "mid-age crisis"?
"China Economic Weekly" reporter Song Jie | Shanghai Report
According to foreign media reports on August 18, Pizza Hut announced bankruptcy and reorganization in NPC International, the largest distributor in the United States, and its 300 American Pizza Hut announced permanent closure of stores.
It is reported that NPC International operates 1,227 Pizza Hut stores in the United States. Except for the 300 permanently closed stores, the remaining 927 stores will also be packaged for sale.
A reporter from China Economic Weekly noticed that Shanghai Pizza Hut started buying membership cards to allow consumers to "eat half price for 30 days" in the form of membership cards. Does it mean that domestic Pizza Hut can't bear it?
Yum China: Pizza Hut's domestic showroom plan remains unchanged
It is an indisputable fact that the new crown epidemic has brought heavy losses to the US catering industry.
CNN reported on August 18: "The huge debt burden of nearly 1 billion U.S. dollars, as well as the rising labor and food costs, all herald the bankruptcy of NPC. The performance of the more than 300 Pizza Hut stores that have been permanently closed is not impressive. And mainly dine-in, not suitable for the development of take-out and delivery business. Pizza Hut said that these 300 US branches will help employees find work restaurants in nearby Pizza Hut. Pizza Hut encourages customers to order delivery services through its website or a third party."
Will Pizza Hut in the domestic market be implicated?
Yum China responded to the "Guangzhou Daily" on August 19: "Pizza Hut in China is exclusively operated by Yum China. It still opened new stores in the first half of this year. It is currently recovering well and will continue to develop in accordance with the store opening plan in the future."
According to Yum China’s second-quarter financial report, Pizza Hut opened 19 new stores in the first half of the year.
"Yummous China is the exclusive authorized operator of Pizza Hut in China. There is nothing to do with the two except paying a 3% franchise fee. Domestic Pizza Hut has an independent strategy. For example, many Chinese dishes are invisible to Pizza Hut abroad." Some people in the catering industry analyze this way.
According to the data, Yum! Brands (NYSE: YUM) Chinese Food Division, formerly known as Yum! Brands (NYSE: YUM), was spin-off in 2016 and became an independent company listed on the New York Stock Exchange with the stock code YUMC.
After the split, Yum China has to pay 3% of the franchise restaurant sales to the parent company as a license fee each year, and the renewal period is 50 years.
On September 1, Yum China officially started its IPO. It is expected to be listed on the Hong Kong Stock Exchange under the stock code of "9987" on September 10, and will become the first company to complete a secondary listing in Hong Kong in the second half of 2020.
Yum China quoted data from Frost & Sullivan (Frost & Sullivan, the world's largest corporate growth consulting company) in its prospectus, saying that based on system sales in 2019, Yum China is China's largest catering company.
In addition to KFC and Pizza Hut, Yum China’s brands also include emerging brands such as Little Sheep, Huang Jihuang, COFFii&JOY, Dongfang Jibai, Taco Bell and Lavazza.
As of July 2020, the total number of Yum China stores has reached nearly 10,000.
In response to the half-discount promotion for Shanghai Pizza Hut members, Yum China did not respond positively on the grounds that the company was silent.
However, the reporter noticed that in the second quarterly report of Yum China, it was mentioned that in the post-epidemic era, Yum China hopes to engage in consumer interaction to increase the strong stickiness with regular customers. This is to adapt to changes in consumer behavior and adopt new measures. Strategy.
Private domain traffic may be Pizza Hut's next breakthrough.
The financial report shows that as of June 30, 2020, Pizza Hut operates more than 2,200 restaurants in more than 500 cities in China.
Yum China has a total of 265 million digital members. Although overall sales have declined, sales from members have achieved double-digit growth, accounting for more than 60% of overall sales.
In the second quarter, membership sales accounted for 53% of Pizza Hut’s sales for the quarter.
Can Yum China's second listing resolve Pizza Hut's "middle-age crisis"?
Compared with Pizza Hut, KFC under Yum China plays a more prominent role in the entire group.
Yum China’s revenue of 6.04 billion yuan in 2019 came from KFC, accounting for 68.8%; 2.054 billion yuan from Pizza Hut, accounting for 23.4%.
The reporter noticed that Pizza Hut has been "copying homework" from its "brother" KFC.
Following the strategy of localization and diversification, the company boosted its performance by launching diversified products such as crayfish pizza, Beijing roast duck pizza, and crayfish lasagna.
It took 18 months for Yum China to turn Pizza Hut’s same-store sales back into profit.
In 2019, Pizza Hut's performance improved.
For the whole year of 2019, Yum China's total sales increased by 9% year-on-year, of which KFC increased by 11% year-on-year, Pizza Hut increased by 3% year-on-year; same-store sales increased by 3% year-on-year, of which KFC increased by 4% year-on-year, but Pizza Hut increased by only 1% year-on-year .
The domestic catering track has always been fiercely competitive, and Yum China’s "leading brother" KFC is "dropping fans".
According to the chart provided by China Economic Weekly from Tonglian Data, the number of active KFC APP users in July this year was 5.761 million, a decline of 27.8% compared to July last year.
KFC has also recently been complained by netizens because it stopped using the 60-year-old advertising slogan "finger-sucking delicious". Some foreign media commented that this move was actually a marketing strategy.
Yum China’s prospectus shows that revenue and net profit in the first half of this year were US$3.656 billion and US$194 million, down 17% and 52% year-on-year.
In the second quarter of this year, Yum China’s total revenue was US$1.9 billion, a year-on-year decrease of 11%, of which KFC’s sales fell by 6% and Pizza Hut’s sales fell by 12%.
In the second quarter, the company's operating profit fell from US$204 million to US$128 million, a year-on-year decrease of 38%; net profit was US$132 million, compared with a year-on-year net profit of US$178 million, a year-on-year decrease of 26%.
In the prospectus, the main reason for the decline in performance is attributed to: "The significant reduction in traffic and traffic flow in tourist attractions, the postponement and shortening of school holidays, and the renewed'rising' of the new crown pneumonia epidemic in the region will affect sales."
However, despite the severe decline in operating performance under the epidemic, Yum China still remains profitable and has expanded 169 stores against the trend.
Even when the tide of Pizza Hut closing stores in the United States surged, Yum China’s plan to continue to exhibit stores remained unchanged.
According to Yum China’s prospectus, the proceeds from the Hong Kong IPO will be mainly used to expand and deepen the restaurant network. The number of restaurants has the potential to grow to 20,000 or more in the future; invest in digitalization and supply chain, food innovation and value positioning, and high-quality assets .
In terms of shareholder structure, Invesco currently holds 10.8% of Yum China’s shares, and Blackstone and Chunhua Capital hold 7.2% and 4.3% of the shares, respectively.
In addition, Yum China’s list of independent directors also includes big names, such as Gao Rong Capital Investment Partner and former Walmart China President and CEO Chen Yaochang; Ant Group Chief Financial Officer Han Xinyi; former Weilai Automobile CFO Xie Dongying, etc.
Whether Yum China, which is betting on opening a store and listing in Hong Kong for the second time, can successfully resolve Pizza Hut's "middle-age crisis", we will wait and see.