YumChina (NYSE:YUMC)

[Snoopy]

YumChina is the largest restaurant company in China, employing over 400,000 people (including part timers). YumChina has entered into a master license agreement with a subsidiary of YUM (the owner of the intellectual brand property) providing the exclusive right to use and sublicense the use of intellectual property owned by YUM and its affiliates for the development and operation of KFC, Pizza Hut Casual Dining, Pizza Hut Home Service, and Taco Bell restaurants in China, and for the conduct of all related development, promotional and support activities. The license term for all YUM concepts is 50 years, with a further successive 50 year renewal options in perpituity.

YumChina lists their competitive advantages as:

• A company culture based on global systems and local spirit.
• Category-leading brands in one of the world's fastest growing economies.
• High-quality, great-tasting food, including local favourites with compelling value and a Western experience.
• Strong unit economics. (Cash on cash payback period of 3-4 years for new PH and KFC restaurants)
• Extensive experience in developing new restaurants.
• Knowledge and understanding of Chinese consumers and versatile approach to marketing.
• Supply chain management with a focus on food safety and quality. (Eighteen distribution centres are strategically placed around China.)
• Internal people development culture and training systems. (own internally developed management training system called 'Whampoa Academy')
• World class operations led by certified restaurant managers. (Every restaurant manager has an assistant manager, providing an ideal training ground for future managers of new restaurants).
• Digital and technology capability, especially in mobile and social media.
• Experienced senior management team (many still employed from the early days in China).

In terms of actual store numbers verses competitors in the Chinese market, these are the latest figures that I can find:

1/ YUM China: 7983 stores (Dec 2017) with principal brands: KFC (5,400+stores ) and Pizza Hut (2,100+stores)
2/ McDonalds: 2625 stores (CY2017 end)
3/ Dicos: 2600 stores (CY2017 end). Dicos' feature “Crispy Fried Chicken”, and serve other local flavours like rice burgers and teriyaki chicken rice sets. Dicos aim at a slightly lower price point than KFC and McDonalds. Dicos is owned by Ting Hsin International Group, a Taiwanese based corporate.

Conclusion: Pass Test

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