Yum China’s network of KFC and Pizza Hut outlets has kept growing throughout the Covid-19 pandemic, even as the size of its workforce has remained steady, the group’s chief executive said.
“We increased our stores, but without increasing the total number of staff,” said Joey Watt on a call with analysts and investors on February 9, highlighting Yum China’s investments in artificial intelligence and digital technologies to support operations and training.
Many stores now feature touch screen panels where customers place orders. In several Chinese cities, KFC robots serve up soft ice-cream cones. Elsewhere, takeaway orders can be picked up from digital lockers without contact with staff.
Watt noted that the company now has about 420,000 full- and part-time staff, about the same number it had in 2016 when it was spun off by US parent Yum Brands.
Over the same period, the number of outlets climbed 56 per cent, reaching 11,788 as of December with the addition of a net 1,282 outlets in 2021. Meanwhile, between 2016 and 2021, annual net profits nearly doubled to $990mn, though last year’s figure included a one-off gain from a joint venture in the city of Hangzhou.
In announcing its annual results, Yum China said it planned to open another net 1,000 to 1,200 stores this year across its brands, which include Taco Bell, local hot pot chains Little Sheep and Huang Ji Huang, and coffee shops COFFii & JOY and Lavazza.
Of its projected annual capital expenditures of $800mn to $1bn, about half would be spent on new stores, but Watt emphasised they were individually less costly than before despite being higher tech. In 2016, she noted, the company opened 575 outlets on an overall capital budget of $436mn. Last year there were 1,806 openings on spending of $689mn.
“The key is efficiency,” she said, again highlighting the role of automation. In October, she announced the company would invest up to $200mn to open research and development centres in Shanghai, Xi’an and Nanjing to tap those cities’ technology talent pools.
While construction continued apace last year, Covid did take a toll on Yum’s sales. Revenues for stores open at least a year fell 11 per cent in the October-December quarter from the same period a year before.
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More than 500 outlets were closed for dine-in or completely last month amid Omicron outbreaks. Chief financial officer Andy Yeung said that sales were lower during the Lunar new year holiday compared with 2021 and that the situation “remains volatile”, but did not disclose figures.
Watt added that Yum will be pulling the plug on East Dawning, a five-outlet group of Chinese-style fast food outlets focused on transport hubs where customer traffic has declined amid the pandemic.
Most new stores in the country are being opened by Yum China itself, but Watt said it would continue to look to franchisees in remote areas such as Tibet and for strategic channels such as highway rest stops.
With franchise stores, there are a “lot of challenges in terms of quality of service that we care most about”, Watt said, before adding that improved automation and technology had given her “better comfort” in assuring the service quality of such partners. Franchise outlets now represent about 15 per cent of Yum China’s store portfolio.
Despite the cap on staffing, Yum China’s labour costs have continued to rise, reaching $2.25bn last year, up 31 per cent from 2020. Payroll and benefits have also made up a growing proportion of total store operational expenses, hitting 29.2 per cent last year, up from 25.5 per cent in 2016.
Part of this is due to higher insurance expenses. The company last year raised medical coverage for some store managers to Rmb1mn ($157,182) while extending critical illness and other coverage for 100,000 front-line staff and family members.
With help from new outlets, Yum China’s revenues rose 19 per cent last year to $9.85bn.
A version of this article was first published by Nikkei Asia on February 9 2022. ©2022 Nikkei Inc. All rights reserved