Dissecting Yum China’s Ambition for 30,000 Stores: Pathways, Efficiency, and Returns

The scale competition in the chain restaurant industry is ongoing.

At a recent Investor Day, Yum China announced its goal of opening 30,000 stores by 2030 for the first time, marking the beginning of an unprecedented acceleration phase for the largest chain restaurant group in China.

CEO Joey Wat stated, "From 1987 to 2020, it took us 33 years to open our first store. We aim to double the number of stores by 2026 and exceed 30,000 stores within the following four years."

At the same time, Yum China also made higher profit and shareholder return commitments.

KFC aims to become the first restaurant chain brand in China to achieve operating profits exceeding RMB 10 billion by 2028. Pizza Hut's operating profit is expected to double by 2029 compared to 2024.

In the context of recent price competition, Yum China has successfully achieved simultaneous expansion in system sales, same-store sales, and operating profits.

As the number of stores reaches a new level, whether it can maintain this delicate balance will be a true test of its operational capabilities, and the market will be watching closely.

Where Will the Increment Come From

Yum China has provided a clear task allocation for the goal of 30,000 stores.

By 2026, it aims to complete the existing target of 20,000 stores, and by 2028, the total number of stores is expected to exceed 25,000, with KFC growing by one-third to over 17,000 stores and Pizza Hut surpassing 6,000 stores.

Structurally, most of the increment will come from KFC, with a small portion from Pizza Hut, and the total number of new stores over the next three years is estimated to exceed 6,000; Lavazza and other brands are also expanding simultaneously.

In terms of market space, referencing Wallace's 20,000 store count, the attractiveness and certainty of the vast sinking market remain very high.

Yum China pointed out that its services currently cover only about one-third of China's population, with a goal to expand to half of the population by 2028. The company plans to increase the number of cities it operates in from about 2,500 currently to 4,500 by 2030.

For Yum China, the store model adapted to the sinking market has been basically validated by the market.

In recent years, Yum China has continuously promoted the RGM strategy, which consists of "Resilience, Growth, and Moat."

As early as the 2.0 phase of the RGM strategy, Yum China focused on systematic adjustments and optimizations of the store model to capture growth opportunities brought by the recovery of offline consumption.

For example, Pizza Hut's "WOW model," which targets lower-tier markets, has rapidly developed since its launch in May 2024, helping Pizza Hut tap into blank markets in 40 cities.

On the other hand, the same-store growth rate for Yum China has only maintained a conservative expectation of 0-2%.

A larger store base and broader demographic coverage mean the company must implement a more thorough mass-market approach.

Yum China's pricing strategy in recent years can be summarized as "KFC stable prices, Pizza Hut price reductions."

According to CEO Joey Wat, KFC has maintained stable average spending per customer since 2016 and has not raised prices in line with inflation; meanwhile, Pizza Hut has implemented strategic price reductions since 2019, with the current average spending per customer down to about 70% of the level ten years ago According to the latest signals released by Investor Day, the expectation for Pizza Hut to further lower its price range in the future has eased. In the long term, the brand may gradually stabilize its average transaction value by launching more cost-effective products in a higher price range.

Even without actively adjusting prices, the increase in store density and market penetration will still exert structural pressure on the average transaction value.

The next phase of same-store growth will rely more on the continuous increase in order volume.

The "shoulder-to-shoulder" store model, which features front-end store area segmentation and back kitchen system integration, is a typical success case.

Initially, it was a passive measure to optimize space efficiency against the backdrop of increasing takeaway proportions, but it has now become an important tool for expanding customer base and reusing locations.

KFC's Kenyue Coffee and KPRO have both achieved rapid startup and expansion by sharing in-store resources and membership systems with KFC.

Currently, the number of Kenyue Coffee stores has surpassed 1,800, and it is expected to exceed 5,000 by 2029; KPRO, which focuses on the light meal market, has entered over 20 cities and opened more than 100 stores within a year, with the potential to reach a thousand stores in five years.

Some new initiatives are also expected to continue contributing to future growth.

Pizza Hut has introduced a hamburger category based on pizza, continuously broadening its target customer base; KFC plans to launch an affordable "big carbohydrate" staple food series through specific channels aimed at budget-conscious consumers such as takeaway riders, ride-hailing drivers, and university students.

At the same time, the "Car Speed Takeaway" initiative, which is currently being promoted, is beginning to explore new channel forms beyond dine-in and takeaway, further expanding consumption scenarios.

Intensification and Aggregation

The extensive coverage of front-end stores further provides a foundation for the intensive operation and collaborative innovation of the middle and back-end systems.

Yum China emphasizes the integration and collaboration of back-end resources across stores, regions, and even brands in its RGM 3.0 strategy.

This strategic direction is summarized internally as "front-end layering, back-end aggregation."

Front-end layering refers to the broad coverage of different customer groups and consumption scenarios through diversified store formats, product combinations, and price settings in consumer-facing terminal scenarios, capturing more market opportunities.

Back-end aggregation has a relatively broad meaning, ranging from order integration and multi-store management to the integration of membership systems, sharing of supply chain resources, and comprehensive operational support provided by a unified AI technology platform.

For example, the iKitchen system promoted by Pizza Hut optimizes kitchen efficiency by centrally distributing orders to different workstations; KFC's Mega RGM (Restaurant Manager) program allows one store manager to oversee multiple adjacent stores, reducing labor allocation.

The "aggregation" mindset in the product and supply chain domain aims to minimize operational losses across the entire chain.

For instance, maximizing the value of "one chicken": chicken legs, chicken breasts, chicken feet, chicken frames, and even "chicken feather dusters" can all be utilized.

Additionally, there is an emphasis on "big items" and menu simplification to continuously optimize supply chain efficiency. This year, the annual sales of KFC's top six items are expected to exceed 22 billion yuan, contributing 30% of the brand's sales. Among them, the annual sales of spicy chicken wings and spicy chicken leg burgers have both exceeded 4 billion yuan Such "big single products" not only contribute stable income but also provide a foundation for the scaling and efficient operation of the supply chain.

Currently, Yum China is deepening cooperation with suppliers and promoting the construction of integrated industrial parks: aggregating distribution centers with packaging, food, equipment, and other ecosystems.

According to the plan, the company's first three-in-one industrial park, integrating distribution, fresh-cut vegetable factories, and bread production, will be completed and put into operation by the end of 2026 in Datong, Shanxi, with other similar projects also being advanced simultaneously.

The same pursuit of efficiency runs through the construction of the management support system.

Yum China's Chief Technology Officer Zhang Lei pointed out that chain restaurant brands with fewer than 1,000 stores theoretically find it difficult to sustain digital investment and iterative development.

She further stated that although Yum China's digital system is functionally complete, there are differences in platform architecture due to construction at different technological stages, "technology basically evolves every three years."

In recent years, the emergence of generative artificial intelligence has enabled Yum China to promote integration through natural language interaction, significantly reducing the time and cost of system transformation.

At the investor day event, Yum Group showcased AI assistants Q-Rui, D-Rui, and C-Rui, serving various scenarios such as restaurant operations, delivery capacity coordination, and customer service inquiries.

Although Q-Rui has begun to play a role in inventory forecasting and replenishment, Yum China emphasizes that the final decision-making power remains with frontline restaurant employees.

"At this stage, humans are still smarter than artificial intelligence," Yum China clearly stated that the initial intention of introducing AI is to help restaurant managers free themselves from tedious tasks and focus more on customer service.

Accompanying this is the platform-based upgrade of the human resources system.

According to Chief Human Resources Officer Ding Shiyan, the company is building five centralized operational platforms for restaurant managers, covering new store openings, employee management, customer support, inventory management, and equipment maintenance to support efficiency in front-end store operations.

Currently, the national centralized recruitment and training platform can meet about 89% of the restaurant manager's labor demand. From online submission of needs to trained employees on duty, the entire process takes only 1 to 2 weeks, reducing the administrative burden on store management.

Returns and Efficiency

With the expansion of scale and changes in development stages, Yum China has adjusted its capital return path for the next three years.

At this investor day, Yum China's Chief Financial Officer Ding Xiao clearly stated that ROIC (Return on Invested Capital) will increase from 16.9% in 2024 to approximately 20% in 2028.

The achievement of this goal will mainly come from the continuous enhancement of profitability and intensive control of capital expenditures.

In 2025, the company expects the overall operating profit margin to remain in the range of 10.8%-10.9%. In terms of restaurant profit margins, Yum China expects an overall margin of 16.2%-16.3%, with KFC around 17.3% and Pizza Hut around 12.7%.

By 2028, when the total number of stores exceeds 25,000, Yum China's target operating profit margin will further increase to no less than 11.5% By brand, KFC's target restaurant profit margin will not be lower than 17.3% in 2025; meanwhile, Pizza Hut plans to raise its margin to no less than 14.5%, an increase of at least 250 basis points compared to 2024.

The improvement in profit margins is the result of multiple factors, but a particularly key variable is the increase in the proportion of franchises.

As the main store type for expanding into lower-tier markets, KFC's "town model" and Pizza Hut's "WOW store" have lowered their minimum investment thresholds to 500,000 yuan and 650,000 yuan, respectively.

Lower investment thresholds and smaller areas combined with the rental advantages in lower-tier cities have significantly enhanced the attractiveness of franchising.

In the next three years, the proportion of franchise stores among new KFC and Pizza Hut locations is expected to increase to 40-50%, meaning nearly half of the new stores will be franchises.

The proportion of franchise stores for both brands is expected to rise from about 13% in 2025 to over 20% by 2028.

By increasing the proportion of new store franchises, Yum China can stabilize its annual capital expenditure at 600-700 million USD and shift towards digitalization and supply chain infrastructure, rather than sinking all funds into physical stores.

Specifically, 75%-85% of planned capital expenditure will be allocated to new store development and store upgrades, while 15%-25% will be used for supply chain and infrastructure.

Correspondingly, Yum China's shareholder return plan is expected to enter a new phase.

Between 2024 and 2026, Yum China plans to return approximately 1.5 billion USD to shareholders each year.

Starting in 2027, Yum China plans to return about 100% of its free cash flow to shareholders after deducting dividends paid to minority shareholders of subsidiaries.

It is expected that during 2027 and 2028, shareholder returns will average about 900 million to over 1 billion USD per year, surpassing 1 billion USD in 2028.

In terms of distribution, the per-share dividend will gradually increase, with the remainder achieved through stock buybacks.

Using 2025 as the base year, Yum China expects to achieve double-digit annual compound growth in free cash flow per share from 2026 to 2028.

Moving forward, the precision of strategic execution and flexibility in responding to changes will become key metrics for measuring Yum China's future value