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Yum! China Investor ConferenceSeptember 8, 2011
Shanghai
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WELCOME!Tim Jerzyk
SVP, Investor Relations
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Agenda
Vincent Huang, VP KFC Marketing
Candy Chan, VP Pizza Hut Marketing
Mark Chu, President & COO (Yum! China) East Dawning
Joaquin Pelaez, Chief Support Officer Support Capability
Lily Hsieh, CFO Development
Sam Su, Chairman & CEO (Yum! China) Summary/Q&A
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Forward Looking Statements
This presentation will include forward-lookingstatements that reflect managementsexpectations based on currently available
data. However, actual results are subject tofuture events and uncertainties. Theinformation in the presentation related toprojections or other forward lookingstatements which may cause actual results to
differ materially are subject to the safe harborstatement posted on our Web site:www.yum.com.
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Building Leading Brands
KFC
Vincent Huang
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KFCs First Days -- in Shanghai
KFC Menu
Signature, HeritageFood
KFC Convenience
Available at a storenear you
1989
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Daypart / Service extensions (e.g. Delivery, 24 hours)
New Fast Food (vs. conventional model)
Position brand as Rooted in China
KFC heritage (fried chicken)
KFC: #1 QSR brand in China
Today
5+ Years ago
10+ Years ago
Day One
A ser ies o f strategic brand bu i ld ing block s o ver the years
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The New Fast Food business model
Great tasting and safe food;high-quality and speedy (whatconventional fast food offers)
Balanced in nutrition; healthylife style
Rooted in China, continuousinnovations
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KFC Today: Signature products
in every category
Category Signature Products
Chicken Colonels Original Recipe
Sandwich Zinger New Orleans roasted burgershrimp burger
Twister/wrap dragon twister
Rice chicken & mushroom riceSnacks hot wingNew Orleans wingpopcorn chicken
Sides veggie soupDesserts egg tart
Beverages 9 lives juicelemonadecoffee floatmilk tea with red bean
Breakfast pastry puff sandwichcongee
dough sticksoy milk
New
Fast
Food
Today
1987
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Gradually broaden appeal
with meaningful menu variety
Roasted Non-poultry Destination Local
beverages taste
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KFC offers more variety on main meal items
KFCTop
Competition
Chicken
burger
burger
twister rice
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KFC has more choices in breakfast
KFC TopCompetitionburger
puff pastry
sandwich
congee
sandwich
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13131313
Offer balanced choice and encourage healthy eating
Abundant choices of salad, soup, and juice
Consumer education on healthy eating
Sponsorship for studies on health and nutrition
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Good Morning
Program
Promote regular exercise with grass-root sport events
Teens Fitness Dance Program
1.5 million students joinedfrom 3,600 schools in 2010
Teens 3-on-3
Basketball Leagues
200,000 participants from
480 cities in 2010
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Winning over competition on New Fast Food image
Data source: Brand Image Tracking
in 47 cities, 2011 Q2
*Significant difference
95% confidence level
(Top 2 box %) KFCTop
Competitor
chicken expert 61* 42
food taste 62* 53
menu variety 60* 50
innovative 57* 44
balanced choice 48* 42
promote regular exercise 45* 39
rooted in China 58* 41
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Gap widening versus competition
KFC
McD
Store Count Comparison
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Recent key initiatives sustain our brand growth
Food
innovation
Daypart
extension
Improve
affordability
Our future platform for growth
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Continuous food innovation Burger
Texas BBQ flavoredRoasted chickenburger
South African peri-peri flavoredRoasted chickenburger
Chinese SichuanflavoredDouble mightyburger
Burger with ham &eggBurger with porksausage
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Continuous food innovation Rice, Soups
The popular Chinese eating habit a balanced meal
Black pepper beef strip &mushroomRoasted thigh fillet in New
Orleans flavorChicken fillet & mushroom
MinestroneChinese sour & spicysoup
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Continuous food innovation Snacks
Fried shrimp wrappedwith crispy noodle
Fried crab meat stuffedin shell
Roasted drum stickwith Bailey flavor
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Continuous food innovation Beverages, Desserts
Megranate juice
with Agar-agar
9-Lives
Blended Juice
Milk Tea with
Red bean stuff
Irish coffee float
with Sundae
Strawberry
Sundae
Sundae topped
With mixed
Q BeansCranberrySundae
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Leverage asset and grow sales
from all dayparts
Breakfast
Weekday lunch
Afternoon break
Dinner
24 Hours (overnight)
Delivery
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Daypart / service extensions generate
incremental sales
Increasing store coverage and salesyear began system unit coverage
Breakfast 2002 94%
24H/overnight 2009 47%
Delivery 2008 50%
KFC B kf t
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Busier life style, more and more people eat breakfastout of home
Most people spend 3 to 5 yuan
KFC 6 yuan breakfast value combos meet consumerneeds well
KFC Breakfast:
High Quality, Nutritious, Affordable
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Becoming a preferred place for weekday lunch
Different eating habits vs. dinner
Shorter meal time around 30-40 min
Less spending vs. dinner
Offer both Western and Chinese
choices
KFC 15 yuan weekday lunch
Value combos effective in expanding
customer base
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A convenient and value for money choice
for afternoon tea time
Afternoon tea time habit is becomingmore popular Coffee shops, bakery & retail, casual
dinning
KFC Buy your own tea sets at 9 yuan
received very positive response
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Summary
The #1 QSR brand in China
Positioning as New Fast Food
A preferred brand deeply rooted in China Superior brand image
Growing faster than competition
Well penetrated into lower tier cities
Recent key initiatives sustain brand growth Continuous food innovation
Extending dayparts and services
Value initiatives to improve affordability
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Pizza Hut Dine-in
Pizza Hut Home Delivery
Candy Chan
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China is in an age of explosive growth
But unlike ten years ago,the speed of growth is not
the most important thing anymore.
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Aspirational urban lifestyles
Affordable casual western dining is the immediate fulfillment
New taste Proof that I know how toappreciate life, and I CAN.
And the Chinese consumer is changing
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The unique position of Pizza Hut Dine-in in China
The intimate PORTAL
to western fare and lifestyle
for this generation and the next
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The Western Restaurant right next door for China
560+ stores
120+ cities
29 provinces
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The First Taste of a sophisticated urban lifestyle
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Pizza Hut provides Best WCDR Menu
Extensive menu more than pizzaNew taste and cultural sensations:
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New taste and cultural sensations
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Wide range of beverage and desserts
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Pizza Hut is leading the Tea Time business
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Multiple Years of SS TC Growth
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Outstanding service , ahead of competitors
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Pizza Hut Loved by people of all ages and walks of life
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Brand Equity Stronger Than Ever
ta Pizza Hut Dine In -- Consumer Data
20092011
Q1+Q2
Attributes PHDI PHDI
Overall taste 64 78Variety 61 75
Innovative 59 76
Service 72 78
CDR leading Brand 51 75
Most Favorite Brand 52 75
Most Trusted Brand 71 82
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The Bridge to Western food and urban lifestyle
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Pizza Hut Home Delivery
Candy Chan
h l d
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FY09 FY10 FY11YTDP9
114
118
117
120+ stores
12 cities
The Best Delivery Brand
PHHS SS TC Index
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Friendly and reliable ordering service
www . . com
Professional rider delivering good quality food
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Professional rider delivering good quality food
Variety at affordable prices
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Variety at affordable prices
Chi f d t b tt d
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Chinese food to better serve consumers need
More affordable for lunch and tea time
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More affordable for lunch and tea time
B d E it b i t
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Brand Equity becoming stronger
Pizza Hut Home Delivery Consumer Data
20092011
Q1+Q2
PHHD PHHD
Based on Brand Awarer3447 860
Favorite Delivery Brand 69 70
Leading Delivery Brand 74 73
Good Taste 65 75
Menu Variety 72 75
Food Innovation 69 70
Delivery Speed 70 71
Food Temperature 82 80
Value For Money 47 59
Pi a H t Home Deli er The Best Deli er Brand
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Thank You!
Pizza Hut Home Delivery The Best Delivery Brand
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East Dawning
Mark Chu
Chinese Foodservice a Huge Growing Category
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40 36
2 3
1922
7 6
19 18
13 15
Huge opportunity beyond Western QSR & CDR.
Chinese Foodservice a Huge, Growing Category
Traditional FullService Rest.
Casual Dining Rest.
CQSR
WQSR
Vendors
Other *
2010 1st Half 2011 1st Half
8.0%
43.6%
32.6%
18.0%
17.5%
36.1%
Growth%
*Others includes other QSR, bakery/coffee shop, retail and other outlets
Traffic share %
Accelerated Chinese QSR Growth
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Accelerated Chinese QSR Growth
Governments effort on urbanization
Urban lifestyles increasingly busier than before
Newer generations trained on Western QSR
Chinese food choices out of pace with changing needs Local and unbranded, no quick solution, lack all-daypart service
Higher frequency on comfort food
Healthy, balanced in nature
East Dawning Our Vision
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East Dawning Our Vision
The choice of Chinese QSR
Build KFC-like business model for Chinese
food Serving all day parts
Mainstream, serving broad consumer target
Our famous product innovation and varieties Price range to satisfy all occasions
Unmatched operations standards
East Dawning Consistent Strong Progress
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East Dawning Consistent, Strong Progress
Strong menu innovation
Attractive value offerings
Improving consumer scores
Improving business model, consistent double-digittransaction growth
East Dawning Strong Menu innovation
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East Dawning Strong Menu innovation
Menu built for broad appeal
Serving all day parts
Breakfast Lunch
Dinner
Afternoon (drinks / snacks / desserts)
Food acceptance by regional palate (tested)
East Dawning Product offered for broad appeal
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East Dawning Product offered for broad appeal
Breakfast
Soy Bean Milk Congee Noodles Pocket Sandwich
20112010
Today, Offering Over30 Breakfast Choices
Rice Roll
2010
East Dawning Product offered for broad appeal
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East Dawning Product offered for broad appeal
Lunch / Dinner(Protein variety)
Pork Rice Beef RiceChicken Rice Beijing StyleNoodle
Dozen ShrimpNoodles
2009 20102009 2010
15 Main Meal Choices
East Dawning Product offered for broad appeal
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East Dawning Product offered for broad appeal
Snacks
Fried Shrimp Dumpling Roasted WingSteamed Dumpling Popcorn Clam
20102011 2011
6 Main Stream Snack Choices
East Dawning Product offered for broad appeal
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East Dawning Product offered for broad appeal
Drink / Dessert
Black TeaGreen Tea
Milk Tea Crushed Ice Mango PuddingEgg Tart
20102009 2009 2009
15 Drink / Dessert Choices
East Dawning Attractive Value offerings
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East Dawning Attractive Value offerings
Breakfast
RMB 6 Breakfast combos
Delicious Chinese Breakfast
choices
11 varieties in all
Winning on taste and value
Fast growing daypart
East Dawning Attractive Value offerings
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East Dawning Attractive Value offerings
Non-meal daypart
Afternoon tea time
After dinner hours
RMB 7 for 2 items
Choose any 2: snacks, drinks, desserts
30 possible combinations in all
East Dawning
Highest Unaided Awareness
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g
g
Among CQSR
East Dawning
(a) %
19
33c
89b
J-Kungfu
(b) %
24
20
76
Yonghedawang
(c) %
41
17
92b
Store No.
TTL Unaided
TTL Awareness
KFC
n=150
239
93
100
Base = SH P3M CQSR
users aged 16-49 (n=604)
East Dawning Strong appeal to younger
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g g pp y g
generation
Chinese youth attracted to Western QSR
Still lack Chinese restaurant brand that catersto their needs
Achieving new breakthroughs with youth Top of mind
Imagery
Spontaneous recall
East Dawning Asset
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East Dawning Asset
Contemporary assets
Ambience to enjoy deliciousand affordable Chinese food
East Dawning Improving business model
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g p g
Central kitchen opened Simplified restaurant BOH
Kitchen space reduction
Improving economics via asset leverage
Double-digit SSS transaction growth severalyears in a row
East Dawning Looking Ahead
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g g
Building leading Great Food Taste positioningvia product innovation
Grow all day parts including non-meal tobuild All Day business model
Build a KFC-like operation system and team tosupport expansion
Continue work on unit economics
Explore lower tier city with cost advantages
Expand with good discipline
Building Dominant Brands in China
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Building Dominant Brands in China
Great Operations starts with people capability Every store a training store
Operations a key enabler for growth
New Products, New Brands
Strong OperationsThe Foundation of Our Brand Building
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Support Capability
Joaquin Pelaez
World-class infrastructure and long-termtiti d t
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gcompetitive advantage
Highly DevelopedSupply ChainManagement
UnequaledTalent &
Experience
UnmatchedFood Innovation
Capabilities
World Class
DistributionBusiness
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Food Innovation Capabilities
Innovation is key to our Brands success
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Innovation is key to our Brands success
Chinese consumers demand and
expect innovation
Innovation is approached with aFuture Back perspective with a stepchange view
Innovation is anchored on our NewFast Food Model
Innovation is Everyones Job in theChina organization
Deep skills developed to support allour Brands that balance the rightbrain with left brain approach
Ideation
Focus Groups
Screener
Immersions
Concepts & Prototype
NPC review all concepts &
prototypes
Our Innovation Model supported by world classi f t t
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infrastructure
Local insights driven
innovation with strong supportfrom consumer research andproduct groups
BOH engineering know-how
capabilities
Culinary chef team to helpimprove food style and qualitypresentation
Strong integration with theSupply Chain group
Our pipeline is full and we are at record pace
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Our pipeline is full and we are at record pace
0
40
80
120
160
2005 2006 2007 2008 2009 2010
New Product s Launched
K FC PH P HHS ED
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Highly developedSupply Chain Management
Our Sourcing Philosophy
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Our Sourcing Philosophy
Review status for every SKU Prioritize development of new suppliers with R&D and QA
Ensure sufficient capacity to support 3 to 5 years store and transaction growth
Fair, transparent competition to reward most competitive supplier
Multiple qualified
suppliers
Capacity tosupport growth
Efficient marketto drive
competition
Collaboration betweenSCM, R&D, Food Safety
and QA
Sustainable, Safe
and Reliable Supply
Best Total Cost
Efficient Process
Drive innovation
Support Group Ensures Organizational Alignment
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Support Group Ensures Organizational Alignment
Brand Teams Finance
Other Functions
Alignment with Business
Strategy
R & D
SCM
EN
QAFSO
SCM-System
MFG
YLC
ChiefSupportOffice
Marketing
Boards & Committee, Annual Operating
Plan, Financial Targets
China SCM Guiding Principle
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g p
Supply side expert
Proactive brand builder
Adept at innovation
Sweet spot management
Be the best customer
Develop suppliers & capacity
Fair, ethical and equitable
Orderly competition
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Strong Food Safety System Capability
Strong Food Safety System Capability
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Supplier QA and field QA to ensure quality compliance to
specifications
Food Safety office to address all food safety and regulatory issues,
and work closely with government authorities and industry
association
Food Safety Expert Committee leading food safety experts from
China assist and advise us on all food safety related issues
Strong analytical partnership with Shanghai FDA testing lab to
double check our ingredients and raw material
g y y p y
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World Class Distribution System
One of the Biggest food supply chain network andthe Best Cold Chain in China today
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Deliver to 4,200+ restaurants for everything from chicken to pizza
dough to napkins
Receiving from more than 500 mostly Chinese suppliers
Managing 17 logistics facilities with 24 hours operations
Operating 1 national Consolidation Center in Shanghai
Manage more than 400 refrigerated trucks that shuttle 50+ million
km/year between our suppliers and restaurants
Distributing 78+MM cases/year to 710+ cities
Adding 500+ new restaurants every year
the Best Cold Chain in China today
YUM self owned integrated supply chainnetwork spread across China
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network spread across China
World-class logistics operations
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End To End Perspective
Stable and highly efficient logistic system a critical step for foodsafety
From inventory planning to storage & handling to distribution
Food Safety & Quality
Approved CIQ supervised importation warehouse
Quality inspection process starting from suppliers to restaurants
Facility and transportation security
g p
World-class logistics operations
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Multi-Temperature Distribution
Frozen, refrigerated, dry, and fresh-baked goods
Operational Excellence Qualified state Pilot Logistics Enterprise
ISO9001:2000 certified
g
World-class logistics operations
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Fill stock
Stocksorting
Stockmove
Stockcontrol
Supervision
Shipment
Load
DistributeReception
Move in
Logistics Center functions
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g
Customer
Services
Inventory Ordering
Warehousing Transportation
Drive for Excellence
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Drive for Excellence
PurposeWeld a cohesive team by
structuring LC visit from different
aspects
Frequency--One LC per month
Drive for
Excellence
Recognize Yum! Desired behaviors
Go deep Yum! culture & value
BSC Review & Coaching
Review level of people capability
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!
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High-ReturnDevelopment
Lily Hsieh
Profitable Development Opportunity in China
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p pp y
China strong economic growth continues
Yum! expanding multiple category-leading brands
Unit economics generate excellent returns
New growth opportunities geographically
Gap versus competition continues to widen
Unparalleled development capability
Profitable Yum! Development, Pace Quickening
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# of Yum! China restaurants
1,000
2,000
3,000
4,000
1987
1st Unit
Today
+
15 years 4 yrs 2 yrs 2 yrs
Rapid Rise of China Economy To Continue
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~10,000
~4,500
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g pp y y
GDP/Personal income growth among top globally
Large and growing middle class
Government plan to raise living standard for low income
Restaurant chain market share low (in contrast to U.S.)
High purchase intent for western brands
New trade area opportunities Alliances with major retail players national & regional Government led transport infrastructure Metropolitan areas hub cities
Continued Urbanization Part of Government L/T Plan
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Designated City ClustersDevelopment Zone
Planned
Urbanization
Transport networks New city hubs
Economic centers
Source: National Development and Reform Commission (NDRC). June 2011
Unrivaled Development Resources & Know How
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Today, 750+ Development professionals 300+ added past five
years
Team on the ground in every province (except Tibet)
Extensive people development programs
Advanced technical know-how and strong execution
Database of 700+ cities
4,000+ new build decisions provide rich catalog of learning
3,500 trade area data points on QSR
500 data points on Casual Dining
KFC - Strong New Unit Economics
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Today
Average Unit Volume
($ million)
$1.2~$1.3
Average Transactions (000) 300+
Cash Margin 25%+
Cash Investment ($000) $550
Mainland China KFC Traditional Units
Strong Return Sales Are 2X Investment
Note: FX rate US$ = 6.4956 RMB
KFC Brand Strong in Lower Tiers
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Strong consumer acceptance in lower tier cities Despite lower level of disposable income
Unit economics at least as good as top tier cities
Relatively lower costs versus top tier labor, rental
New units typically cash flow positive in first year
KFCs Strength Goes Well Beyond Big Cities
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364
680
3030
2005 2010
Number of Cities with KFC
T3 & Below
T1 & 2
300+
new cities
5 Years
Development Balanced Across Cities Large & Small
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KFC New Builds -- Tier Cities
Tier 3 & Below
48%52% Tier 1,2
Pizza Hut Dine-In - Strong New Unit Economics
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Pizza Hut Dine-In Units
Strong Returns Sales Are 2X Investment
Today
Average Unit Volume
($ million)
$1.1~$1.2
Average Transactions (000) 60+
Cash Margin 25%+
Cash Investment ($000) $550
Note: FX rate US$ = 6.4956 RMB
Pizza Hut Also Going Beyond Big Cities
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27 30
28
101
2005 2010
Number of Cities with Pizza Hut
T3 & Below
T1 & 2
70+
new cities
5 Years
Tier 3 City Example: Wuhu
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Wuhu
Population -- 2.3 million
5 Years ago Today
GDP (US$) $0.6 billion $1.7 billion
Disposable income per capita $1,481 $2,881
Retail sales - consumer goods $293 million $677 million
Note: FX rate US$ = 6.4956 RMB
Tier 3 City Example: Wuhu
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5 years ago Today
KFC Units
Pizza Hut Units -
Sales (US$) $2 million $11 million+
Profit (US$) < $1 million $ 3 million
Note: FX rate US$ = 6.4956 RMB
Wuhu
Continued Discipline in Our Rapid Expansion
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Relieve pending capacity constraints with adjacent newunits
Continually monitor, proactive to optimize service levels
Helps solve queue wait times
New unit impact built into our economic model
Rigor Every Step of the Way
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Market mapping and trade zone identification
Site selection and acquisition
Project approval
Construction and opening
Post opening analysis
Feedback loop, huge catalog of learning
Transportation Network Expanding
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T
Transport Network
High-speed rail (4x4) HighwaysAirports
Giving Rise to Non-traditional Units
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Bringing our Brands to wider variety of destinations
4 years ago Today
Railway station 29 81 ~3x
Bus station 9 34 ~ 4x
Airport 11 32 ~ 3x
Contemporary Assets to Complement Our Brands
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Maintain contemporary assets that fit with our brands QSR: Convenient, accessible, dine-in or take-away
Casual Dining: Destination, ambience, group gathering
Asset designs adapted to meet variety of trade zones Transport, mall, drive-thru
Reinvesting in our estate with discipline
Asset Renewal: Taking a page from others
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1989 Today
Asset Renewal: Updated Assets
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Chinas First Ever KFC - Beijing
Today1987
Asset Renewal: Contemporary Interiors
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Dated
Contemporary
Asset Management: New Menu Boards
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Before
After
Summary
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Development continues to be a key growthdriver
Helped by strong returns
World class Development capability Team/disciplined process/database big competitive
advantages
Not limited by our own resources