Company Overview - Yum China is the largest restaurant company in China, with over 10,506 restaurants as of December 31, 2020, covering more than 1,500 cities[5]. - In 2020, Yum China recorded revenue of $8.3 billion, reflecting significant growth in the Chinese market[5]. - KFC is the leading fast-food brand in China, with approximately 7,100 restaurants as of December 31, 2020, which is about twice the number of its closest competitor[5]. - Pizza Hut is the largest casual dining brand in China, with over 2,300 restaurants across more than 500 cities as of the end of 2020[6]. - The company aims to expand its restaurant network to over 20,000 locations, currently tracking over 700 cities without KFC or Pizza Hut presence[8]. Growth Strategy - The company plans to expand its restaurant network in existing and new cities, indicating a strong growth strategy[5]. - The company aims to enhance its digital and delivery capabilities as part of its growth strategy[4]. - The company is focused on diversifying its menu offerings, including fresh coffee and various food categories[5]. - The company is exploring and developing the Lavazza coffee shop brand concept in China, aiming to provide high-quality coffee in a comfortable environment[13]. - The company has formed a Chinese cuisine division that includes three brands: Xiao Fei Yang, Dong Fang Ji Bai, and Huang Jihuang[13]. Digital and Delivery Initiatives - Digital ordering accounted for about 80% of restaurant revenue for KFC and Pizza Hut in 2020, highlighting the importance of digital strategies[12]. - The company plans to continue investing in technology to enhance digital and delivery capabilities, aiming to improve operational efficiency and quality[11]. - The company sees significant growth potential in the O2O market, combining strong restaurant operations with a robust delivery network[12]. - KFC established its own delivery platform in 2010, with about 40% of its delivery sales in 2020 coming from proprietary channels[25]. - The company has implemented facial recognition payment technology in about 1,000 KFC restaurants across China by the end of 2020[23]. Financial Performance - Total revenue for 2020 was $8,263 million, a decrease from $8,776 million in 2019, representing a decline of approximately 5.9%[153]. - Net profit for 2020 was $813 million, compared to $743 million in 2019, indicating an increase of approximately 9.4%[153]. - Operating profit for 2020 was $961 million, up from $901 million in 2019, showing a growth of about 6.7%[153]. - The number of company-operated stores increased to 8,190 in 2020 from 7,355 in 2019, representing a growth of approximately 11.3%[153]. - Adjusted diluted earnings per share for 2020 was $1.53, down from $1.88 in 2019, a decrease of about 18.6%[153]. Supply Chain and Operations - The management emphasizes the importance of logistics and supply chain management in driving operational efficiency[4]. - The company operates a comprehensive supply chain management system employing over 1,300 staff, focusing on food safety, quality control, and procurement management[17]. - The company collaborates with over 800 independent suppliers, primarily located in China, ensuring compliance with food safety and quality standards[17]. - The company has established a centralized procurement model to maintain quality control and achieve better pricing through bulk purchasing[17]. - The company is simplifying menus and improving digital menu displays and self-service kiosks to drive sales growth[26]. Employee and Workplace Initiatives - As of December 31, 2020, the company employed over 400,000 staff, including approximately 136,000 full-time employees and about 270,000 part-time restaurant service members[28]. - The company provided over 8.6 million hours of training in 2020, equipping employees with operational, financial, and management knowledge[29]. - The turnover rate for restaurant managers in 2020 was 9%[29]. - The company has implemented equity incentive plans, including restricted stock units (RSUs) valued at $3,000 for restaurant managers, benefiting approximately 3,500 managers[29]. - The company has launched an employee assistance program to provide professional counseling and seminars for physical and mental health[31]. Market and Competitive Landscape - The total sales in China's food service market reached approximately $606 billion in 2020[27]. - The company faces significant competition for prime restaurant locations in the Chinese retail property market, which may hinder its ability to secure favorable lease terms[69]. - The competitive landscape in the restaurant industry is intense, with challenges in maintaining product quality, menu attractiveness, and adapting to changing consumer preferences[87]. - The company faces increasing competition from grocery stores, convenience stores, and food delivery services, which may adversely affect sales and profitability[87]. - The company’s success is heavily reliant on the brand strength and marketing efforts of YUM[49]. Risks and Challenges - The company faces significant risks related to food safety and foodborne illnesses, which could adversely affect its reputation and business operations[53]. - The company is exposed to fluctuations in raw material prices and potential shortages of food and other supplies[49]. - The company’s operations are subject to risks associated with third-party mobile payment platforms and internet service providers[49]. - The company must navigate challenges related to e-commerce and social media management[49]. - The company anticipates continued operational impacts from the COVID-19 pandemic, including potential future outbreaks and government restrictions[57]. Regulatory and Tax Considerations - The corporate income tax rate for Chinese resident enterprises is generally 25%, applicable to global income, with certain deductions allowed for reasonable expenses[40]. - Yum China does not consider itself a Chinese resident enterprise for corporate income tax purposes, which may prevent adverse tax consequences for the company and its non-Chinese shareholders[42]. - The company is subject to a 25% corporate income tax rate in China and an additional 10% withholding tax on profits remitted abroad, which may impact its financial performance[84]. - The company must comply with various regulations regarding foreign investment mergers and acquisitions, which may complicate future transactions[125]. - The company is required to submit documentation to regulatory bodies, which may lead to further scrutiny and potential delays in transaction approvals[125]. Environmental and Sustainability Efforts - The company is committed to reducing non-degradable plastic packaging weight by 30% by 2025, facing operational challenges and potential cost increases associated with sourcing alternative packaging materials[105]. - The company has implemented measures to comply with national standards aimed at reducing plastic waste, which may increase operational costs[105]. - The company faces increasing public scrutiny regarding environmental sustainability, which may lead to additional operational challenges and execution costs[105]. - The company’s ability to adapt to changing consumer preferences for healthy food is critical to its business and financial performance[89]. - The company is exploring market penetration through the establishment of more small restaurants[26]. Shareholder and Market Performance - The company’s stock may face delisting from the New York Stock Exchange if its auditor fails to meet PCAOB inspection requirements for three consecutive years[103]. - The company’s financial statements and quality may be questioned due to the lack of PCAOB inspections, potentially affecting shareholder confidence[103]. - The company’s stock performance from October 17, 2016, to December 31, 2020, showed a cumulative total return of $223, compared to an initial investment value of $100[150]. - The company paid a total of $95 million in cash dividends to shareholders in 2020, having suspended dividends in Q2 and Q3 due to the impact of COVID-19[146]. - The board has authorized a share repurchase program totaling $1.4 billion, with $692 million remaining available for future repurchases as of December 31, 2020[147].